Option to Renew refers to a provision commonly found in lease agreements that allows the tenant the right, but not the obligation, to extend the term of the lease for an additional period. This provision can be particularly beneficial for businesses or individuals who value the stability and predictability of remaining in a particular location, without having to renegotiate a whole new lease agreement.
The specific terms of the option, such as the duration of the renewal, the rental rate upon renewal, and the process for notifying the landlord of the tenant’s intention to exercise the option, are typically outlined in the lease agreement. The rental rate for the renewal period can be based on the current market rate, a predetermined rate agreed upon at the outset of the lease, or can be based on some other agreed-upon calculation or benchmark.
The inclusion of an Option to Renew can make a property more attractive to potential tenants, as it offers them the possibility of a longer-term arrangement without committing upfront. However, landlords might also seek additional compensation for providing this flexibility or might set the renewal rate at a premium to anticipate potential market appreciation.