What Are Rental Concessions and How Do They Work?
Understand rental concessions: what these landlord incentives are, how they work, and their role in your lease agreement.
Rental concessions are incentives offered by landlords to prospective or current tenants in the residential rental market. These adjustments to lease terms aim to make a property more appealing, often balancing the dynamics of supply and demand. Landlords use concessions to attract new residents or retain existing ones, especially in competitive markets or during periods of higher vacancy.
Understanding Rental Concessions
From a landlord’s perspective, the primary purpose is to reduce vacancy rates, which can otherwise lead to significant financial losses from mortgage payments, property taxes, and maintenance on unoccupied units. Concessions help landlords fill units quickly and maintain a steady cash flow. For tenants, these incentives can reduce initial or ongoing rental costs, making a property more financially accessible or attractive. Concessions differ from permanent rent reductions as they are temporary offers tied to specific lease agreements or initial move-in periods.
Types of Rental Concessions
Rental concessions come in various forms, each designed to provide a distinct benefit to the tenant. One common type is free rent, where a tenant might receive “one month free” on a 12-month or 13-month lease. This can significantly lower the overall cost of a lease, particularly at the beginning. Another form involves reduced rent for a specific period, such as a lower monthly payment for the first few months of a lease before it reverts to the standard rate.
Landlords often waive various fees as a concession to reduce a tenant’s upfront expenses. This can include waiving application fees or pet fees. Some properties might also waive amenity fees or security deposits, or offer reduced security deposit amounts. Other concessions can include move-in bonuses, such as gift cards, or property upgrades like new appliances or smart home technology, adding tangible value to the rental experience.
Applying and Documenting Concessions
Rental concessions are formally integrated into a lease agreement to ensure clarity and legal enforceability. These terms are structured either as specific clauses within the main lease document or as a separate addendum that is signed by both the landlord and tenant. The documentation outlines the exact nature and duration of the concession, clarifying when and how the benefit will be applied.
For “free rent” concessions, the benefit may be applied in different ways; sometimes it is a specific free month, such as the first or last month of the lease. Alternatively, the value of the free rent might be amortized, or spread, across the entire lease term, resulting in a slightly lower effective monthly rent payment. It is important for tenants to verify how any concession, especially free rent, will be calculated and applied to their rent statements.