How do you exercise your options on your lease?
Get the most out of leasing for your QSR with these tips from Leasing Information Services.
Leasing Information Services is a research firm with extensive retail leasing data coverage of shopping centres, direct factory outlets, bulky goods and main retail strips, aiming to provide critical decision support for retailers hunting for new leases.
Simon Fonteyn, Managing Director of Leasing Information Services, said, “Exercising your options correctly is perhaps the most misunderstood aspects of leasing.” Although it is relevantly straight forward, the number of times people including experienced professionals have missed an option is staggering.”
Fonteyn said that three most important aspects when exercising options are as follows:
First, it has to be done within the correct time frame, where time is of the essence and only the lessee can exercise the option.
“The exercise option window is stipulated in the lease and typically contains a provision which is not earlier than 6 months and later than 3 months from expiry. However each lease may be different so you need to check your lease for your option exercise window,” Fonteyn said.
“Even if you miss it by one minute, you have lost your option. On the flip side, if you exercise your option, you cannot then turn around and say that you do not wish to proceed. Once you have exercised, you are bound”
Second is to exercise your option in an unequivocal manner and state the premises that it relates to.
“In other words you cannot exercise your option conditional upon anything, e.g. you cannot exercise your option conditional upon receiving a certain rent,” he said.
“In certain States ( NSW,QlD, SA) there are provisions for having your rent determined and exercised early such that if you are unhappy with the rent determined by an external valuer you can elect to not exercise your option within 21 days of that notice. However you must elect to do this within 3-6 months from the last day that you could exercise your option. It is best to get legal advice on this” Fonteyn says.
Third is to serve the notice correctly.
In every lease there will be a section on how to notify the landlord. For example, if the property is managed by an agent and you email the agent and they are not the correct notifying authority, you have not served your notice correctly.
Summary
- Missing an option can be devastating, as the QSR can lose their right to a new term and importantly loses the right to a market rent review.
- Make sure you register your lease, if it contains an Option, because if the Landlord sells the building or the Landlord is taken over by a mortgagee, they may not recognise your option
