De facto option in retail leases

In a radical alteration to the rights and obligations of parties to leases, the Retail Shop Leases Act (“RSLA”) requires landlords to give to tenants written notice of a pending option at least 2 months but not earlier than 6 months before the last date upon which the tenant is required to give its notice of intention to exercise the option.

The purpose of the provision is to alert retail tenants to their obligations under a lease in relation to the exercise an option.

And if there is no option contained in a retail lease, the landlord has to notify the tenant in writing:

whether and on what terms it is prepared to offer a new lease; or that it is not prepared to offer a new lease. If the landlord doesn’t give the notice within the prescribed time, the term of the lease is deemed (if the tenant requests an extension) to be extended until six months after the landlord’s notice is in fact given.

These provisions may even even apply to a retail lease containing options all of which have expired.

The option notice and deemed renewal provisions make it doubly necessary for landlords to be well organized. Only prudent planning and forethought will ensure that steps are taken at the most advantageous times. Misplaced timing could prejudice future rental or incoming tenant strategies.

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