Option to Renew and Lease Covenants

Practice flashcards covering the definitions, legal requirements, and drafting considerations for lease renewal options versus rent review clauses.

What is another name for an "option to renew" in a lease agreement?

A covenant for renewal of the lease.

What is the definition of an "option to renew"?

A lessor's covenant made to the lessee that at the expiration of the lease, another lease may be created on similar or reviewed terms, rents, and covenants.

How does an "option to renew" differ from a "rent review clause" regarding timing?

A rent review clause relates to the review of rents within an existing agreement for a certain period during the lease's duration, whereas an option to renew relates to creating a new lease after the current one has expired.

To which part of the lease document does the "option to renew" belong, and to which part does the "rent review clause" belong?

The option to renew goes to the habendum (tenure), while the rent review clause goes to the redendum (rent).

Does an option to renew automatically create a new term upon the expiration of a lease?

No, it is an offer that must be accepted in its entirety by the lessee if they choose to renew.

According to the case of International Institute of Tropical Agriculture versus Kawam, why is a written request containing new terms not a valid exercise of the renewal option?

Because the option must be accepted in its entirety; proposing new terms does not constitute a valid exercise of the option as provided by the lessor.

Under what circumstance is registration and consent required for a lease renewal according to Section 42 of the land registration laws?

When the aggregate term exceeds five years.

To which clause does the method of dispute resolution apply: rent review or option to renew?

Dispute resolution only applies to the rent review clause; there can be no dispute in an option to renew.

What are the four primary contents of an option to renew clause?

1. Time within which the application is to be made; 2. Manner of the exercise; 3. Condition precedents to be fulfilled; 4. Terms of the new lease.

What is an example of a condition precedent that must be fulfilled before a lessee can exercise an option to renew?

The lessee must have paid rent and performed all covenants in the lease.

In a well-drafted option to renew clause, which two specific clauses should typically be excluded from the new lease terms?

The rent clause and the option to renew clause.

How do courts typically construe the "option to renew"?

The option to renew is construed strictly by the court.

Why is it recommended to add the word "reasonable" when drafting condition precedents in a renewal clause?

Because the court construes the option strictly, even a violation by mere declaration could be upheld against the lessee unless the condition is framed as reasonable.

What is the legal consequence of including an option to renew clause within a subsequent renewal lease, as seen in Stephen Idubo versus Sons Limited?

It would create a perpetually renewable lease.

What case law is associated with avoiding a perpetually renewable lease by excluding the renewal clause in the new term?

RE Hopkins lease.