RENT FREE INCENTIVES (RFI) – An Alternative Strategy to TI ALLOWANCES

Landlords will often consider offering a RENT FREE INCENTIVE in order to attract Tenants on vacancies they are looking to lease. An RFI can be offered in addition to a TI ALLOWANCE or in lieu of, depending on the specific deal. However, from a Landlord’s perspective there are certain considerations that you should clearly assess, as you look to build-in a rent free period into any lease deal.

Questions to Consider:

Q: How does the RFI affect your overall cashflow for the property?
A: Cashflow – 2 months not as much a factor, as say a 6 month RFI would be.

Q: How does the RFI affect the net effective rent over the lease term?
A: Net Effective Rent is reduced from the face rate as shown on the lease (do the math).

Q: Does it include the operating cost/ft. of the property or strictly the base rental?
A: If Operating Cost/Ft. forms part of the RFI, it costs the same as if the unit were vacant.

Q: Are the TI costs being invested by the Tenant comparable to the rent free amount?
A: Tenant Investment is an ideal trade-off and helps substantiate the RFI.

Q: Is the Tenant stable and do they offer a Good Covenant?
A: Tenant Stability is a key factor and one which requires a close look.

Q: Does the RFI have to be provided at the front of the lease term?
A: RFI Upfront – not necessarily, and helps reduce the risk if it’s spread out over the term.

Q: Can RFI be conditional upon the Tenant not defaulting and otherwise becoming repayable?
A: RFI Conditional – all terms are negotiable and this ties the RFI to tenant’s performance under the lease agreement.

As with TI allowances, rent free incentives are considered to be a cost of doing business, and when offered in the right circumstances can be an effective inducement. The above Q&A gives you a good basis for assessment and ensures any RFI concessions make good business sense. RFI expectations vary  from the Tenant’s perspective and is really a market call based on your area.

In any real estate deal – a lease in this case – remember you don’t get what you deserve, but what you negotiate. RFI terms are often a key point in any lease negotiation and hopefully this gives you a better perspective as you assess a future deal.

We welcome your comments and stories about RENT FREE INCENTIVES based on your experiences – both Landlord and Broker alike. Just a click/call away from discussing our investment opportunities here in Windsor-Essex!