Renewal option (lease)
A renewal option is a lease clause that gives the tenant the right to extend the term. FedDev Ontario notes that without a renewal formula and a clause guaranteeing the space, a landlord has no legal obligation to offer the same space when the lease expires.
A buyer paying for a business at a leased location is relying on being able to stay. A renewal option is the clause that can secure that. It appears in the lease, so its exact wording decides what the tenant can do.
How the clause works
FedDev Ontario says a tenant will usually have to give written notice exercising the option, or the option lapses automatically, and that some leases renew automatically until the tenant cancels them. The notice window is a date to put in the closing calendar.
In Quebec
The Civil Code of Québec provides that a fixed-term lease may be renewed, and the renewal must be express unless the lease is of an immovable, in which case it may be tacit (art. 1878). Security given by a third person does not extend to a renewed lease (art. 1881). Other provinces apply their own law and the lease’s wording.
What to confirm
- Whether the notice window is still open and who must give the notice
- How rent is set for the renewal term
- Whether the option is stated to pass to an assignee
See how to handle a lease renewal before selling and lease assignment.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Federal Economic Development Agency for Southern Ontario (FedDev Ontario)GovernmentUnderstanding your business lease
- 02Éditeur officiel du QuébecGovernmentCCQ-1991 - Civil Code of Québec
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