QUESTION: Is a large "free rent" offer from a landlord really a great deal?
ANSWER: It depends. From a cash flow perspective, these offers always appear attractive. And, from a corporate point of view they can not be ignored. There are two other issues, besides cash flow, to consider. Massive rent abatement can come from either a very wealthy landlord offering "lease up" incentives, or a financially weak landlord seeking to stave off disaster. This needs to be understood. Secondly, according to the IRS, specifically IRS Section 467, massive rent abatement meeting certain amounts and monthly figures may meet thresholds for treatment as "tax avoidance", and thus create a taxable event to the tenant (treated as income). Many leases have clauses that state that the lease is not treated under Section 467 when in fact, based on the law, the financial transaction itself does create a 467 circumstance. Many large lease transactions are actually structured, internal to the tenant's books, as a single financial outlay and expensed proportionately over the months of the lease, making rent abatement helpful to the overall lease cost, but not necessarily valuable to any given year.
