Get 5 Lease Protections When Granting Free Rent to Tenants

Offering free rent is often part of the price landlords must pay to get a substantial tenant to sign a long-term lease for a significant amount of space. As with any other business arrangement, free rent deals must be incorporated into the lease. But experts suggest that the lease drafting isn’t always commensurate with the deal making. “The typical free rent clauses that I see in the marketplace are fraught with peril and plagued with ambiguity,” laments a veteran New York City commercial landlord attorney. So, he developed his own provision that addresses five crucial issues that standard clauses leave unanswered. 

1. What Rent the Free Rent Waiver Covers

Problem: Standard clauses don’t say what the free rent waiver covers—that is, whether it includes just the fixed rent or also extends to additional rent such as taxes, operating costs, CAM, insurance, and electrical charges.

Solution: Our Model Lease Clause specifies that the free rent waiver covers only the fixed rent [Clause, par. a].

2. Whether the Free Rent Waiver Covers Arrearages

Problem: Free rent clauses typically fail to address arrearages. Thus, if rent is waived for a two-month period, say Nov. 1, 2025, to Dec. 31, 2025, does that mean that any arrearages that continue to be due from before Nov. 1, 2025, but that continue to be due during the two-month period are waived too?

Solution: Our Model Lease Clause lists the start and end dates of the free rent waiver period and clarifies that the waiver covers only the fixed rent attributable to that period [Clause, par. a].

3. Consequences of Pre-Free Rent Period Breach

Problem: Landlords typically want to be able to nullify or recapture free rent if the tenant violates the lease. But free rent clauses typically fail to provide for these rights. 

Solution: The Model Lease Clause addresses the consequences of breaches, starting with clarification that breaches committed before the free rent period begins nullify the free rent waiver and that the breaching tenant must pay all of the waived rent due during that period [Clause, par. b].  

4. Consequences of Breaches Committed During Free Rent Period

Problem: Free rent clauses should but often don’t give the landlord recourse against tenants that breach the lease during the free rent period. 

Solution: The Model Lease Clause requires tenants that commit such breaches to:

• Pay the landlord, upon demand, an amount equal to the rent it would have had to pay had the free rent waiver never existed; and
• Pay the rent that would have been due after the breach occurred had the waiver never existed [Clause, par. c].

5. Consequences of Breaches Committed After Free Rent Period

Problem: Standard free rent clauses have no mechanism to hold tenants that enjoy the benefits of free rent accountable for the breaches they commit after the free rent period ends. 

Solution: The Model Lease Clause gives the landlord the right to demand that tenants that commit such defaults pay a sum equal to the full amount of rent waived during the free rent period. Tenants also have to repay the free rent they enjoyed if the lease ends early for any reason, such as condemnation, default by either party, consensual written agreement, etc. The rationale for this, the New York attorney explains, is that the landlord will no longer receive the rent stream that it anticipated for the originally scheduled full duration of the lease term. In light of that, the free rent period would no longer represent the same proportionate share of the lease term if the lease term were to be shortened. [Clause, par. d].