In the Spotlight: How Many Arbitrators Does It Take to Settle a Lease Dispute?

Hundreds of leases contain the right of a tenant that is not in default “to renew its lease (or to extend its term) on the same terms and conditions, except for any further right of renewal/extension and except for the basic annual minimum rent, which is to be agreed upon between the parties ' ” Should the parties fail to agree within a designated time limit, then “ the fair market rent for the Premises during the renewal/extension term is to be determined by arbitration by three arbitrators, with each side picking one arbitrator and the two arbitrators picking a third.”

Not the Best Approach

This may not be the best approach because it is just too expensive. Presume that the retail space in question is 1,500 square feet; the tenant is paying $18 per square foot per annum, and the landlord has indicated that it wants $25 per square foot per annum during the renewal extended term.

The parties do not agree and the three arbitrators are chosen. Take a look at the cost of just choosing the three arbitrators. Presume that each arbitrator's fee is $500 per hour and that the arbitration will be for one day, comprising approximately eight hours. The cost for the three arbitrators for that one day of arbitration is: ($500 x 8 = $4,000 x 3 = $12,000).

Each side then generally designates its own counsel. Assume that counsel's hourly rate is also approximately $500 per hour, and, therefore, counsel's cost for that one day arbitration would be $500 x 8 = $4,000 x 2 = $8,000.

Designated Appraisers

Each side also has to pick a designated appraiser for the property (to determine the fair market rent during the renewal/extension term). Assuming the appraiser's cost is also $500 per hour, his/her cost for the day would be $500 x 8 = $4,000 x 2 = $8,000.

Based on the above figures, the cost of the arbitration for that single day would total $28,000, which amount is then divided by two, as each party would pay 50% of the arbitration cost. Thus the cost to each party for that single day arbitration is $14,000. And that's presuming the arbitration does not take more than just one day, as many do.

Conclusion

A three-member panel arbitration is too expensive, unless, of course, the amount involved is extremely high. If both parties agree on a single experienced and qualified commercial arbitrator, they will cut down the costs substantially. In addition, to reduce the cost of the arbitration even further, both parties can pick a single appraiser, whom both agree is fair, experienced and knowledgeable in the trade. So save your money and avoid the three-member model.

Harvey Haber, Q.C., J.D., a member of this newsletter's Board of Editors, is a Senior Partner at Toronto's Goldman Sloan Nash & Haber LLP. He focuses on Retail, Office & Industrial Leasing, Lease Interpretation, Mediation and Arbitration, and may be reached at 416-597-3392 or by e-mail: [email protected].

Hundreds of leases contain the right of a tenant that is not in default “to renew its lease (or to extend its term) on the same terms and conditions, except for any further right of renewal/extension and except for the basic annual minimum rent, which is to be agreed upon between the parties ' ” Should the parties fail to agree within a designated time limit, then “ the fair market rent for the Premises during the renewal/extension term is to be determined by arbitration by three arbitrators, with each side picking one arbitrator and the two arbitrators picking a third.”

Not the Best Approach

This may not be the best approach because it is just too expensive. Presume that the retail space in question is 1,500 square feet; the tenant is paying $18 per square foot per annum, and the landlord has indicated that it wants $25 per square foot per annum during the renewal extended term.

The parties do not agree and the three arbitrators are chosen. Take a look at the cost of just choosing the three arbitrators. Presume that each arbitrator's fee is $500 per hour and that the arbitration will be for one day, comprising approximately eight hours. The cost for the three arbitrators for that one day of arbitration is: ($500 x 8 = $4,000 x 3 = $12,000).

Each side then generally designates its own counsel. Assume that counsel's hourly rate is also approximately $500 per hour, and, therefore, counsel's cost for that one day arbitration would be $500 x 8 = $4,000 x 2 = $8,000.

Designated Appraisers

Each side also has to pick a designated appraiser for the property (to determine the fair market rent during the renewal/extension term). Assuming the appraiser's cost is also $500 per hour, his/her cost for the day would be $500 x 8 = $4,000 x 2 = $8,000.

Based on the above figures, the cost of the arbitration for that single day would total $28,000, which amount is then divided by two, as each party would pay 50% of the arbitration cost. Thus the cost to each party for that single day arbitration is $14,000. And that's presuming the arbitration does not take more than just one day, as many do.

Conclusion

A three-member panel arbitration is too expensive, unless, of course, the amount involved is extremely high. If both parties agree on a single experienced and qualified commercial arbitrator, they will cut down the costs substantially. In addition, to reduce the cost of the arbitration even further, both parties can pick a single appraiser, whom both agree is fair, experienced and knowledgeable in the trade. So save your money and avoid the three-member model.

Harvey Haber, Q.C., J.D., a member of this newsletter's Board of Editors, is a Senior Partner at Toronto's Goldman Sloan Nash & Haber LLP. He focuses on Retail, Office & Industrial Leasing, Lease Interpretation, Mediation and Arbitration, and may be reached at 416-597-3392 or by e-mail: [email protected].