Fair Market Value (Appraisal Method) (Commercial Lease Purchase Option)

by Practical Law Real Estate

A Standard Clause that outlines a method primarily used for determining the Fair Market Value of commercial real estate under a purchase option within a lease agreement. This Standard Clause details an appraisal process, beginning with an attempt by the parties to mutually agree on the value. If an agreement is not reached, it provides for the appointment of qualified real estate appraisers by each party. The clause further specifies procedures if these initial appraisals differ significantly. It also addresses the allocation of appraisal costs. While designed for purchase options in commercial leases, this valuation mechanism can be adapted for other commercial real estate transactions requiring a Fair Market Value determination, such as lease extensions or options for additional space. This Standard Clause is jurisdictionally neutral and offers a relevant framework for parties in any state needing to establish a clear process for property valuation. It provides drafting guidance and negotiating tips for both parties.