How can rent abatement reduce occupancy costs and improve your bottom line?

1 Types of rent abatement

There are two main types of rent abatement: conditional and unconditional. Conditional rent abatement means that the tenant can only stop paying rent if a specific event occurs, such as a fire, flood, or government order that prevents the tenant from using the premises. Unconditional rent abatement means that the tenant can stop paying rent for any reason, or no reason at all, for a certain period of time. Conditional rent abatement is more common and easier to negotiate than unconditional rent abatement, but both can offer significant savings for tenants.

2 Benefits of rent abatement

Rent abatement can benefit tenants in several ways. First, it can reduce the occupancy costs, which are the total expenses of leasing a space, including rent, utilities, maintenance, taxes, insurance, and other fees. Lower occupancy costs can improve the tenant's profitability and liquidity, as well as free up funds for other business purposes. Second, rent abatement can provide relief and flexibility for tenants who face unexpected disruptions or hardships that affect their operations. For example, if a tenant cannot access or use their space due to a pandemic lockdown, rent abatement can help them cope with the loss of revenue and customers. Third, rent abatement can enhance the tenant's bargaining power and relationship with the landlord. By negotiating rent abatement, the tenant can demonstrate their value and loyalty to the landlord, as well as secure more favorable terms and conditions for their lease.

4 Best practices for rent abatement

Rent abatement can be a great way for commercial real estate tenants to reduce their occupancy costs and strengthen their bottom line, especially during uncertain times. To make sure that you maximize the benefits and minimize the risks of rent abatement, it’s best to seek professional advice from a broker, lawyer, and accountant. Communication between tenants and landlords is essential for rent abatement; if you anticipate or experience any issues with rent payments, make sure to notify your landlord as soon as possible. Additionally, all agreements should be documented in writing and signed by both parties. By taking these steps, you can make an informed decision about rent abatement and ensure that it works in your favor.

5 Here’s what else to consider

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