Landlords want to attract good tenants that will:

  • take care of their property;
  • pay their rent on time; and
  • commit to a long a tenure.

As a landlord, offering benefits or incentive is a great way to attract better tenants. In this article, we outline how you can provide incentives within the lease, enhance your premises with benefits and ensure your building is more attractive than others in the market.

Lease Incentives

Cost is a key priority for businesses searching for premises to lease. So, if a landlord can provide a cost-focused incentive, the building will likely be more attractive in the tenant’s eyes. The most common forms of lease incentives are:

  1. rent abatement;
  2. rent reduction; and
  3. fit-out contribution.

Rent Abatement

Rent abatement involves a:

  • delay in the payment of rent; or
  • ‘rent-free period’ that a landlord may offer a tenant at the beginning of a lease.

Often, a landlord will offer rent abatement in situations where the tenant will not start trading from the premises straight away. For example, the landlord may provide rent abatement during the fit-out period, as the tenant prepares the premises for trading.

It is typical for the incentive period to be anywhere between one and three months. For larger premises, landlords may provide an extended rent-free period of six months to a year, with the hope of securing a good tenant.

Rent Reduction

Rent reduction involves the landlord reducing a proportion of the rent the tenant needs to pay by a set amount for a predetermined period. With rent reduction, it should be clear:

  • how long the incentive will last; and
  • what will happen in the event of a rent review.

Fit-out Contribution

A fit-out contribution involves the landlord agreeing to contribute to all or part of the fit-out costs for a new tenant. The landlord may contribute by:

  • reimbursing the tenant; or
  • carrying out the works themselves to a pre-agreed amount.

The terms of the fit-out contribution should be explicitly agreed upon in the lease before any fit-out works commence.

Landlord Checklist for Lease Incentives

If you are a landlord considering offering lease incentives, there are a few questions to consider:

  1. have you received advice from an accountant or a lawyer? This is an essential first step, as there are tax consequence associated with each type of incentive;
  2. have you included the appropriate incentive in the lease? Often, the lease will include a clawback provision that will allow the landlord to ‘claw back’ the incentive if a certain event occurs. For example, a tenant breaching the lease and terminating early may mean the tenant has to reimburse the landlord for the fit-out contribution they made; and
  3. do you need an incentive deed? Typically, a separate deed will document the incentive. An incentive deed is a document that accompanies the lease agreement and outlines the terms of the incentive.

Sustainable Buildings

Corporations are becoming increasingly conscious of the importance of corporate social responsibility. With buildings using approximately 40 per cent of the world’s energy, ensuring the premises that you are leasing are modern as well as energy and water efficient will go a long way in attracting good tenants.

Many landlords will look to ensure that they have an excellent NABERS (National Australian Built Environment Rating System) rating and use it as a public relations tool to attract tenants.

Further to this, using sustainability as a service offering can be advantageous to landlords. Landlords who rent out spaces to multiple tenants, for example in a retail space, understand that ultimately it is the tenants that will determine the building’s carbon footprint. Landlords can assist tenants in realising their goals of corporate social responsibility by:

  • helping tenants choose the right energy friendly fit-out contractors; and
  • understanding how NABERS work.

Fit-out Benefits and Facilities

The fit-out of your building and the facilities you offer are key factors tenants will consider when looking for a place to lease for their business. Some key fit-out benefits and facilities you may want to consider incorporating include:

  • a lobby caféA lobby café is attractive to tenants because it provides a place for their staff to unwind, hold internal meetings or meet clients;
  • end of trip facilities. End of trip facilities can include showers, bike racks and changing rooms. These facilities are usually frequented by those that come to work on foot, bike or use the gym during their lunch break. For workplaces encouraging a healthy lifestyle, these are perks that will be important; and
  • building reception and security staff. For large office or retail spaces, which are shared by many tenants, a common building reception and security staff will go a long way in making tenants feel comfortable and safe, as well as offering a more professional feel to the premises.

Key Takeaways

In the competitive commercial leasing market, attracting good tenants is easier when you offer competitive benefits. As the landlord, you can do this by:

  • offering incentives that provide a financial benefit to prospective tenants; and
  • providing an energy friendly building or facilities that will benefit tenants such as a lobby café, showers and bike racks or reception and security staff.

If you have any questions, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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