Rental abatement, also known as rent reduction, is a lease incentive that a commercial landlord may enforce. It leads to an overall reduction in the rental price over the length of the lease (or sublease).
If a tenant were to negotiate a 10% reduction on their face rent of $75,000, this would mean they would pay 90% of their face rent each month and save $7,500 per month which adds up to $450,000 over a five-year lease.
Uses of Rent Abatements
Used by landlords, rent abatement is an incentive for tenants to sign longer lease terms. These are represented as a dollar or percentage discount.
However, rent abatement can also be used by the tenant to pay less per month on their lease and save some money.
Other Lease Incentives
There are many other lease incentives that landlords may use to attract possible tenants to lease their property. These include:
This incentive is usually applied at the start of the lease and allows you as the tenant to not pay rent for that specific period of time. Rent-free periods are generally used when the property is not yet ready for tenancy due to improvements. It could take anywhere between a few weeks or up to 6-9 months for the property to be ready, therefore, it would not be acceptable to ask for rent during this time.
This is a lease incentive that applies to the process of installing fittings and fixtures. It is an incentive that allows the tenant to amend the property at the cost of the landlord for a higher rent or be reimbursed by the landlord. Generally, most landlords will opt to pay the fit-out as a ‘reimbursement’.
A clawback provision is more of an incentive to the landlord than to the tenant. If you were to ‘trigger’ a certain event, a clawback provision would require you pay back the incentive amount.
Clawback provisions are legally enforceable. Therefore, seeking legal advice is a good idea as it can protect you from surprises down the road.
How to Negotiate Tenant Incentives
- Work out which incentive suits you best.
- Consult a professional and understand the possible tax implications as each incentive has a different tax implication.
- The outcome of your negotiations will be dictated by the market so know your market.
- Speak to or even hire a professional, such as a commercial tenant advisor, to help with negotiations. Above all, they know the market and will help maximise your incentive possibilities.
If you are looking for professional or legal assistance about rent abatement and lease incentives, it is always a good idea to consult a commercial lease lawyer for further advice.