At a glance
- Always compare the cost of a rent-free period with the expected additional vacancy period without an incentive.
- Rental losses involve more than missed rent: service charges and vacant property management also count.
- A short rent-free period for a long-term lease is often more economical than a low base rent.
What vacancy really costs
As an owner, in addition to lost rent, you face ongoing service charges, insurance, security against break-ins and vacant property management costs. Prolonged vacancy can also make the property harder to let, as an empty building looks less attractive to prospective tenants.
Worked example
At an annual rent of €80.000, a two-month rent-free period costs approximately €13.300. If the property is expected to remain vacant for four months longer without an incentive, you will lose €26.700 in rent during that period, plus ongoing costs. In this example, the rent-free period is the cheaper option.
When a rent-free period is unnecessary
- In a tight market with few comparable properties available in the location.
- For a short letting period where the tenant wants to start quickly anyway.
- When the prospective tenant already has little room to negotiate due to time pressure.
Alternatives to a rent-free period
- A lower rent in the first year, rising to market levels thereafter.
- A contribution towards fit-out costs instead of rent-free months.
- Flexibility over the start date to reduce the tenant's overlapping costs.
Address the risk clearly in the lease
Specify in the lease what happens in the event of early termination during or shortly after the rent-free period, for example an obligation to repay all or part of the incentive. This limits the risk of granting a concession to a tenant who leaves again soon afterwards.
Frequently asked questions
Is a rent-free period common for every type of commercial premises?
This is particularly common for office space and larger commercial premises. For small commercial units in short supply, the landlord often has a stronger negotiating position and an incentive is less necessary.
Can I reclaim a rent-free incentive if the tenant leaves early?
Only if this is explicitly set out in the lease, for example through a tapered repayment arrangement linked to the remaining lease term.