Building Better Leases Series – Options

Building Better Leases


Option refers to the right to extend or reduce the Lease Term for the Premises or any other property owned by the Lessor and the right to refusal or first offer to lease or purchase the Premises or any other property owned by the Lessor. The Lessee needs to be aware of this section and set conditions in the event that they do want to purchase the property at the end of their Lease.

Options Personal To Original Lessee

In order to exercise an Option, the Lessee must be in full possession of the Premises. Options can only be exercised by the original Lessee, meaning sublessee’s do not have the right.

The purpose of this section is to prevent the Lessee from selling or assigning its rights to an Option and thus profiting from a third party. The Lessor is allowed to require the Lessee to certify that it has no intention of exercising an Option with the intent of subletting or assigning the Premises. If a Lessee anticipates that they will use the Premises following a sublease, it is necessary that they end the sublease term prior to the date in which the Lessee must exercise their Option.

Multiple Options

If there are multiple Options, then they must be executed consecutively in the order they are listed. For example, if the Lessee has three 2-year Options to extend, they must be executed sequentially without gaps so that the Lessee cannot exercise the first and third Options and not the second. The intend behind this is to protect the Lessor from having to keep the Premises available to the Lessee during periods when the other tenants may be in possession.

Effect of Default on Options

If a Lessee incurs Defaults, then their right to exercise an Option may be restricted or lost. Even if the Lessee exercises their Option on time, they may lose their right if they fail to pay Rent for 30 days or more and/or the Lessee commits a Breach of the Lease. Sometimes Defaults cause delays, however the Lessee will not be given extra time because of these delays to exercise their Option.

Options favor tenants, and upon signing of the Lease, provide no further benefit to owners. Therefore, it is imperative that Lessee’s comply with the terms of the Lease if they want to be able to exercise any Options they may have.