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Charles Feitel

Why You Should Have A Complimentary Lease Review (Part IV)

Why You Should Have A Complimentary Lease Review (Part IV)

9/9/2019 4:18:40 AM   |   Comments: 0   |   Views: 5

Fair Market Value

Your tenant rep will want to look at your lease to make sure what you're paying for rent is based on fair market value.

If rents dropped in your market area since your lease signing, it's time to renegotiate.

But before doing that, have your tenant rep look at your lease. He'll compare what you're paying to what others who are renting comparable space are being charged.

This amount is known as "Fair Market Value" (FMV), and this (or less) is what you should be paying. Naturally, your landlord wants your rent to be as high as possible. You, on the other hand, you don't want to get gouged.

You just want to pay your fair share, and not a penny more.

Because you and your landlord have vastly different ideas of what you should be paying, negotiations can be testy. This is the time when you'll need your tenant rep the most.

There are three standard methods used to arrive at an agreement:

The Average Method

With the Average Method, you and your prospective landlord will each appoint someone to arrive at an FMV amount. These appraisers have to be qualified at what they do and have to meet agreed-upon criteria.

In other words, your landlord doesn't get to appoint his uncle Dave, who owns a restaurant but has zero real estate experience.

The numbers are averaged together if they don't agree.

The worst thing about this method is that the amount that emerges after all the dust settles probably won't reflect the actual market value of the property.

The Three Broker Method (or the Three Appraiser Method)

Again, if you and your landlord cannot agree on a figure for FMV, you both get to choose a qualified professional to do an appraisal. But this time, if the numbers don't match up, you and the owner will have to hire a third one to break the deadlock.

This appraiser will either come up with his own impartial assessment or, he'll average the two previous amounts. The Three Broker Method is a popular method of FMV appraisal as there's a perception that the addition of the third assessor guarantees the integrity of the process.

The downside is that it leaves room for capricious decisions by the third appraiser that won't be palatable to either party.

And because you're hiring an extra appraiser, it will probably cost more than the previous two methods.

The Baseball Arbitration Method

In recent years, the Baseball Arbitration Method has become the most popular method for resolving disagreements as to what exactly constitutes fair market value. It's modeled after Major League Baseball rules for settling salary disputes.

To use this method, both of you will submit a fair market amount to the arbitrator. The arbitrator will analyze the market and then select one of the two numbers that he thinks best reflects the real market value.

The arbitrator has to pick only one figure, and his decision then becomes legally binding.

If your landlord was thinking of gouging you with an unreasonable FMV amount, this method would make him think twice about that strategy. Because if he uses it, the impartial arbitrator will probably go with your number instead.

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