An option to renew gives you the right to take another lease term when the current one ends. The key word is right. It is your choice, not the landlord's, and not an obligation on you. If the location works and the business is doing well, an option is genuinely valuable. It keeps you where your customers know to find you, and it stops the landlord moving you on or pushing the rent wherever they like at the end of the term.
Valuable, and surprisingly easy to throw away.
How an option actually works
The lease sets a window before the end of the term during which you have to tell the landlord, in writing, that you want to take up the option. Do that correctly and on time and you get the further term. Miss it and the right can simply lapse.
Three things have to line up:
- Timing. You have to give notice inside the window the lease specifies. Too early can be a problem. Too late is usually fatal.
- Form. Notice generally has to be in writing and in the way the lease requires. A casual email or a chat with the agent may not count.
- No breach. Options often only work if you are not in breach at the time, for example behind on rent. Landlords who would rather you left will look hard for a reason to say the option is not validly exercised.
The deadline is the whole thing. The most common way tenants lose an option is by forgetting it exists. Diarise the exercise window the day you sign the lease, with a reminder months ahead, not weeks. This is the cheapest piece of risk management in your business.
The rent trap
An option tells you that you can stay. It often does not tell you clearly what you will pay to stay. The renewal rent is usually set one of three ways: a fresh market review, a fixed percentage increase, or a set figure written into the lease. A market review at renewal can land well above what you expect, and by the time you find out you may have limited room to move.
So read the rent mechanism before you exercise, not after. If it is a market review, get a view on what the market actually is first. Sometimes the smart move is to negotiate the renewal terms early rather than simply firing off the option notice and hoping.
If you are the landlord
Options sit on your side of the ledger as a constraint. You have given the tenant the right to stay, so you cannot plan around vacant possession at the end of the term until the window passes. Keep clean records of the dates and the notice requirements, because a tenant's option only binds you if it is exercised properly. Where an option is exercised late or in the wrong form, your position is often stronger than the tenant assumes, but only if your paperwork supports it.
The short version
An option to renew is worth real money and costs nothing to protect. Find the exercise window, diarise it the day you sign with plenty of lead time, check how the renewal rent is set, and give notice in writing exactly as the lease requires. Get those four things right and the option does its job. Ignore the dates and you can lose your spot without anyone doing a single thing wrong.
Read next: breaking a lease early · what we check before a tenant signs · retail leases and what you're entitled to