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Fair Market Rent (FMR)
Practical Law Glossary Item w-002-5343 (Approx. 3 pages)
Glossary
Fair Market Rent (FMR)
The price a landlord would charge in an arm's length lease transaction. In determining the fair market rent, some or all of the following may be considered:
- The existing use and condition of the land and any improvements.
- Building improvements, including:
- the quality of the existing leasehold improvements;
- specific build-outs required by the tenant; and
- which party pays for the improvements.
- The level and quality of services provided to tenants of the building.
- The average price paid:
- by tenants for other properties of similar type, size, and location; or
- for leases of neighboring properties used in a manner consistent with the highest and best use of the subject premises.
- The potential price for a specific contemplated future use.
- Whether the tenant pays additional rent for items such as:
- real estate taxes;
- operating expenses; and
- insurance.
Parties typically must agree on the FMR both:
- During initial negotiations.
- When exercising a renewal option.