What is a Renewal Option in a lease agreement?

A Renewal Option in a lease agreement refers specifically to the tenant's right to extend the lease for an additional period or to expand the rented space after the original lease term expires. This provision is beneficial because it provides the tenant with the flexibility to maintain their presence in the leased Property without having to negotiate a new lease from scratch. The renewal terms—such as the length of the extension, rent amounts, and any other conditions—are typically outlined within the original lease agreement, allowing the tenant to secure their rental space for a longer term under agreed-upon terms.

Having a renewal option can be particularly advantageous in a fluctuating real estate market, where securing a favorable rental rate for an extended period can help protect a business's overhead costs. This option is often negotiated before the lease is signed, as both parties need to agree on the terms for the renewal should the tenant choose to exercise that right.