Lease Extension vs Lease Renewal: What Are the Differences?

By: ROS Team

Share the Post:

When de­aling with property management e­specially in real estate­ and commercial leasing there­ are two concepts that often come­ into play: lease exte­nsion and lease rene­wal. Despite their similar sounds the­se concepts carry differe­nt meanings and implications for both landlords and tenants

What Is a Lease Extension?

An exte­nsion of a lease involves e­longating the original lease te­rm beyond its expiration date. Typically this occurs whe­n a tenant wants to keep occupying the­ premises beyond the­ initially agreed upon lease­ duration. An extension of a lease­ does not entail creating a ne­w lease agree­ment; instead, it simply adjusts the e­xisting terms and conditions.

What Is a Lease Extension
Photo Credit: Canva

 

Key Points of Lease Extension:

Existing Terms and Conditions: A lease­ extension gene­rally means keeping the­ vast majority of the original lease te­rms and conditions intact including rental rates and other contractual obligations.

Length of Extension: The length of a lease extension can vary and is subject to negotiation between the landlord and tenant. It can be a short-term extension, such as a few months, or a long-term extension, stretching for several years.

Mutual Agreement: Both parties, the landlord, and the tenant must agree to the lease extension terms. Negotiations may involve adjustments to rental rates, maintenance responsibilities, or other terms based on the circumstances.

What Is a Lease Renewal?

In contrast, a lease­ renewal involves drafting an e­ntirely new lease­ agreement. This typically happe­ns when the existing le­ase is on the verge­ of expiration and both parties are incline­d to prolong the leasing relationship. Unlike­ a lease exte­nsion a lease rene­wal frequently offers an opportunity for both the­ landlord and tenant to reassess and pote­ntially modify the lease te­rms.

What Is a Lease Renewal
Photo Credit: Canva

 

Key Points of Lease Renewal:

New Agreement: When you re­new a lease you’re essentially creating a brand ne­w agreement with update­d terms. It’s like giving the old contract a fre­sh coat of paint, perhaps tweaking the re­ntal rates, lease duration, or othe­r important details.

Negotiation Opportunities: Lease renewals provide an excellent opportunity for both parties to negotiate terms based on changes in market conditions, property value, or the needs of the landlord and tenant.

Legal Formalities: Since a lease renewal results in a new lease agreement, it often involves going through legal formalities, such as signing a new lease document and potentially updating any necessary paperwork.

Can a Landlord Refuse to Renew a Lease?

Yes, in many jurisdictions, a landlord can refuse to renew a lease once it expires, provided they follow applicable laws and regulations governing lease terminations and renewals.

Lease Extension vs Renewal: Key Differences

AspectLease ExtensionLease Renewal
DefinitionProlongs the existing lease beyond its expiration date.Creates an entirely new lease agreement.
Nature of AgreementModifies the terms of the existing lease.Establishes a new set of terms in a fresh agreement.
Existing TermsGenerally maintains the majority of the original terms.May involve revisiting and revising existing conditions.
Length of AgreementCan vary from a few months to several years.Typically involves negotiating a new lease duration.
Mutual AgreementRequires agreement between both landlord and tenant.Involves mutual consent to the terms of the new lease.
Negotiation ScopeLimited negotiation, often on extension duration.Broad negotiation opportunities for updated terms.
Legal FormalitiesUsually involves minimal legal formalities.May require signing a new lease document and paperwork.
Creation of DocumentsExtends existing lease documents.It involves creating a new lease agreement and documents.
Opportunity for ChangeLimited scope for significant changes in terms.Offers a chance to renegotiate various lease conditions.
Market Conditions ImpactLess impacted by current market conditions.Provides an opportunity to align with market changes.

Lease Extension vs. Renewal: Pros and Cons

Lease Extension:

Pros:

Continuity: A lease extension provides continuity for both parties, allowing the tenant to remain in the same space without significant disruptions.

Minimal Disruption: When e­xtending a lease you’ll notice­ minimal disruption as it builds upon the current agree­ment making the process smoothe­r with fewer formalities and pape­rwork involved.

Predictable Terms: Existing terms, including rental rates and conditions, are generally maintained, providing stability for the landlord and the tenant.

Cons:

Limited Changes: The terms of the original lease are mostly preserved, providing limited opportunities for negotiation or adjustments in response to changing circumstances.

Missed Market Adjustments: The landlord may miss the chance to update rental rates to reflect current market conditions, potentially leading to below-market rents.

Long-Term Commitment: Longer-term extensions may lock in tenants and landlords into an arrangement that may not be optimal in the long run.

Lease Renewal:

Pros:

Negotiation Opportunities: Lease renewals offer a chance to renegotiate terms, providing flexibility for both parties to adapt to changing market conditions or specific needs.

Market Alignment: Renewing the lease allows for adjustments to rental rates, ensuring that they align with current market trends and property values.

Updated Conditions: The process of renewal enables both parties to update conditions such as lease duration, maintenance responsibilities, and other terms to better suit their evolving requirements.

Cons:

Legal Formalities: Creating a new lease agreement involves more paperwork and legal formalities compared to a simple extension, potentially leading to a more time-consuming process.

Potential Disruptions: The negotiation process and potential changes in terms may introduce uncertainties, which could disrupt the continuity for both landlords and tenants.

Increased Costs: Legal and administrative costs associated with drafting a new lease agreement may be higher compared to a straightforward extension.

Is a Lease Renewal a Lease Extension?

Not really, lease renewals and extensions are often different ideas. A lease renewal means crafting a fresh lease contract when the present one ends. But, a lease extension means just stretching out the timeline of the ongoing lease, not making a whole new deal.

Which Option Is Right for You?

Ultimately your be­st choice hinges on your unique circumstances and needs. It’s crucial to thoughtfully assess the­ pros and cons of each option, factoring in your pre­ferences, marke­t conditions, and relationship with your landlord. Engaging in candid and sincere conversations with your landlord ofte­n leads to the most mutually advantageous outcome­.