Jun 13, 2016

What Tenants Should Know about Rent Abatement

By Don Catalano

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Having a rent abatement added to your commercial real estate lease can be incredibly beneficial to your company, and it's one of the few concessions that landlords can make that doesn't carry a high cost. As a result, it's often possible to secure a rent abatement during a negotiation.

 

If you're not familiar with a rent abatement, the arrangement basically means that your landlord will allow your company to occupy your space without having to pay a rent. This can help your business keep costs to a minimum following an expensive move to a new unit. For landlords, an abatement has minimal costs, so if there is high competition, offering abatements is a simple way to attract tenants.

 

While this can be a good thing for tenants, just how beneficial a rent abatement is will vary on the terms. In order to ensure that a rent abatement is truly saving you money, follow these tips:

 

Beware of Clawbacks

A landlord's main goal is to keep their unit occupied for the life of the lease. In exchange for offering a rent abatement, landlords often add clauses that require tenants to fulfill their entire lease obligation to ensure that they receive rental payments every month. If for some reason you end up having to break your lease or taking advantage of an early surrender clause, you could be hit with an expensive fee known as a clawback that will require you to pay the skipped rents and possibly additional fees.

 

Ask About CAM

A rent abatement is often only "free rent" without CAM fees included. After all, the landlord must still pay for your utilities and to manage and maintain your space even if you're not paying rent for it. Even if you are assessed CAM charges during the free rent period, you still stand to save money; however, you need to know going into the contract whether or not you'll be responsible for paying CAM.

 

Request Abatement Wisely

It's usually best to begin negotiations asking for the most important concessions for your company. While free rent can be attractive and beneficial, there are likely other concessions that are more vital to your company. Your best bet is to use rent abatement as a bargaining tool later in negotiations after your main concessions have been accepted. Because there is very little cost involved for the landlord, they are likely to say yes if you have already spent time at the table working out a deal.

 

Read the Fine Print

Before you sign your real estate lease, read over the language related to the abatement carefully. Make sure the document clearly spells out for how long you will not be responsible for paying rent and what fees and payments you may have to pay. You should also look for any language about the abatement ending if you violate any terms of the lease. Some landlords will add contingencies to a rent abatement that end up costing companies their free rent period in the end.

 

Other great articles to check out:

Strategically Managing CAM Expenses

Tenant Tips to Thinking Like a Landlord

4 Things to Avoid in Commercial Real Estate

 

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Topics: rent abatement

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Don Catalano

Don Catalano

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