A startup founder signs a two-year tenancy agreement for office space with a clause stating the tenant has an “option to renew for a further two years.” However, the renewal clause is vaguely worded, and the tenancy agreement does not specify how the renewal rent will be determined. Near the end of the initial term, the landlord denies that the option to renew exists, and the tenant refuses to vacate after the expiry of the lease. The agreement was also not registered with the Land Registry. Can the tenant enforce the option to renew under such circumstances?
The tenant likely cannot enforce the option to renew. Whether the agreement is enforceable depends on if the renewal clause if sufficiently certain and if there is a third party purchaser.
Certainty
In the case of Tse Siu Hoi v Lee Dick Gold and Jewellery Limited LDPE 1132/2014, the clause “Agreement was a term of 2 years being fixed tenancy and 2 years being open tenancy” was held to be unenforceable due to uncertainty over the meaning of “open tenancy”. Therefore, if a renewal clause is too vague, or the terms (e.g., rent) of the 2-year renewal term are undeterminable, the renewal option may be unenforceable for being uncertain.
Registration
An option to renew is a registrable interest in the Land Registry and therefore a lease containing an option to renew extending the lease term to over 3 years should be registered. However, non-registration of the agreement, by itself, does not void the option between the parties (if there is an enforceable one), it only makes it unenforceable against any subsequent purchaser in good faith for valuable consideration.
Conclusion
As the option to renew is unenforceable, the tenancy agreement only created a tenancy for 2 years. Upon expiry of the fixed term, the tenant is required to vacate the premises. Holding over without the landlord’s consent may make the tenant a trespasser, and the landlord may seek possession and damages for mesne profits.
Landlords and tenants should always consult their lawyers before entering into a tenancy agreement to fully understand their rights and obligations. A well-drafted option to renew should specify how the option should be exercised and lay out the essential terms of the extended term (e.g., duration, rent). If the tenancy may be extended to a term of 3 years or above, it should then be duly registered with the Land Registry to be enforceable against subsequent purchasers.
For more on commercial lease renewals, see our Guide on Renewing Office Leases.
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