What is a rent free period?
To help you get up and running in your new business premises ensure you negotiate lease terms that work well for you. This next series of posts in this Hand-Holding Guide to Commercial Leases of Business Premises outlines some key terms you need to factor into your negotiations with a potential landlord before the legal paperwork gets under way.
It may be a priority for you to negotiate a rent free period. This allows you a pre-agreed period of time during which rental payments do not have to be made. Often this is a period allowed by the landlord for the new tenant to get the premises fitted out and ready for running of the business but that is not always the case and the landlord might be willing to grant a rent free period regardless of whether the premises needs much in the way of fitting out.
So how long would a rent free period be? A rent free period can be any period which the landlord is willing to agree but typically ranges from 3 to 12 months: what you are able to negotiate will often depend on your negotiating strength in other words, who is more keen to do the deal.
Alternatively (or even in addition) the landlord might be open to negotiating a period of reduced rent.
However, whether agreeing a rent free period and/or reduced rental payments for a period of time you need to ensure the landlord does not attempt to inflate the headline rent. The headline rent is the rent paid when the concession period has expired. If the rent free period and/or reduced rental payments are ignored when the time comes to review the rent then the headline rent will be inflated.
It is easier to illustrate by way of an example:
o The asking rent of a premises is £30,000 per annum but this is in fact, top heavy for that property in that location
o You are attracted by a 6 month rent free period offered by the landlord and calculate that the average rent over the 3 years would be £25,000 which is in fact, the right level for property in that location
o The rent is reviewed in say year 3
o The landlord wants an inflated headline rent and for the starting point for rent review to be £30,000 and for the rent free period to be ignored. Thus your starting point for the rent review is the inflated headline rent of £30,000 which would be unfair and you should not agree this.
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