A quick guide to commercial lease incentives, for tenants

August 22, 2017 | Commercial Real Estate

Commercial lease incentives for tenants

1) What are commercial lease incentives?

Commercial lease incentives are payments or concessions offered by a landlord to encourage a new tenant to sign a lease or to entice an existing tenant to renew.

In Australia, lease incentives have become a permanent part of the commercial leasing landscape, which makes them an essential component of the negotiation journey. However, tenants are not always aware of them. They can also be challenging to negotiate without the right experience or market knowledge.

2) Types of incentives

Incentives can come in many forms and vary across Australia depending on the state of the market. The most common are rent-free periods, rent abatements or fit-out contributions.

Rent-free period

A rent-free period is a time during your lease where you don’t have to pay any rent at all. It usually takes effect at the beginning of a lease (though occasionally it can kick in further down the track) and is indicated as ‘’X months rent free’’.

Rent abatement

A rent abatement is essentially a reduction in rent spread over the lease term of a commercial property. It is usually represented as a dollar or percentage discount.

Fit out contribution

A fit-out contribution is a lease incentive that applies to a tenant’s fit-out – the process of installing fittings and fixtures, appliances and decorative touches to an interior office space.

However, usually, a landlord will only pay fit-out contributions on a ‘reimbursement’ basis, provided the tenant has:

  • signed the lease
  • supplied a bank guarantee or security deposit
  • taken out insurance
  • provided quotes and plans for the works for the landlord’s approval
  • submitted receipts

Negotiate the best deal

The team at Tenant CS are tenant representation specialists that offer a tenant advisory service and a wealth of experience across different markets. So, next time you’re faced with negotiating a new lease or renewal, get us on your side. We’ll bring the full value of our expertise and market knowledge to secure you the best deal possible. Get in touch with a member of our team today!

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The Author

Johanna Pudlarz joined Tenant CS in 2014 to support the Australian tenant representation Sydney team. Previously working for CBRE (Paris and Kuala Lumpur) and Colliers (Mumbai), Johanna is an adaptable problem solver with a strong work ethic.

Johanna currently works as a Senior Consultant in the Sydney office and has a Masters in Finance from Ipag Paris Business School (France).

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