Lease rights of renewal

Property | Print Article

[Summer 2013]

A right of renewal is the tenant’s option to enter into a new lease with the landlord. It is not (under the latest version of the standard ADLS lease) an extension of the existing term of the lease.

A landlord does not have a choice whether or not to renew the lease. As long as the tenant complies with any preconditions contained in the lease (for example, the tenant not being in breach of the lease or that the new lease is to be guaranteed by the guarantor), the landlord cannot refuse to grant the new lease.

A right of renewal is usually exercised by notice in writing to the landlord within a time frame set out in the renewal clause. A deed of renewal is usually entered into after the renewal is exercised. But it is not uncommon for tenants to simply forget to give notice.

When this happens, in some circumstances the conduct of the parties determines whether the lease has been renewed by implication. This may involve emails, letters or verbal communications between the parties recording that the right of renewal has been exercised.

In the event of no such communication, the parties may wish to rely on the status quo to prove the right of renewal has been exercised. If the tenant remains in occupation of the premises and continues to pay rent, the landlord, by accepting such payment, may be deemed to have accepted that the tenant has exercised the right to renew the lease.

If later the landlord gets a better offer or wants the premises vacant for some other reason, the landlord may attempt to cancel the lease because the lease has not been formally renewed and is on a month to month basis. If this happens, or if the landlord refuses to grant a new lease when the renewal is properly exercised, the tenant can apply to the court for relief under the Property Law Act 2007 within three months of receiving notice from the landlord.

If the tenant has simply forgotten to give notice of renewal, the lease is likely to be reinstated. Recent court decisions suggest that there is even an onus on the landlord to ask the tenant whether they wish to renew the lease when the time comes for the notice of renewal. However, if the tenant is frequently late in paying their rent or has not complied with the terms of the lease in another way, the court is less likely to grant relief.

Usually, the rent is determined after the renewal is exercised. Agreeing on the rent is not usually a precondition to entry into the renewed lease. Unless the lease provides otherwise (which would be unusual), the tenant is committed to the renewed lease on exercising the right of renewal. The rent then has to be determined in accordance with the rent review provisions of the lease.

A guarantor (whether it is the initial guarantor or any subsequent guarantor introduced when the lease is assigned) guarantees the current term of the lease but does not have to guarantee a renewed lease. Note that a refusal to give a guarantee on renewal may be a valid reason for the landlord not to grant a renewal.