Abatement versus Incentive | What Do These Terms Actually Mean
Abatement versus Incentive:
The Lease agreement or contract between the Landlord (lessor) and the Tenant (Lessee) has various parameters for negotiation, one of the points of opportunity, for both parties is rent abatement or incentive.
The terms are not mutually exclusive but rather codependent.
WIFM – “What’s In It For Me
The WIFM, for the tenant, can be considerable and its an opportunity to negotiate around the “face” price, think of when you were buying your car, the dealer, has a set price for the car, which is hard to change because it’s set by the factory, so what can the dealer do to “incentivize” you, as the customer, to buy.
Often the dealer will “add value” by offering peripheral components which seem “free” if you purchase, for example, tinted, windows, roadside assist, tow bar, and the list goes on.
The Commercial Property Lease is similar in that the “incentive”, as the name implies, is giving something back to the purchaser or lessee as it were to encourage you to buy.
What is Abatement?
Abatement is one of several incentives, a commercial Landlord might offer, and it is the reduction of “face” rent expressed in a percentage. The rental abatement might be negotiated over the entire term of the lease, or just a portion, for example, your rent might be offered as $100 + GST per square meter per annum, the incentive (to encourage you to take the lease) might say 15%, so your “actual” rent would be $85 + GST per square meter per annum.
The word “abatement” is also an accounting term, which is seen on your invoice for your monthly rent.
What other incentives are there
The negotiation with the Landlord or lessor can bring to light other opportunities which have great advantages for the tenant or lessee.
Fit-out contributions, Rent free period, car parking space, and other convenient and cost-effective opportunities can be put on the table, subject to the building, the commercial market, the urgency on either party, and so forth.
Negotiations are not an argument but a creative opportunity for both parties to bring their wares to the table for improved intrinsic value for all.
Under the banner of incentives, are cash or rent reduction, which is rental abatement, as well as many others; its a strategic decision by the prospective tenant and/or their representative to negotiate the best deal for what really supports the tenant’s business to grow and prosper, and it’s up to the Landlord to do the same.