Simone Lawson
When a tenant decides to exercise a lease renewal or extension option, they need to notify the landlord of their intention to renew or extend the lease. A lease extension is an addendum to the original lease, while a lease renewal is a new lease agreement. Lease extensions and renewals are similar in that they allow tenants to remain in rental homes after their original leases expire. However, lease extensions and renewals are quite different concepts. Lease extensions provide a bit more time without drafting a new agreement, whereas lease renewals start a new term with a new agreement to follow.
| Characteristics | Values |
|---|---|
| Renewal agreement | A new lease agreement with a new starting date |
| Renewal agreement clause | May include a renewal agreement clause, an extension clause, or the option for either one |
| Renewal option | Allows for a lease to apply to a specified time period, but the lease can be extended for another term if agreed upon by the participating parties |
| Renewal terms | Can include increased rent, and changes to the rights of the tenant |
| Extension | An addendum to the original lease |
| Extension terms | The conditions of the original lease stay the same, but the termination date is moved |
| Extension benefits | Saves the hassle of negotiating new terms |
| Extension length | Depends on the original lease length |
| Tenant rights | Exclusivity rights, protecting a tenant's business |
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What You'll Learn
Renewal vs extension
A lease renewal and a lease extension are two different concepts, and it is important to understand the differences between the two.
A lease renewal involves creating a new lease agreement with identical conditions to the original lease. It is a new contract, and the tenant may have to renegotiate certain aspects of their rights. The landlord can change the terms of the new lease, such as raising the rent payments. A renewal option allows for a lease to apply to a specified time period, and the lease can be extended for another term if agreed upon by both parties. A renewal option provides the lessee with the option, but not the obligation, to renew or extend a lease agreement beyond its initial terms. In most cases, the lessee must notify the landlord of their intention to renew the lease before a specified time.
A lease extension, on the other hand, is an addendum to the original lease. It lengthens the original lease term while retaining all aspects and conditions of the original lease agreement. An extension only adds more time to the current agreement and saves the hassle of negotiating new terms. The conditions around continued liability remain the same. An extension provides a short-term solution until the tenant moves out, giving them more time to find a new home.
Both lease renewals and extensions offer benefits to tenants and landlords. Lease renewals can provide consistency for tenants and help strengthen their relationship with the landlord. Lease extensions can save tenants the expense and inconvenience of moving, while giving landlords more time to fill vacancies.
Tenants should carefully consider their options and be aware of their rights when deciding whether to renew or extend a lease. It is important to review the current lease agreement, which may include a renewal agreement clause, an extension clause, or the option for either one. Tenants have negotiating power during lease renewals and extensions, especially if they feel their rights have been violated. However, in a competitive market, tenants may lose their negotiating edge if they choose to renew.
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Rights and obligations
A lease extension adds more time to the current agreement, typically for another full term, while retaining all the conditions of the original lease. This means that the rights and obligations outlined in the original lease remain unchanged. Tenants can continue to exercise their exclusivity rights, which give them the ability to engage in certain activities at the location, protecting their business interests. Landlords, on the other hand, are bound by the same terms and cannot change rental rates or other conditions.
In contrast, a lease renewal creates an entirely new rental lease agreement. This means that the rights and obligations of both tenants and landlords may change. Tenants may have to renegotiate certain aspects of their personal rights, such as exclusivity rights. Landlords, meanwhile, have the opportunity to change the terms of the new lease, including raising rent payments or modifying other conditions.
It is important to note that the specific rights and obligations in lease renewals and extensions can vary depending on local laws and regulations. Tenants and landlords should carefully review the terms of the agreement and seek legal advice if needed to understand their rights and obligations fully.
From a tenant's perspective, lease renewals and extensions offer different advantages and disadvantages. Lease extensions provide stability and continuity, allowing tenants to remain in their current location without the hassle of negotiating new terms. However, they may limit the tenant's ability to negotiate certain rights and obligations, as the original lease terms remain in effect. On the other hand, lease renewals offer more flexibility and the opportunity to renegotiate terms, but they may come with increased costs and the potential loss of certain rights enjoyed under the previous lease.
In summary, understanding the rights and obligations associated with lease renewals and extensions is crucial for both tenants and landlords. Lease extensions maintain the original rights and obligations, while lease renewals create a new agreement with potentially modified terms. Tenants should carefully consider their options, weighing the benefits of stability and continuity against the flexibility to negotiate new terms.
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Timing and notification
The timing and notification requirements for lease renewals and extensions can vary depending on the specific lease agreement and local laws. Here are some key points to consider:
Timing
The timing of lease renewals and extensions is important for both landlords and tenants. In general, a lease extension simply adds more time to the current lease agreement, while a lease renewal creates a new lease agreement with potentially modified terms. Here are some key differences to consider:
- Lease extensions: These are often short-term solutions that provide more time for landlords and tenants without the need to draft a new agreement. The original terms and conditions of the lease typically remain the same, including rental rates, unless otherwise specified.
- Lease renewals: Renewals usually start a new term with a new agreement, which may include changes to the rental rates, terms, and conditions. Renewals can be more time-consuming and expensive due to the need to negotiate and draft a new agreement.
Notification
Proper notification is essential for both lease renewals and extensions. Here are some key points:
- The tenant is typically required to notify the landlord of their intention to renew or extend the lease within a specified time frame. This notification period is outlined in the lease agreement and can range from one to six months prior to the lease expiry date.
- The tenant's notice should be unequivocal, clearly stating their intention to renew or extend and accepting the specific period offered in the option. A notice lacking these elements may be considered ineffective by the landlord.
- In some cases, the lease agreement may grant the tenant an "option to renew" without specifying the manner of exercise. In such cases, it is considered an extension of the original lease agreement, and the provisions and conditions of the original lease continue to apply.
- If the tenant fails to provide proper notification within the specified time frame, the lease will typically expire at the end of its original term. The landlord may then choose to lease the property to another tenant.
- Conversely, if the landlord fails to notify the tenant of any changes in the lease by the renewal cutoff date, the lease may automatically renew for an additional period.
- It is important for both landlords and tenants to carefully review the lease agreement to understand their rights and obligations regarding timing and notification requirements for lease renewals and extensions.
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Rent and other costs
Lease extensions provide more time for tenants without requiring a new agreement. The original lease terms, including rent, remain unchanged unless otherwise specified. Extensions are often short-term solutions, giving tenants more time to find a new place and landlords to fill vacancies. This option saves both parties from the immediate costs and hassles of moving and negotiating new terms. However, tenants should be aware that extensions may include provisions for rent modifications, and landlords can propose rent increases, especially if the market is favourable.
Lease renewals, on the other hand, involve creating a new lease agreement with the possibility of new terms and conditions. While this provides an opportunity to renegotiate certain aspects, it also means the landlord can change the terms, including raising rent payments. In a tenant's market, exercising a renewal option can lead to paying more than necessary, as landlords may propose higher rents, knowing tenants have less negotiating power. Additionally, renewal options may come with specifications, such as credit checks and notification requirements, which, if not met, can result in the lease expiring without renewal.
The decision to renew or extend a lease depends on various factors, including the tenant's financial situation, their relationship with the landlord, and their desire to remain in the same location. Lease extensions are often chosen for their convenience and the preservation of existing terms, while lease renewals offer more flexibility to adapt to changing circumstances and negotiate new terms, albeit with potential rent increases.
It is important to carefully review the lease agreement, understand the local laws, and consider seeking professional advice to make an informed decision about lease renewals or extensions, ensuring that rent and other associated costs are manageable and aligned with the tenant's best interests.
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Pros and cons
Lease Extension
Pros
- Lease extensions allow tenants to remain in their rental homes or apartments after their original leases expire.
- Lease extensions save landlords the hassle of negotiating new terms and provide more time to fill vacancies.
- Lease extensions save tenants the time and money associated with moving.
- Lease extensions can strengthen the relationship between landlord and tenant.
Cons
- Lease extensions are a short-term solution until the tenant moves out.
- Lease extensions may not be the best option in a tenant's market, as tenants may pay more than they should for their next lease term.
- Lease extensions may result in higher rent payments.
Lease Renewal
Pros
- Lease renewals allow tenants to remain in their rental homes or apartments after their original leases expire.
- Lease renewals can include new terms that are favourable to the landlord, such as increased rent.
- Lease renewals can be used to strengthen the relationship between landlord and tenant.
Cons
- Lease renewals create a new contract, which can be time-consuming and expensive for both the landlord and tenant.
- Lease renewals may result in higher rent payments.
- Lease renewals may require the renegotiation of certain aspects of the tenant's personal rights.
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Frequently asked questions
A lease extension is an addendum to your original lease, whereas a lease renewal is a new lease agreement entirely. An extension will retain all aspects and conditions of the original lease, whereas a renewal can include new terms, such as increased rent.
Lease extensions save landlords and tenants the hassle of negotiating new terms, and they create more time for landlords trying to fill vacancies and tenants trying to find a new home.
Lease renewals can be beneficial for tenants who are happy with their current lease terms, as they can secure these terms for a longer period. Lease renewals can also be beneficial for tenants who want to renegotiate certain aspects of their lease, such as exclusivity rights.
The specific steps for exercising a lease renewal or extension option will depend on the terms of the lease. Typically, the tenant will need to notify the landlord of their intention to renew or extend the lease within a specified time period. This notification must be unequivocal and must accept the specific period offered in the option.
