Business & commercial
Commercial Lease Options and Renewal Deadlines in WA
Direct answer: An option to renew is a right to a further lease term, exercisable only in the way and within the window the lease specifies. Miss the window, or be in breach when you exercise, and the right can be lost. Find the option clause and diarise the dates the day the lease is signed, not the year it expires.
What is an option to renew?
An option gives the tenant the right, but not the obligation, to require the landlord to grant a further term on the terms set out in the lease. It is not an automatic rollover and it is not a right to renegotiate. It operates only if the tenant does what the clause requires, and the clause is usually strict about both the timing and the method of notice.
A lease that simply says the term "may be extended by agreement" is not an option at all - it is an agreement to agree, which gives the tenant no enforceable right to a further term. That distinction matters most to a tenant who has spent money on a fit-out.
Check the notice window
Most option clauses require written notice within a defined window - commonly somewhere between three and twelve months before the term expires, with both an earliest and a latest date. Notice given too early can be as ineffective as notice given too late. The clause will usually also specify how notice must be given and to what address, and courts take those requirements seriously.
In Western Australia, where the lease is a retail shop lease under the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), the landlord must give the tenant written notice of the date after which the option can no longer be exercised. Where that notice is not given, the period for exercising the option can be extended. The first question is therefore whether the lease is a retail shop lease under that Act at all, because the protection does not apply to every commercial lease.
Courts have a limited ability to relieve a tenant who has missed the window, but it depends heavily on the circumstances and is not something to plan around. The reliable protection is a diary entry.
Does a default affect the option?
Usually, yes. Option clauses commonly require that the tenant not be in breach at the date of the notice, at the date the current term ends, or both. Some go further and require that there has been no persistent breach during the term, even if each breach was remedied.
The practical consequence is that unresolved arrears, an outstanding make-good obligation, an unregistered sublease, or a lapsed insurance policy can each defeat an option that the tenant otherwise had every right to exercise. A tenant intending to exercise should audit its own compliance before giving notice, not after the landlord responds.
Rent for the new term
The lease decides how rent is set for the further term, and the mechanisms differ substantially:
- a fixed percentage or CPI increase applied to the current rent;
- a market rent review, often with a valuer appointed if the parties cannot agree;
- a ratchet provision preventing the rent falling below the current rent, which is restricted for retail shop leases;
- a combination, such as CPI in intervening years and market review at the start of the option term.
Where a market review applies, the timing is important: a tenant may have to commit to the further term before the new rent is known, unless the lease provides otherwise. That is worth understanding before notice is given rather than after.
Before exercising, what should a tenant ask?
- What exactly does the clause require, and by when?
- Am I compliant with the lease right now?
- How will the rent for the new term be set, and when will I know it?
- Does the business need this location for the whole further term?
- What are the make-good obligations if I do not renew?
- Is there a further option after this one, or is this the last term?
- Do any personal guarantees or bank guarantees continue into the new term, and for how long?
What should a landlord prepare?
A landlord should know when each option window opens and closes, whether any notice obligation applies under the retail shops legislation, whether the tenant is in breach, and what evidence supports a market rent position. A landlord who wants the premises back at the end of the term needs to understand that a validly exercised option removes that choice - which is a reason to check the option position before making other plans for the property.
How Legal Care Australia can help
We read the option clause and tell you plainly what it requires, check whether the lease falls under the retail shops legislation, prepare or review the notice, advise on the rent mechanism, and deal with a dispute about whether an option was validly exercised.
Next step: send us the lease and any variations, and the date the current term ends.
Frequently asked questions
Can I exercise an option late? Sometimes, but not as of right. Relief is discretionary and depends on the circumstances, and a landlord who wants the premises back will resist it.
Does the landlord have to remind me? Not generally under an ordinary commercial lease. Under the WA retail shops legislation a landlord of a retail shop lease has a notice obligation, and the consequence of not meeting it can be an extension of the tenant's time.
Can the landlord refuse if I exercise properly? If the option is validly exercised and the conditions are met, the landlord is bound to grant the further term on the terms in the lease.
Official sources
General information only, not legal advice. The lease itself governs, and clauses vary widely.