Leasing: Know what your rent will be before exercising your option to renew

By Kylie Davis
kdavies@macamiet.com.au

Leasing plays an important role in commercial life but what happens at the end of a lease? How does a lessee ensure they are happy with the Market Review of the rent before committing themselves to a lease for the further term? Solicitor Kylie Davies has the answers…

A lease provides a tenant with a right to occupy premises and conduct their business, as well as providing a landlord with security knowing that the tenant is obligated to pay a fixed amount of rent at regular intervals.

So what happens at the end of a lease, particularly where the lease contains an option to renew for a further term? As most leases dictate that the rental for the first year of any extended term should be adjusted in accordance with a Market Review, how does a lessee ensure that they are happy with the Market Review of the rent before committing themselves to a lease for the further term?

Well, quite simply the Retail Shop Leases Act 1994 provides a mechanism whereby a tenant can call upon a landlord to make an early determination of the Market Rent. For leases of more than one year, the tenant must request an early determination between that period, which starts six months before the option expiry day and ends three months before the option expiry day.

Sound confusing? It’s not really. It’s just a matter of being organised. For example:

“My lease ends on June 30, 2008. My lease says I am required to exercise my option to renew no more than six months (31st December 2007) and no less than three months (30th March 2008) prior to the expiry date of my lease.”

Therefore, I can request an early determination of my rent between 30th September 2007 and 31st December 2007. The Retail Shop Leases Act also states that if I request an early determination of the Market Rent for the upcoming option period, then the date by which I must exercise the option is extended, and becomes that date which is 21 days after I receive notification of the new rental figure.

I’m therefore able to know what the rent will be before the further term, before I exercise my option to renew. It’s that simple!