For an option to renew or extend to be enforceable (as opposed to being a mere “agreement to agree,” which is unenforceable at law), the option must include both a formula or reference standard and machinery to determine the rent during the renewal/extension term.

Binding arbitration is the typical “machinery” used to determine the rent during the extension term in the event that negotiations between the landlord and tenant fail to produce an agreement within a stipulated period.

Reprinted by permission of Carswell, a division of Thomson Reuters Canada Limited.

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