Renewal Option

AAA

DEFINITION of 'Renewal Option'

A clause in a lease that outlines the terms for renewing or extending an original lease agreement. The renewal option appears as a covenant in the original lease and provides specifications under which the leaseholder can renew or extend the original lease term for an additional, specified time and rate (rent).

INVESTOPEDIA EXPLAINS 'Renewal Option'

A renewal option provides the leaseholder the option, but not the obligation, to renew or extend a lease agreement beyond its initial terms. A start-up business may, for example, rent an office space for five years. A renewal option would allow the business to renew or extend the lease to remain in the office space beyond the five-year lease term. This can be beneficial to the business: if it is doing well in the location, it can remain for an additional term; if it is doing poorly, it can close shop at the end of the initial term without defaulting on the lease and without pressure to renew or extend it.

RELATED TERMS
  1. Gross Lease

    A type of commercial lease where the landlord pays for the building's ...
  2. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Operating Lease

    A contract that allows for the use of an asset, but does not ...
  5. Commercial Real Estate

    Property that is used solely for business purposes. Examples ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. If a long call is owned on the record date of a stock, is the owner of the option ...

    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  2. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  3. What does negative vega mean for credit spreads?

    Greek vega measures an option's sensitivity with respect to a change in the underlying asset's volatility. The vega of an ... Read Full Answer >>
  4. What options strategies are best suited for investing in the banking sector?

    The covered call option strategy allows investors to profit from the banking sector's stability and its track record for ... Read Full Answer >>
  5. What options strategies are best suited for investing in the drugs sector?

    The covered call and long straddle options strategies enable investors to capitalize on the unique characteristics of the ... Read Full Answer >>
  6. What's the difference between a credit spread and a debt spread?

    When trading or investing in options, there are two main option spread strategies, credit spreads and debit spreads. Credit ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Home & Auto

    7 Steps To A Hot Commercial Real Estate Deal

    For savvy real estate investors, times of lower prices reveal investment opportunity.
  3. Home & Auto

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  4. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  5. Options & Futures

    How To Trade Orange Juice Options

    How do orange juice options work and which factors determine the orange juice valuations? Here's a sneak peak into the world of orange juice options.
  6. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  7. Options & Futures

    Why Is Best Buy Stock So Volatile?

    We look at why BBY has been so volatile in the past and whether this trend is likely to continue or abate in the future.
  8. Investing Basics

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  9. Options & Futures

    Circumvent Limitations of Black-Scholes Model

    Mathematical or quantitative model-based trading continues to gain momentum, despite major failures like the financial crisis of 2008-09, which was attributed to the flawed use of trading models. ...
  10. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center