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When negotiating an option in favor of the tenant to extend the term or expand the leased premises at a later date, the issue of how to determine the economic terms of that extension or expansion can be a contentious one. Leasing markets are subject to quick and violent volatility, and landlords and tenants now more than ever are reticent to lock themselves into long-term fixed rental. But without a fixed rent schedule for an extended term or expansion premises, how can the parties agree on a method of determining market rent in a fair and reasonable way? What are the criteria for arriving at what is “fair,” and who ultimately decides?
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