In Short
- If your lease includes a renewal option, you can renew it under the same terms unless both parties agree to changes.
- A landlord cannot change lease terms without your consent. Any variations must be documented and signed.
- If your lease does not include a renewal option, you must negotiate a new agreement with your landlord.
Tips for Businesses
Before renewing your lease, review all terms carefully. If rent is an issue, consider requesting a market rent review to ensure fairness. If your landlord proposes changes, negotiate terms that work for you. Seek legal advice if you’re unsure about lease variations or your rights as a tenant.
Signing a commercial lease is a major commitment for any business, but navigating lease renewal can be just as complex – especially if your landlord proposes changes. Many tenants are unsure of their rights and the renewal process, which can lead to uncertainty and potential disputes. This article explains what you can do if your landlord suggests changes to your lease at renewal and how to protect your business interests.
This guide will help you to understand your options when you purchase a business with leased premises.
Option for Lease Renewal
Your rights as a tenant depend on whether your lease includes an option to renew. This clause allows you to call a new lease for a specified term on the same conditions as the existing lease, except for updated dates. Both parties must agree to any changes unless the lease allows unilateral variation.
Although commercial leases do not require a renewal option, many include one to provide both landlords and tenants with security and flexibility. The lease usually outlines how to exercise the option, such as by giving the landlord written notice 3 to 6 months before the lease expires. It may also state that the new lease must mirror the current one, except for updated commencement and termination dates.
When is the Lease Legally Binding?
Once you validly exercise an option, the lease becomes legally binding. However, until both parties sign the new lease, it remains only an ‘agreement to lease’. To avoid delays, the landlord should prepare the new lease promptly, and both parties should sign it as soon as possible.
Any lease changes, such as altering the premises or adjusting the rent, must be documented. Some changes, like extending the term or updating rental amounts, can be made through a lease variation. However, significant changes, such as altering the leased area, require a new lease.
If the parties do not agree on a variation, the lease remains unchanged. In Burns Philp Hardware Pty Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642, the NSW Court of Appeal ruled that a landlord cannot unilaterally change lease terms unless the tenant agrees. However, if a tenant continues under a varied lease without objecting, the changes may become binding.
Continue reading this article below the formWhat Happens if a Landlord Attempts to Vary the Lease Without Seeking Permission?
A landlord cannot change a lease unless both parties agree. For a variation to take effect, both the landlord and tenant must sign the agreement.
If you agree to the proposed changes, you can proceed with signing. If you do not agree, inform the landlord that you reject the variation.
Retail Leases
If your commercial lease is also a retail lease, it falls under state or territory legislation. These laws allow tenants to request a rent review before exercising their renewal option if the lease sets rent at the current market value.
For example, under the Retail Leases Act 1994 (NSW), tenants can request a rent review between six and three months before the last day to exercise their option. The review may also extend the option period by 21 days after the rent determination.
This review benefits tenants considering renewal, providing leverage for negotiations if the landlord proposes further lease changes. However, tenants who have already agreed on rent cannot use this provision.
No Option for Lease Renewal
If your lease does not include a renewal option but your landlord is open to extending it, any new lease terms must be negotiated and agreed upon. Since every term is up for discussion, you should carefully review the landlord’s proposals and negotiate terms that best suit your business.
Consider seeking professional advice to secure the most beneficial outcome. Deciding whether to renegotiate or find alternative premises depends on the landlord’s terms and how commercially viable they are for you.
Key Takeaways
Renewing a commercial lease can be complex, especially if the landlord proposes changes. Understanding your rights – whether you have an option to renew or need to negotiate a new agreement – is essential for making informed decisions. If disputes arise over lease terms or rent adjustments, seeking legal advice can help secure a fair and commercially viable outcome. By carefully reviewing the lease terms and negotiating where necessary, you can ensure the renewal process supports your business’s long-term success.
If you have any questions, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
No, a landlord cannot unilaterally change lease terms. Both parties must agree to any variations, and the changes must be documented and signed for them to be legally binding.
A lease renewal becomes binding once the option is validly exercised and both parties sign the new lease agreement. Until then, it remains only an “agreement to lease.”
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