Encyclopedia
Fair market rent
The rent a willing landlord and tenant would agree on for similar space, often used to set renewal rent. Leases define it differently.
For example: A tenant's renewal says rent will be fair market rent, and the lease sets out arbitration if they can't agree. (Illustration only, not a real deal.)
Official source: Arbitration Act (BC Laws)
Example only, not a real client. Say your lease renewal option says rent will be reset to fair market rent. You and the landlord disagree on the figure. The lease sets out how it is decided, such as by arbitration, and you gather comparable leases to support your number.
What I’d tell a friend
Read how fair market rent is defined in your lease. The definition can make a big difference.
Why it matters to you
It's often what your renewal rent resets to. If the lease doesn't say how it's decided, renewal can become a dispute.
How to use it in your deal
Tenants and landlords should read exactly how the lease defines fair market rent: does it consider the space as improved by the tenant, or as a basic shell? Does it account for inducements given in the market? Is there a floor, like no less than the last year's rent? These details can change the result a lot. Gather evidence on comparable leases, ideally recent deals for similar space nearby.
If you can't agree, check the dispute process; many leases use arbitration under the BC Arbitration Act. Start negotiating early, since arbitration takes time and money. A licensee or appraiser can help with comparables. Landlords should be realistic, because an arbitrator will look at evidence, not asking rents. Keep notes of your negotiations and offers, and get the final agreement in a written lease amendment.
If the lease is silent on details, an arbitrator may decide them, which is a gamble for both sides; agree on the basis first, then argue about the number.
Mistakes I see
Not reading the definition. Relying on asking rents. Starting too late.
In BC and Vancouver
The Arbitration Act governs arbitrations in BC.
Official sources: Arbitration Act (BC Laws) · Commercial Tenancy Act (BC Laws)
What it means
Fair market rent is the rent a willing tenant and landlord would agree to for similar space, at a given time.
Leases often use it to set rent on renewal or for rent reviews.
What to check
Look at what factors are included, such as improvements and incentives, and how disputes are resolved.
Gather evidence of recent comparable leases. I can help with that.
Questions to ask before you sign
- How is fair market rent defined?
- Is there a floor?
- What are comparable leases?
- What's the dispute process?
Keep reading
Related terms: Market rent, Renewal option, Escalation clause
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.