What is a Lease Incentive?

A lease incentive is an inducement for a lessee to sign a lease . In these arrangements, either the lessor directly pays for expenditures , or the lessee does so and is then reimbursed by the lessor. A lessor enters into these arrangements in order to fill vacant office space. Such deals are especially common in a soft real estate market, or when a lessor wants to attract a high-profile, stable prospective tenant.

Examples of Lease Incentives

Here are several examples of lease incentives:

• Rent-free period . The tenant is allowed to occupy the property without paying rent for a set period.

• Reduced rent . The landlord offers a temporary rent reduction, either at the beginning of the lease or for the entire term.

• Cash payments or moving allowances . The landlord provides a cash bonus or covers moving expenses to attract tenants.

• Tenant improvement allowance . The landlord contributes funds for renovations or modifications to customize the space for the tenant.

• Covered operating costs . The landlord agrees to pay certain expenses, such as utilities, property taxes, or maintenance fees, for a specified period.

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Accounting for Leases