Steve Hyatt answers: As a Landlord, why would I want to give a tenant free rent instead of a lower rental rate when leasing office, retail, or warehouse space?

As a landlord, the reason that you want to give free rent in lieu of a lower base rent, there’s a couple of reasons. First of all, you want to be able to offer free rent as an incentive to lure the tenant in but keep that face rent high, because that’s what your increases in future years are based on, and that’s also, when you go to either refinance or sell the building, that’s what the buyer or bank will look at is: What is the face rate? It helps keep your building up versus starting out with a lower base rent, have the increases on a smaller base over time. So you want to keep that face rate as high as possible.

Now, if you give free rent, what you want to also do is try to have the tenant pay the CAM or the operating expenses so the only out-of-pocket that you really have would be the net rent for that period of time if you have at least some cover of cost for your fixed costs.