when a lease expires both the lessor and the lessee have a few options available the lessee can vacate or give up access to the property or the two parties can agree to a lease renewal this option may require some renegotiation of the terms of the new lease the final option is to extend the lease the terms of the original lease are normally still in force but the time frame for an extension tends to be shorter so in the case of a residential rental property the landlord may keep some of the original lease terms like the rental amount due but extend the period of tenancy for the lessee 
the lease extension is a formal document that must include certain details it should name all the parties involved in the agreement as well as the dates on which the extension begins and ends the extension document should also reference the earlier agreement being extended some lease extensions especially in real estate are granted automatically they may specify a certain length of time for the extension or may allow for the use of the property on a month to month basis special considerationslease extensions are an important part of the lessor lessee relationship as they reduce the risk involved for each party for example a landlord who agrees to a lease extension can keep the original lease terms intact including any provisions about notices to vacate this means the tenant has to provide prior written notice before vacating the property the landlord can rest assured there are no surprises and won t have to risk an empty unit similarly a lease extension can give tenants some stability with a proper extension in place tenants won t have to give up their units after the lease expires although not a requirement lease extensions reduce the risk involved for both the lessor and the lessee businesses enter lease agreements and agree to lease extension agreements for a variety of reasons the primary reason for leasing an asset rather than buying it is risk management a business may decide to lease a parcel of land so that it is protected from the risk of fluctuations in land prices this allows the business to focus on its core competency rather than real estate another reason for leasing is to simplify disposal a construction company for instance may decide to lease a piece of heavy equipment rather than buy it so that it does not have to deal with selling the equipment after it is no longer needed a lessee may pay more per hour in order to use the equipment but this can be worthwhile if it saves time and the cost of selling the equipment at a later date examples of lease extensionsa lease extension may be executed between a landlord and a tenant in this case if both parties choose to continue the tenancy the landlord may issue a lease extension when the original lease is set to expire lease extensions may also be granted to lessees by car dealerships let s assume a consumer leases a car for four years after that period the lessee may decide to buy or begin another lease for a brand new car the dealership may grant an extension of the original lease if the new replacement vehicle is not yet available 