Commercial leases are agreements between a landlord and tenant for a commercial property. They can be complicated because they contain many small clauses outlining the responsibilities of both the landlord and tenant. One such clause could be rent abatement, a valuable rental concession for lessees to secure when negotiating an agreement.
Rent abatement isn’t something commercial property owners are willing to give up easily, making it essential that businesses put themselves in a solid negotiating position. This guide will walk you through the process of requesting and acquiring rent reduction as part of your commercial lease.
What Is Rent Abatement?
In basic terms, rent abatement is a period during which you, as a tenant, do not have to pay rent on your commercial property because of damage or other factors. This agreement only covers the time that the property isn’t in use, but it is important because, without it, a landlord and tenant would probably have to go to court to resolve a dispute over property damage.
Businesses must negotiate these types of provisions into their commercial lease agreement, because landlords are unlikely to grant them later — at least not without considerable persuasion. Therefore, you’ll want to include rent abatement as a possible concession when signing your lease.
Reasons to Ask for Commercial Lease Rent Abatement
Before negotiating your commercial lease agreement, it’s a good idea to learn the reasons why you’d need this provision in the first place. It’s also a good idea to familiarize yourself with your legal rights on the topic. Situations where rent abatement could come in handy include:
There is always the chance your landlord will have to renovate or upgrade the property. Some leases will allot specific amounts of time for the landlord to complete renovations; sometimes the lease will also allow rent abatement while a tenant makes necessary improvements. Ensuring you don’t have to pay rent during this process is important.
It is especially vital to have a clause covering renovation-related interruptions that make the property unusable for a short period. An alternative method of being compensated for improvements is if your landlord grants you a tenant improvement allowance.
- Property Damage
Of course, you don’t want to pay rent when the property is damaged to the point where you can no longer operate there. This damage could result from a natural disaster like a flood or storm or something human-caused like a fire. Keep in mind that rent abatement provisions will not apply for damage done by the tenant.
- Government Restrictions
There are government restrictions on many businesses, such as those imposed upon restaurants and bars during the pandemic. A shutdown-related business interruption is something companies can negotiate into their agreements; including this provision in future contracts will leave your company better prepared for such an unforeseeable event.
Rent abatement is a concession that your landlord will have to make, so you’ll want to include it in your negotiations strategically. Having clauses in your commercial lease agreement stating that you don’t have to pay rent under such circumstances can save yourself money — and a lot of stress — in the future.
6 Tips for Securing Rent Abatement
The state of the market is a significant factor in whether your landlord will be open to negotiating a rent abatement agreement. In a seller’s market, the scarcity of quality properties may give the landlord a more rigid viewpoint; in a buyer’s market, the landlord will likely be more amenable. Ways to secure rent abatement include:
1. Having Your Financials in Order
Landlords are more likely to do business with a profitable company, so it helps to have your finances in order – and to be ready to demonstrate that during negotiations.
The more money your business is making, the less of a risk you are for the property owner — and the easier it becomes to negotiate concessions. The more desirable you are as a tenant, the more success you’ll have in your discussions.
2. Giving Yourself Options
You never want to enter negotiations without options, especially if you’re seeking concessions. By negotiating with more than one commercial property owner at any given time, you’ll provide yourself with leverage and the power to walk away if a landlord won’t meet your demands. You don’t owe anything to the commercial property owner, so you’ll be empowered to accept the best offer and the one most willing to grant concessions.
3. Making a Realistic Offer
You want the best possible agreement for your company, but there are two sides to the contract. A landlord isn’t going to grant you everything you want unless it’s beneficial to them as well. So, while you can certainly request rent abatement to apply under various circumstances, coming up with a realistic offer is essential if you want to make any headway.
4. Signing a Longer Lease
There’s a good chance you’ll have to make some concessions yourself if you want a landlord to grant a provision. One might be signing an extended lease agreement, thereby giving the property owner a little more financial certainty.
5. Looking at the Big Picture
Many businesses make the mistake of only looking at the cost when signing a commercial real estate lease. The issue is that provisions, such as the inclusion of rent reduction, can make a more expensive property a less risky deal for tenants. There are countless aspects to consider — including hidden fees, maintenance costs, or utility pass-throughs — so you’ll want to go over the document’s fine print before signing.
6. Seeking Professional Negotiation Assistance
Negotiating a commercial lease can entail skillful deal-making, especially when you’re looking for concessions from a prospective landlord. Fortunately, you can hire tenant representation to find your ideal property and acquire the concessions you want before signing a contract. You can thus avoid overpaying, and an expert can help you get rent abatement as part of the package if it’s essential for you.
Rent abatement is bound to be a prevalent topic in many commercial lease negotiations now and in the foreseeable future, given the unprecedented number of businesses forced to close temporarily in the past year. Unfortunately, many landlords and tenants alike are unfamiliar with the expectations on both sides for rent abatement clauses, and the best practices in negotiating them. Tenants seeking advice would be wise to secure professional representation to get the best deal possible.
Contact a Concession Negotiation Expert in Washington DC
Once you have decided to secure a new commercial property for your business, the negotiation process can be time-consuming and confusing. Making the deal can be particularly difficult if you’re seeking rent abatement or other concessions.
You need a top-notch representative who will give you an advantage as you negotiate with landlords throughout the Washington, D.C., area. If you have questions about commercial lease rent abatement or other commercial real estate matters, contact The Genau Group today to speak to an expert.