If you're unfamiliar with rent abatement for commercial leases, you're missing out on a lease clause that can greatly lower your occupancy costs. An abatement is one concession that tenants can often get commercial landlords to agree to, so read on to learn about exactly what one is and what you need to know to make the most of one.
What Is Rent Abatement?
A rent abatement is an agreement between the landlord and the tenant that provides a period of free rent. During the abatement period, you are not required to pay rent to occupy your space. Often, the abatement period takes place over the first few months of the lease. Some commercial leases also provide rent abatement in the event that offices cannot be occupied due to repairs or maintenance.
Things to Remember
1. Rent Abatement Doesn't Cost the Landlord Anything
From a landlord's perspective, a rent abatement is the same as having an office space unoccupied. Knowing they now will make money from you signing a lease, giving a rent abatement to you for a few months is usually something landlords aren't worried about. As a result, landlords are often more open to an abatement than they are to costlier concessions like paying for tenant improvements.
2. You May Still Owe Money During the Abatement Period
Even if you don't have to pay rent during the abatement period, you may still have to make monthly payments. If your utilities are separate from your lease, you will have to continue to submit payments for them. In addition, some landlords will require you to pay common area maintenance fees (CAM) while in abatement.
3. Don't Lead With an Abatement Request
At the negotiating table, save your abatement request for the right moment. Discuss your most important requests and concessions first and try to reach a favorable agreement. You can request an abatement later on in the negotiations. For example, if the landlord is balking over your requested budget for tenant improvements, you could request a rent abatement for a period of months equal to the budget.
4. A Conditional Abatement Often Comes With Caveats
If your commercial lease provides an abatement when you're unable to occupy your office, make sure to read the clause carefully. The landlord may try to add language that says if the repairs are needed due to the actions of your company, the abatement is void. This could lead to the landlord trying to blame problems on your employees like saying that a pest problem was due to not keeping the office clean. In addition, clauses may state that if the repairs will take longer than a certain period of time, your landlord has the right to cancel your lease rather than provide an abatement. Also, a lot of the time, a landlord will have you repay the rent you would have paid during the abatement period, at the end of the lease and at an escalated amount. Make sure you read your lease well and have a good tenant rep on your side during negotiations.
5. If You Don't Fulfill the Lease, You May Need to Repay
With any type of rent abatement agreement, keep an eye out for clawbacks. These state that if you do not completely fulfill the terms of the lease, you will have to repay the entire amount of the abatement. This could prove costly if you default or exercise the right to sublet, assign or terminate your lease early.
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