Glossary

Option to Renew

Also known as: renewal option, extension option

A contractual right allowing a tenant to extend its lease for an additional term at rent terms specified in the lease — fixed, formula-based, or reset to fair market value — exercisable by notice within a defined window before expiration.

Renewal options are unilateral tenant rights rather than obligations, and courts generally require strict compliance with the notice window for exercise, with only limited equitable relief available for a late or defective notice in some jurisdictions. Renewal rent can be pre-set at a fixed rate or fixed escalation, tied to a CPI or other index formula, or reset to fair market value through appraisal or arbitration if the parties cannot agree. Landlords underwrite renewal probability, and the likely direction of any fair-market reset relative to in-place rent, as a central input to rollover risk analysis and asset-level cash flow projections.