Rent abatement

Concession abatement

Free rent granted as part of the deal, typically the first three to six months, sometimes structured as one free month per year. Points to settle:

• Whether it abates gross or net. Free rent on base rent only still leaves the tenant paying CAM, taxes, and insurance from day one. On a triple net deal that can be a third of the payment.
• When it applies. Front loaded free rent helps a tenant funding a buildout. Spread abatement helps cash flow but is worth less in present value.
• The clawback. Most leases provide that on an event of default, all previously abated rent becomes immediately due. This is the provision that turns a modest default into a large one, and it is the single change most worth negotiating.

Negotiating the clawback

A clawback triggered by any default, including non monetary and technical breaches, is aggressive. Reasonable positions:

• Limit the trigger to a monetary default that remains uncured beyond the applicable cure period
• Limit it to a default resulting in termination, rather than any default
• Amortize it, so only the unamortized portion measured over the term is recoverable rather than the entire abated amount regardless of when the default occurs

That last version is the fairest and it is frequently accepted. A tenant that defaults in month 108 of a 120 month lease has already delivered nearly all the value the abatement was granted for.

Remedy abatement

The other kind arises when the premises cannot be used: casualty, condemnation, a failure of essential services, or a landlord's failure to deliver. Here the tenant wants abatement to be automatic, proportionate to the affected area, and available after a short interruption threshold, often three to five consecutive business days. Landlord forms often condition service interruption abatement on the interruption being within the landlord's reasonable control, which excludes exactly the utility failures most likely to occur.

Why it shows up in redlines

Abatement provisions are numeric and specific, which makes changes to them easy to spot but easy to underweight. A deletion of the words "and remains uncured beyond any applicable notice and cure period" from a clawback clause is nine words and it changes the risk profile of the entire concession.