9th July 2025 | Jonathan Broad | Commercial Property, Lease renewal, Perpetually Renewable Lease

In commercial leases, a landlord and tenant will sometimes agree to allow the tenant to have an option to renew contained within the lease, usually on similar terms.

This provides the tenant with more commercial certainty as to the length of time they may occupy the premises and may be more acceptable to the parties than a lease for a longer term with a break clause.

There is, however, a scenario which landlords need to be careful to avoid.

The Perpetually Renewable Lease

For an option contained in a simple clause in a lease, it is usual to contain a sweeper statement that the new lease is, except where stated otherwise, “on the same covenants and provisos of this lease”.  Obviously, if that were interpreted to include the option to renew, you would have on paper a lease which was perpetually capable of renewal.

It is not possible to grant a lease which is renewable in perpetuity.  Under s145 and Schedule 15 of the Law of Property Act 1922, a lease which purports to be perpetually renewable is converted into a lease for a fixed term of two thousand years. 

As options to renew are usually found on relatively short-term leases, it is highly unlikely this would be contemplated by or to the benefit of the landlord.

Fortunately, given the unlikelihood that this was what the parties intended, “[a]s a matter of history, when a covenant by a lessor conferred a right to renewal of the lease, the new grant to contain the same or the like covenants and provisos as were contained in the lease, the courts refused to give literal effect to that language, which if taken literally would mean that the second lease would contain the same…option to renew…” (Russell LJ in Re Hopkins’s Lease; Caerphilly Concrete Products Ltd v Owen [1972] 1 All ER 248). 

However, where the parties have included language that clearly indicates the renewal lease is to include an option (e.g. an option for a new lease “on the same provisos and agreements as are herein contained including the option to renew such tenancy for a term at the end thereof”) then the courts will accept that this creates a perpetually renewable lease, which is converted into a 2,000 year term.

The Palo Alto case

In the 2018 case of Palo Alto Limited and others v Alnor Estates Limited, the landlord had, acting without legal representation, entered into what they believed to be a one year lease with an option to renew for a further year, drafted as a simple clause as follows: “The tenancy is granted for a period of one year with an option to renew at the end of the term”.

The tenant requested an amendment to this clause to “The tenancy is granted for a period of one year with an option to renew at the end of the term/or a further one year on the same provisos and agreements as are herein contained including the option to renew such tenancy for a term of one year at the end thereof.”

Believing that this simply granted the tenant the ability to extend twice up to a maximum of three years, the landlord agreed.

On completion, the tenant applied to the Land Registry for the registration of a 2000 year lease on the basis the lease granted was perpetually renewable.

The Land Tribunal decided (unsurprisingly) that the lease was indeed perpetually renewable, and that rectification for mutual mistake was not possible, as the tribunal found the tenant knew the consequences of their amendment.

However, the Land Tribunal did allow rectification on grounds of unilateral mistake.  They found that the tenant was aware of the mistake, that the mistake was in the tenant’s favour, and that the landlord was unaware of the mistake and hence it would be inequitable to refuse rectification of the tenancy on these grounds. 

The Landlord was in one sense fortunate; the tenant’s actions could not be plausibly explained other than in trying to wangle an advantage on a little-known point of law, and despite some rather technical arguments about whether unilateral mistake could apply the tribunal’s sympathy was clearly with the landlord.

On the other hand, in trying to save money by not being represented in the grant of a lease, the landlord had to incur the time and expense of two tribunal cases (there was an appeal to the Upper Tribunal on some points) in order to rectify something that, with professional advice, could easily have been avoided in the first place.

 

Whether you are a landlord or a tenant, it is critical to ensure that lease terms effect the commercial intentions of the parties, without opening the door to legal uncertainty or costly rectification proceedings.

If you have any questions or would like to learn more, please contact Jonathan Broad, Associate in our Commercial Property team.