Lease Incentives

What are lease incentives?

Lease incentives are benefits offered by landlords to encourage tenants to sign a lease or to make one property stand out from others. The market may dictate whether one is warranted, with a tenant’s market positioning incentives as far more relevant than in a landlord’s market.

These incentives can vary widely, depending on market conditions, the type of property and the duration of the lease agreement. And, yes, the market. You, as landlord, might offer incentives to fill vacancies, secure long-term leases or attract quality tenants that will add value to the building.

Types of lease incentives

Incentives might include anything from rent-free periods and fit-out contributions to flexible lease terms, all designed to make the property more appealing without affecting the base rent rate. But there are several common types of lease incentives in commercial property, each tailored to different tenant needs:

Rent-free periods

One of the most popular incentives, a rent-free period allows tenants to occupy the property without paying rent for a set period, typically at the start of the lease. This incentive can help new tenants establish cash flow or cover moving costs.

Fit-out contributions

A landlord may offer funds or discounts to cover the cost of customising the space to fit the tenant’s needs, whether it’s installing new lighting, partitions or office furniture. This is especially useful for tenants requiring a specific layout or equipment.

Rental discounts

Some landlords may offer a temporary reduction in rent for a set period, rather than a full rent-free period. For instance, a tenant might pay a reduced rate in the first year, with increases in later years as the business grows.

Flexible lease terms

To attract tenants, landlords may offer flexible lease terms, such as shorter or more adaptable leasing periods, options for expansion, or clauses that allow businesses to break the lease if your business needs change.

Why are lease incentives offered?

Lease incentives help landlords remain competitive, especially in a tenant’s market where there is more available space than demand. For tenants, lease incentives lower upfront costs, reduce financial risk and help to free up capital for other business needs.

Incentives also create a win-win scenario, as tenants are encouraged to stay longer or invest in customising the space, while landlords enjoy consistent occupancy and income.

Example of a lease incentive

Let’s say a tenant is considering leasing an office space with a 5-year term. To make the deal more attractive, the landlord offers a six-month rent-free period, allowing the tenant to settle in and allocate resources to setting up the office. The landlord may also agree to contribute $50,000 towards the tenant’s custom fit-out, covering costs like office partitions and new carpet.

In this scenario, the tenant receives both a rent-free period and fit-out contribution—two incentives that can make a significant difference in the first year of occupancy.

The bottom line

Lease incentives are powerful tools in commercial leasing, giving tenants options to reduce costs and create a workspace that supports their goals. As long as the leasing market warrants their relevance, negotiating incentives that align with your needs can start your tenancy on a solid financial footing, while landlords can secure a committed, satisfied tenant.