Part 8*: What does the term “free rent” mean in the context of a commercial lease?

Some commercial Landlords will offer “free rent” to a Tenant on a long-term deal. The “free rent period” usually occurs in the beginning of the lease term when the Tenant is obtaining permits, moving into the space, performing work, and otherwise preparing to open for business. In some cases, the Tenant is still obligated to pay additional rent such as taxes and utilities during the free rent period. In some cases, the free rent period may be split such that some of the free rent will be applied to a subsequent lease year. For example, the Tenant may have one month of free rent in lease year one and one month of free rent in lease year two. The free rent concept is designed to ease the financial burden on Tenant when they are expending resources to open for business in the new space. From the Landlord’s perspective, so long as the total rent the Landlord is receiving over the term of the lease is acceptable, the free rent period is a good incentive to bring a desirable Tenant into the building.

*Thank you for taking the time to read this article. This article is part of our “Commercial Leasing for Non-Lawyers,” a Blog Series on Commercial Leasing. Other aspects of commercial leasing transactions in New York are discussed in other Parts of this series.

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