Negotiating Rent Abatement
The rent abatement clause is one of the most beneficial clauses tenants negotiate in a commercial lease agreement. In today's post, we will discuss rent abatement, its advantages to tenants, and the circumstances that may be appropriate.
What is rent abatement?
Rent abatement is an agreement between a landlord and a tenant that permits the tenant to pay no rent or reduced rent in certain circumstances. At first glance, it may seem unusual that a landlord would agree to waive some the tenant's rent. However, the landlord may gain a net benefit in giving this to entice high quality tenants.
Usually, tenants negotiate rent abatement at the commencement of the lease term to compensate for the cost of moving in and setting things up. Most landlords would agree to this arrangement as they plan to recoup the rent through other means, such as by negotiating longer lease terms, an increased rent, etc.
Although landlords and tenants can agree on what specific circumstances would trigger the application of rent abatement, the most common examples are:
Change of site plan: Tenants agree to lease premises for a variety of reasons. Some may rent a property because of a drive-through structural layout, which would boost the tenant's business. When the landlord changes this layout, it would most likely affect the tenant's business profits. Negotiating rent abatement for this change would be beneficial to tenants and offset their costs.
Maintenance & Repairs: It would be unreasonable for landlords to expect tenants to pay rent for a property that the tenant cannot yet use. Where the tenant cannot occupy the property for a period of time due to repairs and construction work, the landlord can agree to provide a rent reduction or no rent for such period.
Access: In a situation where a tenant cannot access their office space due to the inability to use elevators, escalators etc., rent reduction would be relevant.
Quiet Enjoyment: A breach of a tenant's quiet enjoyment and use of the property can trigger rent reduction, and the courts have held a similar view. In MNT Holdings Ltd v Bellano Ceramic Tile Co, where a tenant could not enjoy the use of its property due to constant noise and dust from the neighbouring tenant, the tenant obtained rent abatement for the disturbance of its quiet possession of the property.
Rent abatement for commercial leases is essential for tenants and offers them the opportunity to offset expenses.
Although most landlords are fair and see the need for rent reduction in deserving cases, others may attempt to allocate such costs to the tenants. This is why these clauses should be carefully reviewed.
For any questions or advice on drafting a lease agreement, please don't hesitate to contact Northview Law at 905-857-4890 or follow this link to book a free consultation.