Here are some considerations to keep in mind when drafting an "option to renew" clause in a tenancy agreement:
Length of the original tenancy term and the Renewal Period:
This is usually relevant as most businesses tend to agree on a renewal term which is the same as the original term of the tenancy. (3years + 3years or 2years +2years) The renewed term is also stipulated to commence immediately after the expiry of the original term. If the original term is shorter than the renewed term, the landlord may request for additional security deposit to be furnished at the time of the renewal.
Notice period for exercising the option:
The notice period is the amount of time the tenant has to notify the landlord if they wish to exercise their option to renew the tenancy. This is a period that is based on practical considerations and it is often a common practise to ensure that the notice is not given too late. Most tenancies stipulate that notice must be given at least a month before the expiry of the tenancy. It is also good practice not to have a notice that is given too early.
Rent increase:
This clause should specify whether the rent will increase during the renewed term and, if so, how the increase will be determined. See the case of Radha Properties in the link below for the legal implications of not providing for an agreed mechanism for increase.
Terms and conditions for the Renewed Term:
Parties should consider whether the option to renew clause should specify whether the Renewed Term is subject to new terms and conditions or whether the terms from the original Tenancy are to continue.
(This information contained in this post is provided for informational purposes only and is not intended to be construed as legal advise. It is merely an explanation of a general practice. Application of legal principles in particular cases and situations will tend to produce different outcomes. The content of this post is not intended to create, and receipt or viewing of this information does not constitute, a solicitor-client relationship. It is best to consult a lawyer to understand how the law applies to your specific situation and to receive specific guidance accordingly.)
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