What are Grounds for Commercial Rent Abatement?

In a commercial lease, certain situations may arise that justify a tenant withholding rent. Commercial rent abatement is often negotiated into leases as an alternative to complete termination. Additionally, landlords may offer abated rent to a new tenant as an incentive to move into the property.

Abated Rent as Inducement

Landlords of commercial properties need tenants and will sometimes offer abated (reduced or free) rent as an incentive to convince businesses to move in. Most standard commercial leases offeran abatement for two or three months to give the new tenant a break during the time it is setting up operations. However, the abated rent is not actually "free" but is amortized over the paying months. A new tenant should calculate the overall benefit of the free rent. If the abated rent is not really needed, the tenant may be able to negotiation for a monthly rent reduction.

Slow Business

Even inthe besteconomic times, businesses have slow months that adversely affect their cash flow. These slowdowns are especially hard when there is an economic downturn. Sometimes the downturn is seasonal; for example, a retailer for summer clothing may see a slow down in December and January. During lease negotiations,a tenant should take these slowdowns into consideration and ask for a rent abatement during the affected months.

Structural Defect or Substantial Defect

If the commercial property suffers structural defect due to instances of fires or flooding, the tenant may not able to operate as usual and suffer an economic loss. During this time of business interruption, rent should be abated to the extent that the business is negatively affected. The rent reduction percentage can represent the square foot area or can be an offset proportionate to the reduction of gross sales. Again, this should be negotiated beforehand with the landlord; if the tenant unilaterally decides to abate its rent, the landlord can claim default of the lease terms and evict the tenant for nonpayment of rent.

If the damage is substantial that it rises to the level of substantial destruction and the premises cannot be duly repaired within a reasonable time, the tenant may request that the lease be terminated or that the rent be abated for the unexpired portion of the lease.

Additionally, if the landlord begins construction that impede's the tenant's business without notice, that tenant may be able to ask for a rent abatement.

How Floating Dates Affect Rent Abatement

Some commercial leases create flexible dates for the lease commencement. These uncertain or "floating" dates usually arise due to the need to prepare the premises for tenant occupancy or to allow a prior tenant to vacate. These floating dates may affect the dates when rent is to commence; in these situations, abatement dates may be affected also. To deflect any claims of default, floating language should be used throughout the lease with regard to set deadlines. For instance, instead of set dates, the lease can refer to certain deadlines as "lease month." In a case where rent is abated for the first two months, rent would commence in "lease month three."

Consult an Attorney

Commercial lease negotiations entail a certain legal acumen. This is particularly true during negotiations for commercial rent abatement. Talk with an attorney experienced with commercial real estate to ensure your rights are protected during negotiations.

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