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ARTICLE · 28 JULY 2014

Six Considerations For Rent Arbitration Clauses In Commercial Leases

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When a commercial tenant renews a lease, it is imperative that the landlord and tenant have mechanisms in place to determine the rent for the renewal term.

CanadaReal Estate and Construction
Micaela Zila
Micaela Zila
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Written with the assistance of Alastair MacKinnon, student-at-law.

When a commercial tenant exercises an option to renew a lease it is imperative that the landlord and tenant have effective mechanisms in place to determine the rent for the renewal term. Ideally both parties will agree on the new rental rate, but if a dispute arises there needs to be a framework to quickly resolve the disagreement. The following are six key considerations for landlords and tenants negotiating rent arbitration clauses in commercial leases.

1. Carefully define Fair Market Rent in the Lease/Option to Renew

Typically, an option to renew allows a tenant to extend a commercial lease for a specified time period, according to the terms of the original lease, except that the rent for the renewal term is to be renegotiated on the basis of "fair market rent." The term "fair market rent" is often not defined at all or very well in many commercial leases. Time needs to be taken by both the

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