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Reappraisal Lease
A reappraisal lease refers to a lease containing terms that allow the adjustment of rental rates based on a percentage of periodic independent appraisal of property value.
The period in which these reappraisals occur can differ from lease contract to lease contract.
However the common practice, should landlord and tenant agree to such conditions, is to have the value reviewed annually or when a tenancy agreement is up for renewal.
It is also common with long term ground leases as it is inevitable that property value would change considerably after an extended period of time.
Such reappraisal is a fair practice as tenants might end up with lower rentals should value depreciate, or landlord get to collect higher rentals should value appreciate in the open market.
While this enables tenants to save on rental should markets fall, it also puts significant risks on them should markets rise.
The appointed appraiser can play a key role here as one that it appointed by either party might appraise the property leaning towards an advantage for it’s client.
Meaning an appraiser hired by a lessee might favor a decline in value, while one appointed by a lessor might favor an increase.
In such cases where both parties don’t trust each other, then a third party might have to be hired.
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