Opening a business, or moving your business location, can be an extremely expensive endeavor. Aside from the cost of employees, inventory, and supplies, rent often is a business’ largest monthly expense. Luckily, many landlords understand this and are willing to work out “free rent periods” upon the signing of a new lease or after lease renewal negotiations.
What is a “free rent” period? A free rent period is a period of time when the tenant can use and occupy the leased space without needing to make its monthly rent payment. The length of the lease term, the size of the tenant’s business and negotiating power, the related issues of which party (between landlord and tenant) is responsible for the nature of the work needed to prepare the space for the tenant’s occupancy will often impact the free rent period negotiations between a landlord and a tenant. For example, a landlord will likely grant a generous free rent period to a large institutional tenant that is performing its own renovations to the leased space. Additionally, when a tenant signs a long-term lease at a landlord-friendly price, a landlord will provide a longer free rent period because landlords often see the value in having this tenant and the security this tenant can provide. The landlord will therefore forego a portion of rent at the onset of the lease to solidify a deal that will generate profit for many years to come. On the other hand, a small tenant that occupies a small amount of space at a low rent, is not likely to receive more than 1 or 2 months of free rent from a landlord. It is simply not worth it for the landlord.
There are numerous ways to structure free rent periods in a lease. A tenant may want all the free rent at the beginning of a lease term to allow its business to develop while keeping costs as low as possible. Alternatively, a tenant may want to structure its free rent to apply at various points during the lease term. The selected periods usually depend on the tenant’s business structure and projections. Not every landlord will grant a tenant the ability to exercise its free rent periods at random points throughout the lease term. As mentioned above, it will depend on the specific situation.
It is important to note, free rent, does not mean that the tenant will never be responsible for the rent that the landlord is foregoing. More often than not, if a tenant defaults under the terms of the lease, one of the landlord’s remedies will be to collect the rent that was waived during the free rent period.
When negotiating a lease every party should be represented by an attorney who understands the different factors that impact free rent period negotiations and how the best outcome can be obtained. For more information on free rent, or for help on your next lease agreement, reach out to the knowledgeable real estate attorneys at KI Legal by calling (212) 404-8644 or emailing info@kilegal.com
This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.
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