Rent Abatement Agreement

A landlord and a tenant can use a Rent Abatement Agreement to arrive at a period of free rent during which the tenant does not have to pay rent, despite the fact that the original lease agreement is still in effect.

How it works

If the circumstances warrant it, a tenant may request a free rent period from the landlord by executing a Rent Abatement Agreement.

The abatement period traditionally takes place during the first few months of the lease term. Rent Abatement Agreements are also used in situations when the rental premises are temporarily unavailable. Landlords may even agree to rent abatement if tenants run into financial hardship through no fault of their own.

What Is a Rent Abatement Agreement?

A landlord and a tenant can execute a Rent Abatement Agreement whereby the landlord nullifies rent for a predefined period. After that period, the tenant will continue to pay the rent as prescribed in the lease agreement unless the abatement agreement is extended.

Other Names for Rent Abatement Agreement

Depending on your state, a Rent Abatement Agreement may also be known as:

• Free Rent Agreement
• Rent Free Period Agreement

Who Needs a Rent Abatement Agreement

A Rent Abatement Agreement may be in order if a tenant encounters unforeseen circumstances that result in an inability to meet rent payments. These may include the COVID-19 pandemic, natural disasters, or other hardship events usually not brought upon by the tenant’s fault.

Landlords and tenants can agree about the period of rent abatement, which usually spans several months and protracts in a new agreement.

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How to Create a Rent Abatement Agreement with 360 Legal Forms

Creating a Rent Abatement Agreement on your own can be a time-consuming process at the outset. The extension of any essential items in the document may result in a dispute or even legal entanglement.

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What Information Will I Need to Create My Rent Abatement Agreement?

To create your document, please provide:

• Date: The date when the Rent Abatement Agreement is to be executed.
• Personal information: Full names and addresses of both parties in the agreement (the landlord and the tenant).
• Leasing property information: The address and description of the property in the lease agreement.
• Rent Abatement Period: Define when the rent-free period begins and ends.
• Monthly rental rate: Rental rate to resume after the end of the rent abatement period.

Rent Abatement Agreement Terms

• Landlord: In the context of a Rent Abatement Agreement, this is the property owner in the lease agreement for which the rent is to be abated.
• Tenant: In the context of a Rent Abatement Agreement, this is the party who leases the property in the lease agreement for a rental rate specified within.
• Residential Lease Agreement: The contract defining the landlord-tenant relationship for a residential property, as opposed to a commercial lease agreement for a commercial (business) property.

Rent Abatement Agreement Signing Requirements

The Rent Abatement Agreement needs to be signed by both the landlord and the tenant, who are the same individuals described in the lease agreement.

What to Do with Your Rent Abatement Agreement

Once the document is printed and signed, both the tenant and landlord should keep a copy in their archives. The landlord may ask for additional documents, including the financials of the tenant. For example, a business tenant may be forced to temporarily close his business premises by the franchise, the governor, or the local city council. In this case, the landlord may be amenable to a Rent Abatement Agreement if the tenant could supply proof of closure enforcement and if they had been a good tenant before the hardship event.

Frequently Asked Questions

Both rent abatement and rent deferral are a type of relief for the tenant, but there is a crucial difference. Rent abatement is a time-limited free-rent concession. A landlord might use a free rent period as an incentive for a tenant to sign a longer contract.

A Rent Abatement Agreement can also be negotiated if a business tenant is unable to operate because of government orders or something else through no fault of their own (the COVID-19 pandemic stay-at-home orders, for example).In contrast, a rent deferral is a postponement of rent payments.

During the rent deferment period, the tenant will not be required to pay rent as defined in the agreement. After that period, the tenant will have to make up for the rent deferred plus interests if required by the landlord. Both rent abatement and rent deferment can be partial (for example, 50%) or total (100%).

While the signing of the Rent Abatement Agreement is a formality, landlords should ask for:

• Documents proving that the tenant is having temporary financial hardship due to unforeseeable circumstances.
• Confidentiality – This prohibits the tenant from announcing the rent abatement publicly or with other tenants. It’s desirable to include this term in the contract if you do not plan to extend this courtesy to all tenants.
• Assignability – The Rent Abatement Agreement executed is only for the tenant and not extendable to any subleasing of the property, from which the tenant is forbidden to profit during the agreement period.
• Clawbacks – If the tenant doesn’t resume business after the end of the rent abatement period, the landlord can take them to court for the lost rent if a clawback provision is included in the contract.
• Tax implications – If you forgive more than $600 of your tenant’s rent, you’ll have to file a 1099-C, which the tenant will have to file with his tax return for canceled rent.

Start with the following:

• Don’t be emotional. Being overdramatic over the phone or in person will appear unprofessional. Stay calm and collected when discussing the agreement with your landlord. If you are emotional by nature, practice first.
• Don’t send any documents. You might be tempted to send your financial documents as proof that your business has a hard time meeting its obligations. But you should only send them if requested by the landlord, and even then, only through your accountant.
• Don’t mention other revenue streams. You have no obligation to inform your landlord of miscellaneous revenue streams apart from what’s secured through your storefront or office. Focus on the status of the business at the leased property.
• Don’t use all your aces at once. When asking for rent abatement, you don’t have to include every reason for it. Start with a few pieces of information and supply more if the landlord asks for them. You should provide only the requested documents and no more.

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