An extension option is a term of a lease that allows the tenant to extend the previous term of the lease under the existing agreement. It would be burdensome if both the tenant and landlord had to construct and sign new agreements every year or each time the previous agreement expired. When a lease includes an extension option, the terms of continued occupancy is described in the agreement. An extension option typically includes the duration in which occupancy is extended. It will also describe the financial aspects of the continued occupancy. For example, tenants may continue to occupy the property at the same rate as the previous agreement indicated, or there may be a provision for a percentage increase. If tenants foresee that they will be occupying the property for an extended period of time, it is wise to verify that an extension option is included in the contract.
