“Baseball” Arbitration for Commercial Leases

As a means to set a player’s salary when he became a free agent, the arbitration process became a mainstay in baseball. Similarly, a commercial lease should include a baseball arbitration clause to prevent a protracted dispute between the owner and tenant. Often a commercial lease uses fair market value as the method to determine the amount of the renewal rent. Nevertheless, a dilemma arises when each party asserts different dollar amounts. For example, the tenant might believe the fair market value to be $60 per square foot; while the owner places the value at $100. This is where a baseball arbitration clause will shed some light into the dark corners of the commercial lease. The presence of an arbitration clause will allow an arbitrator to determine the square foot fair value of the property. If the arbitrator sets the value at $75, then the new rent amount will be the number closest to the arbitrator’s number. In this case, it would be $60. This encourages the parties to present a realistic amount as the fair market value of the renewal rent when it’s time to renegotiate the lease for an additional term.

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