Glossary / Lease terms and deal stages
Also known as: Free rent, rent concession, abated rent
Rent abatement is a period during a commercial lease when the tenant pays reduced rent or no rent while it has possession of the space. It is often a negotiated concession, and whether abated months count toward your leasing commission depends on your commission agreement.
Rent abatement means the tenant owes less rent, or none, for a set period. The SIOR lease glossary notes that abatement is "often and commonly referred to as free rent or early occupancy" and may fall inside or outside the primary lease term. According to IPG, abatement can also be triggered by an event such as a casualty, a landlord default, or a force majeure clause.
Abatement usually covers Base rent only. IPG says tenants generally stay liable for operating expenses, CAM charges, taxes, and utilities during the abatement period, and a Thomson Reuters Practical Law pro-landlord free rent clause requires the tenant to keep paying its other monetary obligations and lets the landlord recapture the free rent if the tenant defaults.
Many leasing commissions are a percentage of rent over the lease term, so the question is whether abated rent is in that number. One Grubb & Ellis commission agreement filed publicly excluded "any amounts credited" for a period of rent-free or partially rent-free occupancy. Cove notes that commissions may be calculated on the quoted gross rent or on the Net effective rent that remains after free rent and other concessions.
Timing can shift too. If your agreement ties a payment installment to the Rent commencement date, a block of free rent at the start of the term can push that date later. Rules depend on your commission agreement and the lease.
Before the deal is signed, read how your commission agreement defines rent and whether free or abated months are excluded.
For example, on a hypothetical 5-year lease of 10,000 rentable square feet at a flat $30 per square foot per year, total base rent is $1,500,000. Six months of free rent is worth $150,000 (10,000 x $30 x 0.5). At a hypothetical 4% commission rate, the commission is $60,000 if free rent is counted and $54,000 (4% of $1,350,000) if it is excluded, a $6,000 difference.
