Rent abatement is a lease incentive that can be included in both residential and commercial property leases. It facilitates a reduction in the rent that must be paid over the period of the lease. For example, if a tenant negotiated a 5% reduction on their face rental price of $80,000, this means the tenant would pay $4000 less in rent each month throughout the lease period.
However, rent abatement can be negotiated to stipulate a period of no rent/free rent instead. Typically, this period of no rent is at the beginning of the lease with a duration of one to three months. Larger premises with higher rent tend to attract a longer rent-free period such as six months to even a year.
Uses of Rent Abatement
Rent abatement is used by landlords to encourage potential tenants to sign a lease or current tenants to renew their existing lease. It is also used by the tenants themselves to save money with respect to their rental payments.
Other Lease Incentives
There are many other lease incentives that can be used by landlords to attract new tenants or promote the renewal of existing tenants’ leases.
A fit-out contribution applies to the installation of fixtures and fittings on the property. It allows for the landlord to incur the costs of such installations undertaken by the tenant. For example, a tenant may undertake an installation and provide the relevant receipts to their landlord who will then reimburse them accordingly. Alternatively, the landlord may incur the costs of the installation but require higher rental payments for later months. However, generally landlords opt for reimbursement.
A clawback provision operates more so in favour of the landlord. If a tenant ‘triggers’ a certain event, the tenant would be required to pay back the incentive amount. An example of such a trigger event is the early termination of your lease. Clawback provisions are legally enforceable and in turn, you should consider these stipulations carefully and even seek legal advice on their implications.
A landlord can also use a combination of different lease incentives. For example, rent abatement can be used in conjunction with both fit-out contributions and clawback provisions.
Lastly
Rent abatement can facilitate reduced rent throughout the lease period or a rent-free period as part of the lease. In doing so, it can be used by landlords to incentivise potential tenants to enter into a lease or existing tenants to renew. Rent abatement can operate in combination with other lease incentives such as fit-out contributions and clawback provisions. If you wish to understand the implications of any lease incentives or gain guidance during lease incentive negotiations, legal advice or assistance is highly valuable. Feel free to contact our commercial property lawyers via the form on this page or by calling 1300 337 997
Ishani works with OpenLegal as a paralegal whilst completing her law degree at the University of NSW. She is also Director of Content at the non-profit organisation Echo, and has worked within the business and marketing teams of The Meridian Magazine.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
