PEOPLE are free to negotiate and enter into a contract under the terms and conditions they agree on, including a term providing for the renewal of their agreement. The renewal may be an option for either of the contracting parties to renew the agreement based on a certain condition to be fulfilled by the party who has the option. In the case of a sale agreement, the option to renew cannot be indefinite, since this is against the perpetuities rule.
However, this does not apply with regard to tenancies which can include an option for their renewal. The obligations of the parties and in particular of the tenant are not affected by such an option, the tenant being obliged to comply with the terms of the tenancy. A party has the right to exercise the option given to him or not and where the tenant violates the agreement, the landlord is entitled to terminate the tenancy, claim the tenant’s eviction, delivery of the demised premises and any amounts due.
For an option to be valid, the wording used must be clear and indicate the intention of the parties to include the right to renew and extend the lease. An option for future lease may state that if neither party gives written notice to the other at least one or two months before the expiration of the agreement terminating or altering it or its terms, the lease is automatically renewed under the same terms and conditions for another year with a certain increase in the rent for every consecutive year. The fact that the demised premises may be within an area controlled by the Rent Control Law and were built prior to 31.12.1999 does not change the issue, since the lease may be terminated if proper notice is given. One has to ascertain the true intention of the parties and whether the tenancy is extended, what the breach is if any and what notice must be given to the party in breach.
If the breach is committed by the tenant failing to pay the rents, the landlord is entitled to send him a letter in accordance with the agreement terminating it and claiming payment of the amount due and delivery of the possession of the premises. With regard to statutory premises, the right forum to try the case is the Rent Control Court and for contractual tenancies the District Court. The claim may be only for the payments of the rents in arrear and the communal charges if delivery of the premises has been given. Where there is a guarantor of the tenant, the wording of the guarantee clause should also be examined whether it covers the renewed tenancy.
Such a guarantee clause should state that the guarantor guarantees the tenant for the faithful compliance of all the terms and obligations deriving from the tenancy agreement, that it will be continuous until delivery of the premises to the landlord and cover any expressed or implied extension of the tenancy either under any agreement or application of any law. Furthermore, it should state that it will be valid and in force despite the tenancy being contractual or statutory, independently of whether any notice has been given for an extension or the landlord has accepted or tolerated any extension for payment or of him having being notified or not.
The Supreme Court decided that a lease agreement expires upon expiration of the renewal period and not upon expiration of the original period. The guarantor should know of the option for the renewal of the tenancy and that he intended to guarantee the tenant for the whole period of the lease and not only for the original one. The extension of the tenancy did not create a new lease and therefore, it did not release the guarantor from his obligations.