Here’s How Rent Concessions Benefit Tenants

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Landlords have the goal of ensuring that any commercial properties they manage are occupied by paying tenants. Despite this, sometimes properties remain vacant for longer than expected which results in a significant loss of rental revenue.

One of the best ways to attract tenants and convince them to sign a commercial lease is to offer rent concessions to fill the property quickly, particularly during slow rental markets.

The definition of rent concession

Rent concession refers to a compromise that a landlord makes to attract potential tenants to their property. They can include adjusting the security deposit, reducing the rent, offering a free month of rent, space improvements, and more.

The different types of rent concessions

Lease up concession – These types of concessions are typically used in new commercial buildings. The goal of this type of rent concession is to make sure a new commercial property reaches high occupancy levels fairly quickly so that it can become profitable for the investors.

Marketing concession – These kinds are offered to tenants who are interested in leasing properties that are above the current market price. This is done to make the tenants feel that they’re saving on costs in other ways.

When should a landlord offer concessions to tenants?

Concessions can be short or long-term and in addition to being motivated by the need to fill a space quickly, they can also be influenced by the need to stand out from another offer that a tenant has received, the need to lease the space out quickly during tough economic times, or the need to keep an existing tenant happy. It’s also best for landlords to offer concessions when tenants are likely to lose their income.

When and how should a tenant ask for a rent concession?

Tenants should consider asking their landlords for rent concessions if they’ve occupied a commercial property for at least 3 years, have paid on time every month and sometimes pay in advance. Tenants can also ask for a rent concession upon their lease expiring. This puts the tenant in a position where they’re able to negotiate favorable terms.

P.S. Click here to read 7 tips when renewing a commercial lease.

Rent concessions can be asked for by informing your landlord about your current situation (be it losing income due to economic downturn or anything else) and upon agreement, ask for a side letter which reflects a temporary concession agreement or a deed of variation that shows a permanent change to the lease.

Offering rent concessions to current or potential tenants can be an effective way to increase vacancies and reduce tenant turnover in your commercial property building.

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