This is a common question when dealing with commercial real estate and the answers can be quite broad.
Does the lease contain a Further Term?
A further term in commercial leases is a clause within the lease that gives the tenant the option to renew their tenancy for an additional term once the lease has expired.
If a commercial lease has no such clause then it is entirely the landlord's decision as to whether a new lease is offered.
You should be very cautious about entering a lease or buying a business with a lease already in place, where no Further Term is included. You could spend a small fortune setting up or buying a business only to find that you may be required to shut down and relocate your business once the lease expires. In these cases, there is no compensation payable to the tenant for loss of trade or relocation costs.
It is imperative to note that the landlord is required to give the tenant a minimum of six (6) months' notice to either offer the tenant a new lease or to give them notice to vacate.
If you have a Further Term (also called an Option), then you have up to three (3) months prior to the lease expiry date to confirm your ongoing leasing intentions.
Related Articles
What are my commercial lease options?
All leases have a clause
All leases have a clause whereby the landlord does not have to accept the tenant's renewal request if the tenant has been notified of constant breaches of the lease:
- Late payment of rent or outgoings
- Failing to maintain the property
- Not complying with specific obligations for servicing of equipment (airconditioning, exhaust canopies, etc)
- Changing the permitted use of the premises
- Taking or omitting to take action that voids the landlord's insurance
- Damaging and not repairing the property
These scenarios are referred to as Essential Terms and are nominated in the lease. It is good practice to always comply with your lease agreement by:
- Paying your rent and outgoings by the due date
- Looking after the property by complying with notices
- Don't give the landlord a basis by which the renewal can be denied
What is the lease option process?
The landlord or landlord's commercial real estate agent will issue a notice between 6-12 months before the lease expiry date offering the tenant the opportunity to take up the lease option.
The tenant must confirm their intentions no later than three (3) months before the lease expiry date. If the tenant fails to do so, even by one day, the right to renew the lease falls to the landlord as to whether it is granted. This can be a very costly mistake by the tenant.
If you want to renew your lease, do so in writing at least three (3) months before the expiry date, and if uncertain about any aspect of the lease or renewal process, please consult your legal representative or First National Commercial Neilson Partners real estate agent Shannon Hynd on 0499 980 100 who is always happy to assist.
