When does it make sense to offer rental concessions?
Local market conditions may be a determining factor in offering rental concessions. In order to quickly fill a vacancy and/or be competitive with other rental properties in the area, landlords could offer financial incentives, attractive lease terms, or unit upgrades to attract new renters. For landlords with rental property in less desirable neighborhoods, a rental concession could attract renters who may not have otherwise considered the property.
Rental surveys in many markets show housing affordability is the most important criteria to renters when considering a move. A lease concession that allows the tenant to better manage his rent expenses will generate more interest than any other type of rental incentive.
Types of Incentives
The following types of incentives are some of the most common rental concessions.
Rent discount
A landlord could discount a rent rate as an incentive for a new tenant to sign a multi-year lease. However, if the tenant defaults on the lease by moving out before lease expiration date, a landlord has lost income by offering a rent concession as well as incurring an unexpected vacancy. A landlord should consider a lease clause that addresses tenant default on concession terms by stating what remedies will be taken to cure the default.
Free month of rent
For some tenants a lease concession of one month of free rent is a very attractive offering. However, a landlord should make sure his lease terms and conditions clearly state how this concession will be applied and what the renter must do to earn the concession. As example, the free month of rent may be earned once the tenant has paid full and timely rent for a specified number of months into the lease term.
Security Deposits
Offering a reduction in the security amount or a waiver of a security deposit may be used by larger rental complexes as a rental concession but is generally not a good business practice for an independent landlord. A security deposit is the landlord’s protection against a tenant’s property damage or unpaid rent. Waiving the deposit or allowing the tenant to pay less than one month rent could be a risky business practice.
A new tenant could request to pay the security deposit amount in monthly installments. This could indicate a cash flow problem and would usually not be considered a good business practice. However in some states, there are provisions by state statute that allow tenants to pay the security deposit in installments.
Unit upgrades
Improvements to the rental unit can be an attractive rental incentive for many tenants. Upgrades can be the landlord’s choice of certain upgrades or a tenant may be able to choose an upgrade from a list offered by the landlord.
Notification and Disclosure
A landlord should research whether state and local laws require notification and disclosure of tenant incentives or rental concessions before entering into a lease agreement.
Documentation
A landlord who provides a lease concession as a rental incentive should keep documentation of relevant information of the offer, acknowledgement, and delivery of the concession. An offer of a rental concession must be provided to eligible tenants in a fair and consistent manner to avoid claims of discrimination. It can be a best practice to keep records by date and detail of offers made, responses received and confirmed acceptances. The records should include a copy of the offer as published or communicated in any media including dates advertised, beginning and ending date of the offer and terms and conditions of the offer.
The lease agreement should include clear language regarding a concession, details of the terms and conditions to earn the concessions, and the available remedies if the terms and conditions are not met by the tenant.