Ground Lease Renewal Clause
(Baseball Arbitration) (Pro-Landlord)

Summary

This ground lease renewal clause is for use by a landlord to grant a tenant the right to renew the term of a ground lease at a fair market rent determined by the so-called baseball arbitration process. This template is pro-landlord and includes practical guidance and drafting notes. Ground Leases are typically for a long term, up to 99 years. As it is difficult for a landlord to project fair market rent over a long term, it is common to structure a ground lease with an initial term at an agreed rent, followed by a series of term renewal rights at the then-current fair market rent. If the parties can't agree on fair market rent for a renewal term, the fair market rent is established by an arbitration process. The arbitration process involves the submission of information to an arbitrator, who then determines what the fair market rent is. One approach to the determination of fair market rent involves the use of baseball arbitration. In baseball arbitration each party provides the arbitrator with a fixed number which it feels is the fair market rent. The arbitrator then picks which of the two numbers is closest to what the arbitrator has determined is fair compensation. This process encourages each party to submit a number that is close to what is fair, and encourages the parties to be more cautious and less likely to pick an extremely high or low number, hoping that the arbitrator will just average the two demands. This ground lease renewal clause is intended for inclusion in a ground lease. For guidance in representing landlords in connection with negotiation of ground leases generally, and specifically renewal clauses, see Ground Leases: Drafting and Negotiation Strategies.