When leasing office space there are typically concessions that you can negotiate for that will give you a better overall deal. Once of those concessions is free rent. Depending on how active the market is and the type of space you should be able to negotiate to receive free base rent or free base rent and operating expenses for a certain number of months.
The problem is that most tenants don’t know what to ask for, or they are afraid to ask for it. Because of that they end up leaving money on the table. As you tour office spaces and meet with landlords and landlord agents always ask if free rent concessions are available. They won’t always tell you however it’s worth trying. You could also visit nearby tenants and ask what free rent concessions they were able to negotiate. As you negotiate your office lease below are a few strategies to consider when asking for free rent.
Justify Why You Need Free Office Rent
Don’t just ask for it for no reason. You can increase your chances of getting it if you have a business case. For example, If your business is seasonal and you are opening up during the slower part of the year then that would be a good reason to ask for free commercial rent. Do some research and find out what free rent (if any) the landlord is offering to new tenants. If the landlord is giving new tenants 4 months of free rent you should ask for the same whether you are leasing space at that location for the first time or negotiating a lease renewal. Existing tenants have proven themselves and are less of a risk to landlords than new tenants. If other comparable properties are offering free rent then you should negotiate for free rent with your existing landlord.
Tenants should never have to pay rent during their build out phase. You should be able to negotiate at least 60 to 120 days for building out your space, during which time no rent or operating expense payments are due. Don’t let the landlord refer to this as Free rent as it is not.
Base Rent Free OR Base Rent & Operating Expenses?
Again get to know the landlords and market however when negotiating free rent you can ask for only base rent OR base rent and operating expenses (aka nnn). It’s good to always start with base and nnn then work from there. In most cases landlords would like to at least cover their nnn costs while you enjoy free base rent. If they won’t agree to abate nnn then you could ask for more free base rent then you had planned on. In Austin landlords are more likely to require you to pay for operating expenses during your free rent period.
Let’s say you signed a 6 year lease and the commencement date is set for January 1st. You could negotiate with the landlord to start the commencement date July 1st (6 months later) but allow you to open for business on January 1st as originally planned. It’s worth it to some landlords to wait a few months for rent payments to start if they have a good long term tenant in tow. Depending on their cash flow needs some landlords may agree to this and some won’t, however if you don’t ask you will never know.
Ask For More Free Rent Than You Need
Don’t ask for what you expect to get. Ask for more than that. If you ask the landlord for 3 months of free rent you may end up only getting 1. If you ask for 5 you may get 3. Again if you don’t ask you will never know. However don’t low ball just because. Make intelligent offers based on your market research. If you low ball some landlords won’t take you seriously.
Consider Adding More Term to The Lease
If a 3 year lease is on the table and the landlord won’t give you 3 months free rent, consider offering to increase the term to 33 months. Free rent concessions reduce a landlords rate of return, however adding term may make up some of the difference and incent them to give the concession.
Offer to Spread The Free Rent Out Over a Period of Time
If a landlord has any reservations about your financial situation they won’t want to give free rent. They would be afraid that you would go out of business soon after the free rent period which means they won’t recoup what they gave. A way to counter this is to offer to take the free rent over a period of time rather than all up front. For example in a 5 year lease with 5 months free rent you could negotiate to receive 1 month of free rent in January of each year. That way it spreads out the landlords risk, but you still get 5 months free rent.