Option to renew

Definition

A tenant's right to extend the lease on terms already written into it.

Why It Matters

When the location is the business, the years left on the lease are the years the business is safe, and an option to renew is what turns three remaining years into thirteen. Check who holds the option after an assignment, since some leases extinguish it on transfer, and read how the renewal rent is set: an option to renew at market rate is a promise of a negotiation, not a promise of a price. A loan amortising over ten years against a lease with three left is a repricing you have already agreed to.

In numbers: A lease with 3 years remaining plus two 5-year options at a 3% annual bump gives 13 years of certainty, which is what a 10-year loan needs.