Chris Carmen / April 19, 2016
Since starting my career leasing office and industrial space over 30 years ago, real estate abatement has consistently been a tool that landlords use to procure new tenants.
In addition to simply being a landlord incentive for tenants to lease space in a particular building, rental abatement, a/k/a Free Rent, can also serve a few specific purposes for tenants. Free Rent can help companies defray some of the costs associated with an office relocation. By lowering a small businesses’ average cost of occupancy (effective rent), it can help small businesses to afford to lease office space that may be strategically more desirable, but out of a firm’s budget.
Free rent also has some downsides. Often, landlords will use free rent in an effort to push up the rental rate the tenant pays following the rental abatement. Although this may be inconsequential when you average the free rent along with the higher rent paid over the term, the higher face rent could haunt the tenant when it comes time to renew the lease. Landlords will often base the new rate on the rent paid at the end of the term, without the benefit of the free rent that was used to lower the rent during the initial lease term.
I believe the article What Tenants Should Know about Rent Abatement written by Don Catalano addresses some key considerations of free rent and provides a thorough explanation of uncertainties associated with it.
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