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Semantics In Leases: Does It Really Matter If I Call It A Lease Renewal Or A Lease Extension?
Many leases provide the tenant with an option to renew or extend the lease term beyond the expiration of the initial term. This short article examines whether it makes a difference if this option is presented as an option to renew or an option to extend the lease. While renewals and extensions have similar practical effects, there are some nuanced differences.
By definition, a lease renewal is a new lease agreement, whereas a lease extension is a continuation of the original lease agreement. Generally speaking, the practical effect of either is that the parties to the lease continue the landlord-tenant relationship beyond the expiration of the original term of the lease. It is important, however, to consider how a lease renewal or lease extension might affect other promises and covenants in the lease agreement.
For example, if the lease agreement includes landlord lease concessions (e.g., first month's rent is free or landlord to contribute money toward the tenant's build-out), a renewal of the lease may be interpreted to require the landlord to provide all these concessions again. Similarly, if the lease provides either party with rights that have expired (e.g., tenant has the right to terminate, without cause, during the first six months of the lease), these rights will also arguably be renewed.
The distinction between a lease renewal or extension may affect other rights under the agreement. For example, if the lease is assigned by the tenant during the original term of the lease, a subsequent renewal of the lease may cut off any remaining liability of the original tenant to the landlord. Additionally, if a breach occurs that would give the landlord the right to terminate the lease, a lease renewal may prevent a landlord from exercising this remedy.
Another distinction is that a renewal requires the execution of a new written lease. On the other hand, an extension requires nothing more than an action by the tenant, according to the terms of the existing lease, to indicate an election to extend the lease. Ohio courts, however, have held that there is no distinction between the words "renewal" and "extension" where their meaning is not defined or explained. In other words, no matter which expression is used the term of the original lease can be extended without the necessity of executing a new lease absent explicit language in the lease to the contrary.
Parties to a lease agreement containing "renewal" or "extension" language, are well advised to pay attention to which term is used and, as always, to seek legal counsel about their legal rights under the lease agreement.
For any questions you may have concerning options to renew or extend a lease, please contact Scott A. Johnson.
Disclaimer: The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.
© 2020 Eastman & Smith LTD.