“Market Rate” in Options May Cause Option to be Unenforceable

Option years are written solely for the benefit of a tenant and options add significant value to an ongoing business. Recently, some Court have given landlords an “out” and allowed landlords to cancel a lease renewal term where the option is based upon “market rate” rent. While it would be expected that a Court could be left with the final say-so as that is “market rate,” many Courts have elected not to do so. To be on the safe-side, in order for the option to be enforceable, tenants should be careful to ensure that there is clear guidance as to how to calculate the rent (a mathematical formula is best), perhaps a minimum (previous year’s rent) and a maximum and consideration to have the parties resort to binding arbitration to have a third party determine the “market rate” rent if the landlord and tenant are unable to agree. Don’t assume that just because there is an option in your lease that it will be enforceable. Call WeissLLP for more information.