Retail Lease Options & Reviews
Exercise of Option
Lease with an option:
It is a requirement that the Landlord (Lessor) notifies the Tenant (Lessee) within a specified date prior to the expiration of the retail lease that there is an option available at the end of the lease and informs the Tenant of the last date to exercise the option.
If the Landlord does not notify the Tenant within the specified timeframe, the time for the exercise of an option by the Tenant may be extended.
Lease without an option:
It is a requirement of the Landlord to notify the Tenant within a specified date range prior to the expiration of the lease if the Landlord intends to offer a renewal.
Alternatively, the Landlord may notify the Tenant that it does not intend to offer a renewal of lease. The Retail Lease will continue for a further six months after the Landlord has notified the Tenant.
If the Landlord fails to notify the Tenant within the prescribed timeframe, the Tenant may remain in the premises until such notification is made and the required time has elapsed between notification and the end of the occupying period.
Rent Review Provisions & Rental Determination
All future annual rental increases are detailed in the schedule section of your lease and are usually an increased percentage of the original year’s rental or an adjustment for CPI.
Also detailed will be the method of review at the beginning of each option if it is exercised. This is usually a review to market rates and the method of review will be outlined.
If you think that the rental potential of your building or the building you are about to purchase is greater than the current rental, you can discuss with our Accredited Lease Specialist the possibility of negotiating substantial increases to tenancy rentals at the next market reviews.
If you think that the rental you are paying is above market and would like to negotiate a reduction in rental at the next market review, you can discuss with our Accredited Specialist the possibility of negotiating a substantial rental reduction at the next market review.
Variations of a Retail Lease
When a Tenant negotiates a variation of its lease with a Landlord, a simple Variation of Lease document can be drawn up to reflect the newly agreed terms.
However, the Landlord must be aware that in some circumstances the variation may be considered the grant of a new lease and surrender of the old lease. In these instances, the Landlord must comply fully with all disclosure requirements for a new lease. Failure by the Landlord to make full disclosure may entitle the Tenant to terminate the lease or withhold rent and other payments.
4 Common variations that will trigger the necessity for a new lease and full disclosure compliance are:-
- Adding an option term to a retail lease
- Increasing the floor space in a retail lease
- Adding or deleting a party to the retail lease
- Amending the term of the retail lease
Please do not hesitate to contact our Law Institute of Victoria Accredited Commercial Tenancy Law (Retail & Commercial Lease Law) Specialist on +61 3 9500 1722, request a cost estimate or email an enquiry.