Is "Fair Market Rent" Really that Fair?


In most commercial leases, "Fair Market Rent" is the standard for the rent payable during a renewal period. While most leases provide some general guidelines for how to determine "Fair Market Rent", they typically do not set out exactly what is to be included or excluded in this determination. It goes with out saying that when the time comes for renewal, the landlord and tenant may have very different ideas on the amount of rent payable during a renewal term.

Most leases attempt to resolve this inherent problem by providing that if the landlord and tenant cannot reach an agreement, the matter will be referred to arbitration. While this sounds like a simple solution, arbitration can be both expensive and unpredictable, especially if the terms of the lease are vague and subject to different interpretations. Fire Productions Ltd. v. Lauro, a recent decision from British Columbia Court of Appeal, is a good example of the risks for both the landlord and the tenant when "Fair Market Rent" is not clearly defined. This case also provides insight on how arbitrators and British Columbia courts will interpret the term "Fair Market Rent" in the future.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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