Definitions
The Term means the period of time the lease is in effect. It is typically defined by specific start (commencement) and end (termination) dates of the lease. (Note that the “terms” of the lease means something different from the “Term;” lease terms refers to all the provisions, sections, or clauses of the document. This can be confusing!)
Extension means moving the termination date of the current lease, typically for another full term.
Renewal means starting a new lease upon the expiration of the current lease.
In either case the provisions of the lease stay the same or can be changed according to the lease. See examples of “rolling lease” and “evergreen lease” as variations on the standard term in Example Text.
Lease-to-own refers to methods by which a lessee can purchase the leased property. See this Fact Sheet for details: Lease-To-Own Strategies.
Purpose
This purpose of this section is to clearly state the period of time the lease is in effect. If the term is too vague (for example, “one year”), the lease can be deemed unenforceable and merely a “tenancy at will,” which means that the lease is only valid from month to month, and can be terminated at any time.
FAQs
A “holdover” occurs when a tenant continues to occupy and use the premises after the term of the lease ends. If the landowner continues to accept rent payments, the holdover tenant can continue to legally occupy the premises. If this occurs, and if a new lease is not developed, the length of the new rental term is then dependent on each state’s laws and any relevant court decisions. If the landowner does not accept continued payments, eviction proceedings can occur.
A trial period in a lease is an initial short term of, say 1-2 years during which the parties decide whether to continue. The lease may allow either party to terminate without penalty during the trial period. A lease with a trial period should also specify what happens at the end of the trial to extend the term, or make a new lease. The end of a trial period is also a good time to modify any provisions of the lease.
Short-term typically describes a term of 1-2 years, sometimes up to 5 years. A long-term lease can be 10, 20, or 50 years, for example. Leases can be for up to 99 years; there are examples of leases for longer than that. Some states limit the term of an agricultural lease by statute. Typically, longer-term leases are more complex.
"Evergreen lease" and "rolling lease" describe ways that the term (the period of time the lease is in effect) is treated in a lease. See our fact sheet “About the Term." These names do not have precise, fixed legal definitions, and sometimes they are used interchangeably. Therefore, it’s important for the lease language to define the meaning, rather than to rely on the name of the tool itself.
“Evergreen lease" is most commonly used to describe a lease that automatically renews at the end of the original lease term for another term of the same length, or on a month-to-month basis; without any action by the parties.
A "rolling lease" usually means the term automatically extends at the end of each year for another full term. For example, in a three-year lease, at the end of the first year the lease term is another three years, therefore pushing forward the end date of the lease.
Options to extend or renew a lease are essentially the same. They give the tenant the ability, prior to the conclusion of the lease term, to continue leasing the premises. An option to renew or extend the lease means that upon the tenant’s exercise of the option (choice), the provisions of the agreed-upon option are adopted for another defined term. The terms of the option can include the length of the new term, a change in rent, and other modifications. If the option rests with the tenant to ask for a renewal, the landlord is obligated to agree under the terms of the option. If there is no option to renew in the agreement, then there is no obligation for either party to renew the lease.
The option typically delineates the timing of notification for extension, what the rent will be under the extension or how it will be negotiated, the number of permissible extensions, how long each extension will be, and which, if any, of the original terms of the lease will be excluded from the extension.
Lease-to-own refers to methods by which tenants can purchase the property they lease at some future date. One common lease-to-own strategy is an “option to purchase” provision which may be included in the lease or as a separate agreement. It gives the tenant the right–but not the obligation–to purchase the leased premises during a particular time period and according to specific terms. A related strategy is a “right of first refusal” (ROFR) in which a tenant has the exclusive opportunity to make an offer on the property before it is offered to others. A third method that is sometimes seen as a lease-to-own method is a land contract. See our fact sheet Lease to Own for further details.
Example Text
These text examples illustrate what you might include in parts of this section. Example text is not intended as “sample” or “model” language, or as “best practice.” You may copy, paste the example text into the template, then modify it for your working lease document. Or you can learn from the examples in order to develop your own text.
The following are some text examples related to lease term, renewal and extension:
Text box “Start and End date:”
- One year, from January 1, 2013 to December 31, 2013.
- The term of the lease shall run for ___ years beginning on the ____ day of ____ and ending on the ____ day of ____.
Text box “Lease Renewal Provisions”
- The Parties shall have the option to renew the Lease for an additional ___ year period. Tenant shall deliver to the Landlord a written request to renew the lease for the additional period. Landlord shall have 30 days to provide written notice of acceptance or rejection of the offer. If the Tenant fails to deliver said notice, the lease shall terminate at the end of the current term. Conversely, if the Landlord fails to notify the Tenant the lease shall automatically renew for the additional period.
- Rolling lease term: This lease shall have a rolling renewal. This lease term shall run for three calendar years, commencing on January 1, ____. At the end of each calendar year, the lease term shall automatically extend for another year such that the term is always three calendar years, unless terminated under the provisions of this lease.
- Evergreen lease term: The term of this lease shall be two (2) years, starting on the date hereof and ending on the two-year anniversary of that date. The term shall be automatically extended an additional two (2) years on the anniversary of the term; provided that neither Party has given written notice of termination to the other ninety (90) days prior to the annual extension pursuant to any provision herein.
- Lessee may purchase all or part of the Premises according to either a separate or attached Option to Purchase agreement or Right of First Refusal agreement.