Lease Renewal vs. Lease Extension: Understanding the Difference | NZ Legal

If you are a tenant or landlord approaching the end of a commercial lease term, you will almost certainly encounter one of two options: renewing the lease or extending it. The two terms are often used interchangeably in practice, but they have distinct legal meanings that affect your rent, your guarantor obligations, your existing rights, and what happens if deadlines are missed. Getting this wrong can be expensive.

What is a Lease Renewal?

A right of renewal is a contractual option given to the tenant to enter into a new lease at the end of the current term. The right is almost always found in the main body of the lease itself — typically drafted as a covenant in which the landlord agrees to grant a new lease if the tenant exercises the right within the required notice period and is not in material breach of the existing lease.

When the right of renewal is exercised, the result is a new lease, not a continuation of the old one. That distinction carries several practical consequences:

• The landlord may require new guarantees. Because the renewed lease is legally a new lease, the landlord can require the existing guarantors to re-execute their guarantee for the new term. If you are a guarantor on someone else’s lease, watch for this — you may be asked to extend your personal exposure without realising it.
• A rent review usually occurs. Most ADLS-form right-of-renewal clauses provide for a market rent review at the commencement of the new term. The rent for the renewed term is set to market value at that point, not carried over from the expiring term.
• Personal covenants may not carry over. If the original lease contains personal covenants that benefit either party — a landlord’s obligation to carry out certain works, a tenant’s right of first refusal over additional space, a rent-free period that has not yet been used — there is a real risk those covenants do not survive into the new lease. The new lease is generally read on its own terms.

The renewal notice requirement

The most common and costly mistake tenants make is missing the renewal notice deadline. Under a standard ADLS lease, the tenant must give written notice to the landlord of their intention to renew at least three months before the expiry date of the current term. Some leases require longer notice — read yours carefully.

If the tenant fails to serve notice before the deadline, the right of renewal may lapse. The tenant is then in the position of negotiating a fresh lease from scratch, with no guaranteed right to remain in the premises. Landlords are under no obligation to grant a renewal if notice is missed, and in a competitive market they may prefer a different tenant or seek a rent increase as the price of flexibility.

Renewal documentation

Once the right has been exercised and any rent review is resolved, the renewal is typically documented in one of two ways:

• A Deed of Renewal of Lease, which records the new term, any variation to the terms, and confirms the parties and the premise; or
• A Deed of Renewal and Rent Review, where the market rent review is determined and recorded at the same time.

Both documents need to be executed as deeds (witnessed signatures required) and should be registered against the title if the lease is registered or if the renewed term will be longer than three years.

What is a Lease Extension?

A lease extension is a continuation of the original lease for an additional period, agreed between the parties without the tenant needing to exercise a contractual right. There is no “right to extend” as such — both parties must agree on the new expiry date, and any other changes they want to make.

The extension is usually documented in a Deed of Variation and Extension of Lease. Because it is a variation of the existing lease rather than a new lease, the following apply:

• The existing guarantee continues to cover the extended term (the guarantor is not separately asked to re-execute, though landlords sometimes try).
• Personal covenants and rights in the original lease — rights of first refusal, fit-out contributions not yet triggered, agreed maintenance schedules — continue to apply.
• The terms of the lease remain unchanged unless the deed of variation specifically alters them.

Rent review dates on extension

One important trap to watch for: if the lease contains rent review dates expressed as specific calendar dates (e.g. “1 July 2025, 1 July 2028”) rather than relative dates (e.g. “every three years from commencement”), extending the expiry date will shift the end of the lease but may not automatically shift the rent review schedule. This can result in rent reviews falling in odd positions relative to the new expiry date, or reviews being missed entirely.

When documenting a lease extension, always check whether the rent review provisions need to be varied at the same time.

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Extending a lease preserves all existing rights and covenants. Renewing a lease creates a new agreement — and may leave your right-of-first-refusal and other personal covenants behind.

Key Differences Side by Side

Renewal	Extension
Legal effect	Creates a new lease	Continues the existing lease
Triggering mechanism	Tenant exercises contractual right of renewal	Mutual agreement between the parties
Notice required?	Yes — typically 3 months before expiry	No right exists; either party can propose
What if deadline missed?	Right may lapse; tenant has no guaranteed renewal	Not applicable — no deadline to miss
Rent review at commencement?	Usually yes — market rent review standard in ADLS leases	Only if the parties agree to a rent review
Guarantees	Landlord may require new guarantor execution	Existing guarantee continues for extended term
Personal covenants	May not survive into the new lease	Continue through the extension
Documentation	Deed of Renewal (± Rent Review)	Deed of Variation and Extension

What Happens if You Do Nothing?

If the tenant simply continues to occupy the premises after the expiry of the lease term without exercising a right of renewal or negotiating an extension, the tenancy typically converts from a fixed-term lease to a periodic tenancy — usually month-to-month. Either party can then terminate by giving the notice specified in the lease (or, if silent, under the Property Law Act 2007).

A periodic tenancy is not necessarily a disaster, but it is not what most commercial tenants want. The tenant loses certainty of tenure, the landlord can end the arrangement on relatively short notice, and the terms of the original lease continue to apply. If the business relies on the premises — a retail store, a gym, a medical practice — this uncertainty can be commercially damaging.

The Renewal Process Step by Step

1. 1

   Diarise the notice deadline

   Identify the renewal notice deadline in your lease (usually 3 months before expiry) and set a reminder well in advance — aim to act at least a month before the deadline to allow time for advice and drafting.

2. 2

   Serve written notice

   Send a written notice to the landlord stating that you are exercising the right of renewal. The notice should reference the relevant clause in the lease, identify the current term expiry date, and state clearly that you are exercising the right for the specified further term.

3. 3

   Resolve the rent review

   If the renewal triggers a market rent review, engage valuers if the parties cannot agree. The ADLS lease sets out a process for independent determination if agreement cannot be reached.

4. 4

   Execute the deed of renewal

   Once the new rent is agreed, a Deed of Renewal of Lease (or Deed of Renewal and Rent Review) is prepared, executed by both parties as a deed, and registered if required.

Common Mistakes to Avoid

Renewal and extension checklist

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1. Diarise the renewal notice deadline at lease commencement — do not rely on your landlord to remind you.
2. Serve renewal notice in writing with clear reference to the relevant lease clause.
3. Check whether your right of renewal has any pre-conditions (e.g. no material breach of the lease).
4. Review personal covenants in the current lease before renewing — confirm whether they need to be carried forward in the new lease.
5. On extension, check rent review dates and vary them in the deed if necessary.
6. Confirm whether existing guarantors need to re-execute on renewal — and advise them in advance.
7. Have the deed of renewal or deed of variation prepared and executed before the current term expires.

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This article provides general information only and does not constitute legal advice. Get in touch with NZ Legal if you need advice on exercising or negotiating lease renewal or extension rights.

Sources

1. Property Law Act 2007Governs landlord and tenant rights, including enforcement of lease covenants.
2. ADLS Deed of Lease, 6th EditionStandard commercial lease form used across New Zealand; sets out right-of-renewal clause and rent review mechanisms.
3. Contract and Commercial Law Act 2017Codifies general contract law principles applicable to lease agreements and deeds of variation.