Скачать или смотреть Negotiating Fair Market Value in Lease Extension Options – Key Factors to Define

Learn how to structure enforceable fair market value lease extension options by clearly defining terms, factors, and exclusions that impact rent calculations.

SHORT SUMMARY
Attorney Bryan Mashian explains that for a lease extension option to be enforceable at fair market value, the terms must be clearly defined. Courts often find “rent to be agreed upon” clauses unenforceable if they lack a concrete standard or mechanism, such as an appraisal process.

Key to defining market rent is specifying whether it’s based on renewals or new leases and excluding skewed comparables—such as subleases, affiliate leases, or transactions subject to rights of first refusal or expansion options.

Market rent should reflect an arms-length deal between willing parties, considering comparable properties in location, size, age, quality, visibility, signage, and accessibility. Additional considerations include tenant improvements (to avoid double-paying for them), rent abatements, tenant creditworthiness, operating expense reimbursements, and the agreed use.

The clause should also address whether deferred maintenance or landlord brokerage commission savings will affect rent. By anticipating these factors, both landlord and tenant can avoid disputes and ensure the option clause is enforceable, transparent, and fair.