Renewal Option

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).

BREAKING DOWN '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. Bargain Renewal Option

    A clause in a lease agreement that gives the lessee the option ...
  2. Leasehold

    An accounting term used to classify an asset on a company's balance ...
  3. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  4. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  5. Lease Extension

    A legal agreement that extends the term of a rental agreement. ...
  6. Fixed Price Purchase Option

    The right, but not the obligation, to buy a leased item at a ...
Related Articles
  1. Investing

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  2. Managing Wealth

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  3. Personal Finance

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  4. Retirement

    Retirees: Should You Buy or Lease Your Car?

    To buy or lease – that is the question. For retirees, access to safer cars, comprehensive warranties and tax deductions may drive up leasing's appeal.
  5. Personal Finance

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  6. Personal Finance

    When Is Buying A Car Better Than Leasing?

    People who lease a car are often more concerned with the short-term picture.
  7. Investing

    Uncovering Hidden Debt

    Understand how financing through operating leases, synthetic leases, and securitizations affects companies' image of performance.
  8. Personal Finance

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  9. Managing Wealth

    New Wheels: Lease Or Buy?

    These two major ways to obtain a car have very different advantages and drawbacks. Find out which is best for you.
  10. Personal Finance

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
RELATED FAQS
  1. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  2. At the beginning of the year, HIJ Corp. began to lease new equipment ...

    The correct answer is: b) Total Lease Payment = Interest expense + Principal repayment Step 1: Interest expense = 8.5% of ... Read Answer >>
  3. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  4. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  5. What are the differences between single, double and triple-net leases?

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
  6. How does the value of the real estate impact the value of a triple net (NNN) lease?

    Understand how the value of the real estate involved in a triple-net lease impacts the value of the lease both positively ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center