With a rise in Perth CBD office vacancy rates, landlords have
become increasingly willing to grant more attractive incentives to
tenants to maintain a competitive presence in the market. But how
do landlords make sure their incentives don't become a
While there are many types of incentive, the traditional, and
still most common ones are rent-free or rent-reduction periods, and
contributions to fit out or plant.
There is a real risk, however, that landlords who offer generous
incentives may not be properly protecting their interests. The best
way to do this is to ensure that the incentives (or part of them)
are recoverable in the event that the lease is breached or
terminated before the expiry of the initial term.
One way in which landlords can ensure they are adequately
protected is to include a claw back provision in the lease
agreement. What this means is that all or part of the incentive (as
a proportion to the time remaining in the initial term) is repaid
to the landlord in the event that the lease is terminated due to
An alternative protection is to draft incentive provisions so
that they occur during the whole of the term rather than at the
commencement of the term. For example, rather than providing a 6
month rent free period at the beginning of the lease, landlords can
instead offer a 2 month rent free period at the commencement and
one month rent free periods for the first month after each
anniversary of the lease (for a five year lease). By structuring
the incentive this way, the landlord's interests are better
protected, and it is a real incentive for the tenant to remain in
the lease for the whole term to get the benefit of the
In the case of the landlord contributing to the fit out or
plant, the landlord may offer to provide a portion of that
contribution on each anniversary of the commencement date. In this
scenario if the lease is terminated part way through the term, the
landlord has not sacrificed the whole of the incentive to the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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