Everything Worth Knowing about Lease Incentives

Even as the capital cities are witnessing robust capital growth, rental yields are declining in various neighbourhoods stretched across them. Landlords then are on an overdrive to minimise vacancy rates. Among other things, they are not afraid of offering the lease incentive bait to the prospective tenants.

Lease incentive

You can very well comprehend that the word incentive would imply some kind of a bonus. Yes, lease incentive is nothing but bonuses offered by landlords to cajole tenants into a rental agreement. While there is nothing wrong with the operation, both the tenants and the landlords would do well to figure out a few things before going ahead with any contractual agreement.

Many forms of the lease incentive

Lease incentives are generally provided in form of an extended rent free period, rental discounts or fit-out expenses. If a landlord offers a cash incentive, the tax authorities are unlikely to treat it as capital. It is because they will treat it as earnings that the tenant will need to pay tax on the income.

Pre-expiry termination of lease contract

There are cases when a lease contract is terminated before its expiry. In such cases, the tenant in question has to repay the lease incentive; the percentage of repayment being commensurate with the number of months left to the period of expiration.

How does the rent-free period pan out?

It is always wise to pre-establish when the rent free period starts and whether it runs uninterrupted or in a series of months with intervals in between. It is a landlord’s duty to keep matters confidential between himself and the tenant but at the same time prepare a disclosure certificate to the effect of revealing it to any third party desired by the tenants (in many cases, the lenders).

Fit-outs

There are times when the landlords opt for making contributions to the fit-outs as part of their lease incentive. In such an event, it is important to prefigure who will hold the ownerships of the fit-outs after the expiry of the lease. This is significant because the party owning it will be able to claim depreciation on the given fit-outs.

As you can understand by now, a professional solicitor will aid you immensely when it is time to sign the lease incentive contract. At Caputo Lawyers, we have lawyers who are well-versed in this niche.