Do not forget your option
By Amy O'Donnell28 Mar 2018
We all know motel leases have finite terms. There is nothing standard about any of them and the term itself can be expressed in many ways.
The starting term of most leases is 20 to 25 years. This can be for a set term (i.e. 20 years from 1 June 2010 to 31 May 2030). If that is the case, the term is set for that period. There is nothing more that you need to do to secure it.
A more common situation is the term is spread into an initial term and any number of options. This might be five years from 1 June 2010 to 31 May 2015, with four or five options for a further five years. This gets to the same total term, but it is sliced into different periods.
There are obvious variations to this – as the term and the options can really be any length of time. The combinations are endless. Option clauses were originally designed to give tenants the right to bail out of a lease commitment if the business was not working for them.
If you have a substantial amount of capital value tied up in an asset (like a motel lease) it is very unlikely that you won’t exercise and option, but here we are. They still exist.
The most important thing is that if you have a lease with an option you must exercise it. If you don’t, your lease could come to an end. It is as simple as that.
An option is normally exercisable solely at the discretion of the tenant (the motelier).
Some option clauses will simply provide that if you give notice to your landlord by a certain date then the option will come into existence. If so, there is no further approval is needed from the landlord.
Often in motel leases the options are automatic – but even in this case you should check them and ensure that the required documents are signed and registered in the titles office to document the extended term. This is important and often overlooked.
Making sure you physically exercise the option by the date required is critical. Normally no one will remind you and given the dates can be many years in the future, they are easy to forget.
Moral of the story? If you are not sure, get your lease documents out and have a look at them. If you are still not sure, ask us! We are more than happy to have a look at them for you and invite you to upload a copy of your Lease here so that we can advise you of the key dates.