Rent abatement is a clause in a commercial lease that allows tenants to forgo rent payments for a certain period of time. There are a few situations where rent abatement can be negotiated, and it can help both commercial landlords and tenants when used correctly.
Rent Abatement After Property Damage
If the property is severely damaged, it may be unusable by the tenant. The tenant is not getting the benefit of renting the property, and repairs may take a long time to complete. This is a common situation where the rent abatement clause can be applied.
There are a few important points to note when negotiating a rent abatement clause. First, what types of damages allow for rent abatement? Typically, natural disasters or damage that is not the tenant’s fault will be covered. However, if the tenant is responsible, even due to an accident, rent abatement may not be permitted. You should consult with a commercial leasing attorney to discuss what situations allow for rent abatement in your commercial lease.
Other provisions to consider are how long the rent abatement period is, and whether the tenant has the right to terminate the contract. If the repairs are going to take a very long time, the tenant will want the right to find a new space and exit the contract.
Other Situations Where Rent Abatement Is Useful
Rent abatement can also be used during economic downturns that hurt the retail industry and other commercial tenants. In these situations, the tenants’ businesses are suffering, but the landlord may not be able to find replacement tenants easily. If the landlord can offer tenants a little bit of financial relief, both parties could benefit. This is a situation where rent abatement may not be included in the lease, but it doesn’t hurt the tenant to ask the landlord for help.
Landlords can offer rent relief or rent deferral. Rent relief could be a temporary rent reduction for a few months. The landlord is losing out on this money, but may decide it’s worth the cost to keep the tenant in business.
Rent deferral also offers a temporary rent reduction, but spreads the missed payments over the course of the remainder of the lease. The landlord will eventually get back the money, but is offering the tenant the opportunity to pay less now by making up for it later.
Rent abatement is an important part of negotiating a commercial lease, and can also be requested when unforeseen circumstances arise that impact a commercial tenant’s business. Talk to a commercial leasing attorney if you need assistance with your commercial lease or otherwise negotiating with your landlord.
Chernoff Law handles business and real estate litigation matters throughout Arizona, including disputes arising out of commercial leases. Contact us to discuss your case with an experienced real estate attorney.