Consumer Information

Author: Eric Lauwrens
19 August 2020

The law of contract series – Option to renew

Many lease agreements contain a clause granting the tenant an option to renew the lease after the expiry of the initial term. The clause will usually specify that the tenant may, before the contract term ends, exercise his/her option and in so doing renew the agreement for a further period. This clause has become somewhat of a standard term and is inserted in agreements without properly considering the implication thereof. Landlords who utilise boilerplate agreements are particularly guilty hereof.

The most important thing that a landlord must consider when inserting this clause in an agreement is the fact that, when the initial term comes to an end, the tenant may, at his/her sole discretion elect to exercise the option, renewing the agreement for a further year. The Landlord cannot refuse to accept the renewal and will have to allow the tenant to exercise his/her option.

Essentially, having this clause in the lease agreement will prevent the landlord from utilising the premises for a two-year period, rather than just the initial one-year lease. Even if the property is sold by the landlord, this option will remain in place. The new owners must therefore allow the tenant to rent the property for a further year, if said tenant wishes to exercise the option.

It is therefore beneficial for tenants to have this clause in their contracts, but on the other hand it holds very little benefit for landlords. Landlords must carefully consider whether they wish to have such a clause in the lease agreement. This is especially

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