Originally published in A Carswell Publication - Legal Alert • September 2011 • Volume 30 • Number 6.

Binding arbitration typically determines the rent during a renewal/extension term where the parties are not in agreement.

For an option to renew or extend to be enforceable (as opposed to being a mere “agreement to agree,” which is unenforceable at law), the option must include both a formula or reference standard and machinery to determine the rent during the renewal/extension term.

Binding arbitration is the typical “machinery” used to determine the rent during the extension term in the event that negotiations between the landlord and tenant fail to produce an agreement within a stipulated period.

Arbitration language

By way of example, the following is the arbitration language in the “option to extend” clause from the precedent Shopping Center Lease of intermediate complexity found in Haber’s Shopping Centre Lease...

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