Shorten Free Rent Period if Retail Tenant Opens Doors Sooner than Expected

A start-up retail tenant will very likely ask that you give it free rent during the first few months of its lease. The tenant will tell you that it needs to use the money it would have paid you, to set up its store's operations.

If you agree to this concession, you may be giving up too much, warns New Jersey attorney Marc L. Ripp. Tenants often ask for more free rent than they need, he explains. For example, he has seen tenants demand a three-month free-rent concession to start up their business, but begin to operate in their spaces—that is open their doors—two months after the lease starts. These tenants get a free ride for the third month, even though their new business would have generated enough money to pay the rent.

Add Limit to Lease

To plug this loophole and avoid giving a tenant more free rent than it needs, Ripp suggests that you add a limitation to your lease. Say in the lease that the free rent concession will end on the earlier of: 1) a set date (for example, three months from the lease's commencement date), or 2) the day the tenant starts operating its business in its space.

Example: You give the tenant three months' free rent. It starts operating by the second month. The tenant won't be entitled to free rent during the third month.

What to Say in Lease

To get this limitation, add the following language to your lease, where it discusses the tenant's free rent concession, says Ripp.

Model Lease Language

Free rent will end on the earlier to occur of:

a. [Insert date]; or

b. The date that Tenant commences operations of its business at the Premises.

You can download this language from our Web site at http://www.vendomegrp.com/userlogin.aspx. CLLI0125

CLLI Source

Marc L. Ripp, Esq.: Counsel, The Gale Company, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932; (973) 301-8057, MRipp@thegalecompany.com.