Tenant Purchase Option Clause
(Appraisal Method, Commercial Lease) (Pro-Landlord)

Summary

This purchase option clause may be included in a commercial lease (retail, office, restaurant, or industrial) to determine the purchase price upon exercise by tenant of an option to purchase. This clause is pro-landlord and provides for the sale price to be the fair market value of the commercial property as determined by an appraisal process. This clause includes practical guidance and drafting notes, as well as alternate provisions favoring tenant. Commercial leases are often for a long term, up to 10 years with extension rights. As it is difficult for the landlord and tenant to determine an appropriate purchase price for an option to purchase during such an extended term at the time the lease is signed, the lease typically sets forth a formula or process to be used at the time the option to purchase is exercised to determine the purchase price. One commonly used formula involves applying the cumulative increase in a specific index such as the consumer price index (CPI). The alternative processes include arbitration or appraisal. This clause provides for determination of fair market value using an appraisal process. For an example of a commercial building purchase and sale agreement that pursuant to this clause could be attached as an exhibit to the lease, see, Commercial Purchase and Sale Agreement (Long Form). With respect to options to purchase lease clauses generally, see, 6-4C Current Leasing Law and Techniques- Forms §4C.03 For further information on purchase options, see Purchase Options in Commercial Real Estate Transactions and Tenant Purchase Options in Commercial Leases. For further information on commercial leasing, see Industrial Leasing Resource Kit, Office Leasing Resource Kit, Restaurant Leasing Resource Kit, and Retail Leasing Resource Kit. For guidance on purchasing and selling commercial real estate, see Purchasing and Selling Commercial Real Estate Resource Kit.