How To Negotiate A Rent Free Period
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What Is A Rent Free Period?
A rent free period is period of time during your lease where you don’t have to pay any rent at all. Although rent free periods usually kick in at the start of the lease, you might find them at other points during the lease term.
How To Get Your Landlord To Agree To A Rent Free Period
When negotiating a rent free period in a commercial lease try to milk the following points as much as you can to get your landlord to offer as large a rent free period as you can get away with.
1) A Juicy Carrot
The Landlord may agree to give you a rent free period simply as an incentive for you to take the lease. This is understandably more common where the Property is difficult to lease and an extra carrot is needed to attract tenants. So, to a certain extent, rent free periods in commercial leases are governed by the property market. For this reason, it can be helpful to talk to a local agent or surveyor who’s used to negotiating rent free periods for similar properties in the area, as they may have a good feel for what a ‘normal’ rent free period for the property you’re after might be.
The bottom line is, if prospective tenants aren’t queuing up to lease the Property you’re interested ask for a rent free period simply as a sweetener to convince you to sign up.
2) Compensation For Disrepair
If there is any disrepair at the Property, it’s a good idea to ask the Landlord to fix it before you move in. However, this is often not practical and a common solution is for the tenant to carry out the works and be compensated the additional cost by way of a rent free period in the commercial lease. For example, if the rent is £1,000 per month and it is going to cost you £3,000 to fix the roof, you might quite justly ask for a rent free period of 3 months to cover your costs.
You should be able to appreciate how useful a surveyor or builder can be here, as they will be able to point out all the repair works that will need to be carried out and their cost. This will put you in a much stronger bargaining position when you get back to the Landlord.
3) Compensation For Breach Of Statutory Regulations
Keep in mind that, although the Property may not necessarily be in disrepair, it may still need works carried out to it in order to make it compliant with planning regulations, planning conditions, fire regulations, asbestos regulations, or other statutory regulations. Again, there is a strong argument to say that the tenant should not have to pay the cost of such works as any tenant would expect, at the very least, for the property to comply with basic regulations. For example, if a Property needs an additional fire escape door and staircase to be added in order to comply with fire regulations, at a cost of £10,000, and the rent is £2,000 a month, a 5 month rent free period might be reasonable.
Here, you most probably will need specialist advice on what remedial works are needed and their likely cost.
4) Compensation For Fit-Out Works
Tenants usually need to carry out fit out works to rented property at the start of the lease, to make it ready for whatever their business might be. This can range from putting a lick of paint and a couple of shelves on the walls to making wholesale structural changes. Sometimes Landlords will agree to grant a rent free period to reflect the additional cost of these works. Note, however, that it’s usually difficult to argue that the Landlord should cover all of the fit-out costs and the rent free period is sometimes simply an acknowledgment of the tenant’s cost and commitment. A landlord might be more swayed to grant a larger rent free period if the fit out works enhance the value of the landlord’s building or estate in some way, or if they might be of permanent value to the Landlord after your lease has ended.
5) Compensation For Loss Of Business
Of course, whilst you’re carrying out all these sorts of works, you’re probably not doing any business at all (or if you are, in a limited way). Rent free periods are sometimes granted to reflect the tenant’s loss of trading ability whilst the works are ongoing. The idea being that it’s not very fair to ask for rent to be paid whilst the property is unusable. It is therefore worthwhile arguing as far as possible that your proposed works will be extremely disruptive and that they will take a long time to complete.
6) Helping You Get Started
Keep in mind that whilst having a rent free period in a commercial lease will always be welcome to any tenant, having one at the start of the lease can be especially useful and even essential. When you set up shop, there will probably be little to no money coming in, especially if you have to fit the place out first. So, a rent free period during those hard times can really take the pressure off and let your business grow. If you’re starting a business it’s worth playing on this point by asking for the Landlord to co-operate and help with your cash flow in the early days by offering a rent free period.
Don’t Ask, Don’t Get
If he can help it, no landlord is going to offer you a rent free period. It’s therefore down to you to take the initiative and propose one. It’s nearly always a good idea to try to negotiate a rent free period. You really do have nothing to lose. At worst, the landlord will say no, but at best you could shave off many months of rent. As with all bargaining, start with a rent free period that you know to be on the high side and work down from there. I will be happy to advise you on negotiating a rent free period in your commercial lease. If I can't get you a rent free period I can look at possible unfair rent clauses as in this case study on an unfair Liverpool commercial lease rent clause.
Call Chris today on 0151 227 3391 for your free consultation and a fixed fee no obligation quote!
Chris Bartlett is a solicitor specialising in Commercial Property matters. He will be happy to offer you a free telephone or face to face consultation.
James Edwards is a commercial property solicitor advising landlords and tenants on commercial leases. He also has experience in buying and selling commercial property.