Commercial Lease Renewal Notice: How To Exercise An Option Correctly

If you run your business from a shop, warehouse, office, or hospitality venue, your lease can be one of your biggest commitments - and one of your biggest risks.

When your current lease term is coming to an end, an option to renew can be a real safety net. But it only protects you if you exercise the option correctly and on time.

This is where many business owners get caught out. They assume a quick email saying “we’d like to renew” is enough, or they miss the option window by a few days, or they give notice to the wrong person. In commercial leasing, those small details can matter.

Below, we walk you through a practical approach to using an exercising option to renew lease template (with template wording you can adapt), plus a step-by-step guide to help you stay in control of the renewal process.

What Does “Exercising An Option To Renew” Actually Mean?

An “option to renew” (sometimes called an “option to extend”) is a clause in your commercial lease that gives you (the tenant) the right to require a further lease term, usually on the terms set out in the lease, as long as you follow the option process.

In plain English: if you comply with the lease’s rules for exercising the option (and meet any stated conditions), the landlord will usually be required to grant the new term - although outcomes can vary depending on the wording of your lease and, for retail leases, the state or territory rules that apply.

Why This Matters For Small Businesses

Your premises is often tied to your customers, foot traffic, staff routines, fit-out, signage, local reputation, and even your Google reviews. Losing a location because you didn’t exercise the option properly can be costly and disruptive.

Exercising an option correctly can help you:

• secure certainty over where you’ll operate
• avoid last-minute rent negotiations under pressure
• protect your investment in fit-out and branding
• create a clearer runway for growth (or an eventual sale of the business)

Option To Renew vs Negotiating A New Lease

If you don’t have an option (or you miss it), you can still try to negotiate a new lease, but the landlord has much more leverage. They can increase rent, change terms, or refuse renewal entirely.

If you do have an option, it’s not a guarantee of “same rent and everything stays the same.” The option clause usually sets out how rent will be determined (for example: market rent review, fixed increases, CPI adjustments), and you must comply with the notice process set out in the lease.

Before You Send Anything: Check These Lease Details First

Before you use any exercising option to renew lease template, you should carefully read the option clause and related notice provisions in your lease. Commercial leases can be strict about the process.

Here’s what you’re usually looking for.

1) The Option Window (When You Can Give Notice)

Most leases set a notice period like:

• “no earlier than 6 months and no later than 3 months before the end of the term”
• or “at least 3 months before the end of the term”

If you give notice outside the required window, the landlord may argue the notice is invalid. (Some situations can be more nuanced, so it’s worth getting advice if you’re close to the deadline or the clause is unclear.)

2) The Method Of Giving Notice

Leases often require notice to be given:

• in writing
• to a specific address for service (which could be different from where you send rent invoices)
• by a specific method (email, hand delivery, post, or a combination)

Even if you’ve been emailing your property manager for years, the lease might say notices must go to the landlord’s registered address (or their solicitor).

3) Conditions You Must Meet Before Exercising The Option

Some leases say you can only exercise the option if:

• you are not in breach of the lease
• you have remedied any breach notices
• you have paid rent and outgoings up to date

If you’re behind on rent, disputing outgoings, or you’ve had recent compliance issues (like unauthorised alterations), it’s worth getting advice before sending your notice.

4) How Rent Will Be Set For The New Term

Rent in the option term is often determined by:

• market rent review (common in retail and office leases)
• fixed percentage increases
• CPI adjustments
• a mix of the above

If it’s a market review, there are usually timeframes and steps for the process (including what happens if you and the landlord can’t agree).

Tip: if the rent review mechanism is unclear, that can create disputes later. This is one reason many businesses get a Commercial Lease Review before exercising an option.

Exercising Option To Renew Lease Template: Example Wording (Australia)

Below is template wording you can adapt. This is designed to be short, clear, and consistent with how most commercial lease notice clauses work.

Important: always update the wording to match your lease terms (especially the notice method, dates, and parties). Also, if the lease requires notice to be served a particular way, follow that method exactly.

Template Notice To Exercise Option To Renew

Subject: Notice Exercising Option to Renew – [Premises Address] – Lease dated [Date of Lease]

Dear [Landlord Name/Entity Name],

I/We refer to the lease dated [insert date] between [tenant name] (Tenant) and [landlord name] (Landlord) for the premises at [insert premises address] (Lease).

In accordance with clause [insert clause number] of the Lease, I/we hereby give notice that I/we exercise the option to renew the Lease for a further term of [insert length, e.g. 3 years] commencing on [insert start date of option term].

Please confirm receipt of this notice and the next steps for documenting the renewal and, if applicable, the rent review process for the option term.

Yours sincerely,

[Name]
[Position, e.g. Director]
[Tenant entity name]
[ABN/ACN if applicable]
[Phone]
[Email]

Practical Tips To Make Your Notice Stronger

• Attach evidence if needed: If you’re sending by email and the lease allows it, attach a PDF copy of the signed notice.
• Use the correct legal names: Match the lease exactly (including Pty Ltd, trustee details, etc.).
• Send it to the correct address for service: Not just whoever you usually talk to.
• Keep proof: Save delivery receipts, email logs, and/or registered post tracking.

Step‑By‑Step Guide To Exercising Your Lease Renewal Option Correctly

If you want a practical process you can follow (and delegate internally), here’s a step-by-step approach many Australian businesses use.

Step 1: Diary The Critical Dates Early

As soon as you sign a lease (or as soon as you take over an existing lease), diarise:

• lease expiry date
• earliest date you can give option notice
• latest date you can give option notice
• any rent review dates

We often suggest setting reminders at least 9–12 months before expiry, even if the lease says 3–6 months. That gives you time to plan and negotiate from a position of strength.

Step 2: Check If You’re In Breach (And Fix Issues First)

Before you exercise the option, do a quick “lease health check” internally:

• Are rent and outgoings paid up to date?
• Have you complied with repair/maintenance obligations?
• Have you made changes to the premises (signage, fit-out) without consent?
• Are you using the premises within the permitted use clause?

If something is potentially non-compliant, it’s better to address it before giving the landlord a reason to dispute your option.

Step 3: Decide Your Renewal Strategy (Option vs Negotiate)

Even if you have an option, you can still consider your commercial position:

• If rent will go to market, do you want to commission your own market evidence?
• Do you want incentives for the next term (rent-free, landlord contribution, fit-out refresh)?
• Do you want to adjust operational clauses (trading hours, signage, assignment, make-good)?

Sometimes, exercising the option first locks in your right to stay - and you can then negotiate improvements. Other times, you might prefer to negotiate a new deal before you commit. The right approach depends on your lease terms, bargaining position, and (for retail leases) any state/territory requirements that affect renewals and disclosures.

Step 4: Prepare The Notice Using Your Lease Requirements

This is where you adapt your exercising option to renew lease template to your specific lease.

In particular, make sure you:

• cite the correct clause number
• state the correct option term length
• state the correct commencement date for the new term
• comply with the notice clause (who, where, and how)

If your business structure has changed since signing the lease (for example, you traded as a sole trader but now operate through a company), don’t assume you can casually “update” the tenant name in the notice. That can require more formal documents like an assignment or novation, and it’s worth speaking with a commercial lease lawyer to avoid creating an accidental dispute about who the tenant is.

Step 5: Serve The Notice Correctly (And Keep Evidence)

When you serve the notice, treat it like a formal legal step (because it is). Keep:

• a copy of the signed notice
• an email “sent” record and delivery confirmation (if emailed)
• registered post receipts (if posted)
• notes of any hand delivery (who received it and when)

If the lease allows notice by email, send it to the specified email address in the lease (or the address specified by the landlord in writing, if that’s permitted). If the lease only allows postal service, follow that even if it feels old-fashioned.

Step 6: Confirm The Next Steps In Writing

After serving notice, ask the landlord (or their agent) to confirm:

• they acknowledge receipt of your notice
• the option has been validly exercised
• the process for documenting the renewal (if any)
• the rent review process and timeframes (if applicable)

Some leases renew automatically upon a valid option exercise, but in practice you may still see a document recording the renewal/extension. If you receive a formal extension document, it’s a good idea to have it reviewed - especially if it includes new terms that weren’t part of the original option.

Common Mistakes When Exercising A Lease Option (And How To Avoid Them)

Even strong businesses get caught in avoidable renewal problems. Here are the issues we see most often.

Mistake 1: Missing The Deadline By “Just A Few Days”

Option windows are often enforced strictly. If you miss the window, you may lose the right to renew and be forced into renegotiation (or vacancy).

How to avoid it: diarise early and start preparing notice weeks ahead, not days.

Mistake 2: Giving Notice To The Wrong Party

You might email a property manager, but the lease may require notice to the landlord’s registered office or a specific address for service.

How to avoid it: follow the lease’s notice clause exactly, even if it’s inconvenient.

Mistake 3: Using Informal Wording That Doesn’t Clearly Exercise The Option

“We’re thinking of renewing” or “can we extend?” may not be treated as a clear, unequivocal exercise of the option.

How to avoid it: use direct words like “I/we hereby exercise the option to renew under clause X.”

Mistake 4: Trying To Change Core Terms Inside The Option Notice

If you try to exercise the option “but only if rent stays the same” or “subject to new signage rights,” you risk making the notice conditional - and potentially invalid.

How to avoid it: exercise the option cleanly first, then negotiate separately (unless your lease expressly allows conditions).

Mistake 5: Not Planning For The Rent Review Process

Market rent reviews can move quickly and can be contentious. If you don’t prepare, you may end up accepting an unfavourable rent because you’re focused on day-to-day operations.

How to avoid it: understand the rent review clause and get your evidence ready early (or seek advice about strategy).

What Happens After You Exercise The Option (And What Documents You Might Need)

Once you validly exercise an option, the next stage usually involves finalising rent (if a review applies) and documenting the continuation of the lease.

Depending on your lease (and whether it’s covered by retail leasing legislation in your state or territory), you might see documents like:

• Deed of Extension / Variation: records the extended term and any updated details.
• Rent Review Memorandum: confirms the new rent figure and how it was calculated.
• Disclosure documents (retail leases): in some situations, additional retail leasing compliance steps may apply depending on the state/territory and the circumstances of renewal.

If the lease renewal involves any “re-papering” (new lease documents rather than a simple extension), it’s also a good moment to review the risk areas that commonly hurt small businesses, like:

• make-good obligations at the end of the lease
• outgoings clauses and what the landlord can charge you for
• assignment/subletting rights (important if you ever sell your business)
• personal guarantees (and whether they can be limited or removed)

If you’d like help exercising an option to renew or reviewing your commercial lease renewal documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.