Rent abatements are essentially rent reductions that may take place at either the beginning of a rental period or be extended to a renter at some point later in the lease or rental agreement. At times, abated rent may be used as an incentive to enter into a lease agreement by supplying the tenant with what is sometimes referred to as free rent for a period of time. The same general concept of rent abatement may apply at a later date as an incentive to renew the lease or possibly as a means of compensating the tenant for some type of inconvenience caused by actions taken by the landlord.
There are several different approaches to the use of rent abatement. One of the more common approaches is to use this strategy as a marketing tool. In this scenario, the landlord offers what is presented as free rent to potential tenants as a way to entice them to sign a lease and take possession of the property. The idea behind this approach is to fill empty rental spaces that are currently generating no income at all. By offering the first month’s rent free, the landlord can look forward to a revenue stream commencing the following month. At the same time, the new tenant does not have to worry about a rent payment that first month, making it easier to manage moving costs that may include paying utility deposits and other related costs.
Landlords may also build provisions for rent abatement to occur at strategic points in the term of the lease. This is sometimes included as a benefit for commercial tenants who experience some seasonality in their business volumes. Essentially, the landlord agrees to waive a certain amount of rent during specific calendar months that the tenant anticipates will generate reduced levels of income. The landlord benefits by being able to keep the property occupied and continuing to generate income from the rental property. At the same time, the tenant faces less difficulty in meeting his or her obligations to the landlord, allowing the relationship to continue.
The concept of rent abatement may also occur when a tenant is inconvenienced by actions taken by the landlord, such as the failure to pay utilities that are included as part of the rental agreement, or failing to make essential repairs to plumbing systems. Here, the abatement may be extended by the landlord as a show of good faith, or possibly be the result of a court action filed against the landlord by the tenant. In either case, a portion of the rent is abated as a means of compensating the tenant for any losses he or she may have incurred due to the landlord’s actions.
It is important to note that while rent abatement is considered free rent in a broad sense, that may not always be the case. For example, a landlord may advertise a move-in special that includes free rent for the first two months, when in fact the rent for the remaining ten months of the one-year lease is adjusted to make up the difference over the life of that lease. This approach allows the landlord to still generate the desired amount of income from the rental property over the course of the year, but creates the illusion that the tenant received something for free. Even when a potential tenant recognizes this type of strategy is being used, he or she may still consider the arrangement beneficial, since the abatement does make it possible to structure expenses to better advantage during those rent-free months.