What is a concession in a lease agreement? Good question. One-time rent concessions are usually offered to attract new commercial tenants or entice current tenants to renew their lease. Concessions can come in many forms from offering decreased rent for a period to reducing service fees.
In commercial real estate’s current landscape, concessions on rent have become a way to help struggling tenants stay open during the COVID-19 pandemic.
Are your tenants still feeling the impact of COVID-19 and the economic changes from last spring? How should rent concession negotiations go? Where should the conversation begin about things like rent abatement or rent-free periods?
Let’s dive into what rent concessions mean for tenants and landlords.
One-Time Rent Concessions
It can be a struggle to fill vacant properties as a commercial landlord. Sometimes landlords offer concessions to drive more interest in the property and meet a prospective tenant’s needs.
A commercial landlord may offer a variety of concessions and benefits in the negotiating process. Think of a rent concession like a rebate. The tenant signs the lease and gets something in return.
Some of these may include:
- First month free. A rent concession clause in the commercial lease could dictate that the tenant gets to move into the property with no rent for the first month.
- Discounted rent. Landlords could offer reduced rent for a set period of time if the tenant signs.
- Moving expenses. Moving a business from one location to another can be time consuming and costly. Landlords may offer to pay for a company’s moving expenses as part of the deal.
- Improvements. Tenants may need special improvements made to the property. For example, a restaurant tenant may want to change the seating arrangement or remodel the kitchen area. If a landlord is willing, they may offer to pay for necessary improvements to the space.
Exploring Rent Concessions During COVID-19
Is it time to starting talking to your landlord or tenants about your options?
Rent concessions can provide more than an enticing reason to sign a commercial lease. Though they can offer future tenants benefits, they can also help current tenants catch up on missed rent.
Many retail stores, restaurants and manufacturing facilities in Missouri had to press pause on business due to cautionary city and state regulations. COVID-19 made it hard for commercial tenants to make their rents, as they couldn’t be open for business or were no longer receiving the same volume of business.
When tenants can’t make rent, landlords struggle to find the capital for maintenance, insurance, taxes and mortgage payments. Landlords don’t want their tenants to go out of business or move to another location because this would leave property owners with a vacant space.
As business continues to pick back up, rent concessions can help tenants and landlords keep moving forward. Just make sure to update the lease agreement with any new terms.
If tenants are behind on rent, landlords may offer one of the following:
- Discounted rent. For a period of time, a landlord may offer discounted rent. This allows the tenant to provide the landlord with some cash flow, while taking the pressure off of the tenant to come up with full rent.
- Rent abatement. Landlords can delay demanding rent from tenants, deferring it to be paid at a later date. Rent abatement will postpone what you owe, often requiring you to extend your lease or craft a repayment plan.
- Rent-free period. A landlord could suggest a free-rent period if the tenant’s business was or still is really struggling. Though a free-rent period sounds appealing, tenants should keep in mind that landlords may ask them to extend their lease in exchange for rent-free months.
- Service charges. If you can’t negotiate the rent, tenants and landlords could explore negotiating service charges. For tenants in financial need, not having to pay something like Common Area Maintenance (CAM) fees could relieve some of the burden.
- Payment type. Though this solution isn’t necessarily a concession, landlords may offer to let tenants who usually pay large sums quarterly pay smaller rent amounts on a monthly basis.
Rent Concession Repayment
Rent concessions imply that the tenant will pay back what’s owed to the landlord eventually—unless the tenant’s past rent has been completely forgiven.
Typically, the tenant and landlord will devise a repayment plan. This may include extending the tenant’s lease for a few months or asking the tenant to pick up service fees the landlord might have been paying.
Questions about concessions? Need help with your property management?
Commercial One Brokers offers property management services for commercial real estate in the Branson Tri-Lakes area.
Contact us today for more information about our services or to find the right commercial real estate in Branson, MO.