Rent-Free: What Most Landlords Don't Know About

Rent-free is the term of time the landlord allows the tenant to occupy the property without having to pay for the right of occupation. Usually, a tenant will want to have rent-free covered the duration of renovation to the property.

Excuses Tenants Use to Demand Rent-Free

As a landlord, it's in your interest to maximise the number of days your property is rented out. In other words, the number of days when your tenant has to pay you rent. However, most tenants will bargain and negotiate for as long a rent-free period as possible so that they can delay paying rent for as long as possible. A prospective tenant will use different reasons and tactics to convince you to grant him a long rent-free period.

"Market Practice" or "Market Norm"

One of the most common reasons that a tenant may use to demand a long rent-free period includes, "It is market practice to grant X number of weeks of rent-free for every 1 year lease signed." However, this is untrue. There is no "industry standard" nor "market norm" on rent-free. In fact, established landlords either grant very short rent-free periods, or grant none at all!

Renovation

Another common reason a tenant uses to demand for a long rent-free period is renovation. When your new tenant cites this reason, you must not believe blindly. Instead, ask your tenant for his renovation plan. Ask him for the after-renovation floor plan of your property, renovation project timeline by contractor, electrical plan, and fire-safety plan as you deem fit. More often than not, the tenant would not be able to produce any of them nor justify for the long rent-free period, and they'll fall back to the above most common reason to demand a long rent-free period – "market practice".

Moving-In

When your tenant asks for rent-free for moving-in, depending on the size of your property and involvement of machinery, rent-free should be no longer than 1 week. Without the need for retrofitting, your tenant should be able to move all his goods and documents to your property in 2 to 3 days, in some cases, within a day. Thus, there's really no reason for the tenant to demand a rent-free period of more than 1 week.

Rent-Free & Risk Management

More often than not, inexperienced landlords will grant rent-free period at the start of the tenancy. In the event that a tenant vacates the property before his lease expires, depending on the amount of security deposit being held by the landlord, the landlord may suffer a loss.

In order to mitigate losses due to tenancy default, you can do the following:

1. Sign a longer lease with the tenant – this way, you'll be holding on to a larger amount of security deposit to protect yourself, and/or,
2. Grant rent-free period at the end of the tenancy – this way, the only way for your tenant to enjoy the rent-free period is to serve the full term of the lease. You may also use the rent-free period to ensure that the tenant abides by the terms of the tenancy agreement satisfactorily.

The hallmark of a good landlord is to be able to grant rent-free at the end of the lease. Reputable landlords such as the Far East Organization and Boustead Projects never grant rent-free period at the start of the lease. Rent-free period is always granted at the end of the tenancy, after the tenant has served the full term of the lease to the satisfaction of his landlord.

In the event that the rent-free becomes a make-or-break condition of the lease and you don't mind to compromise a little, the rule of thumb is to never grant more than 2 weeks of rent-free at the start of the tenancy. Should the tenant demand a rent-free period of more than 2 weeks, the balance of the rent-free period should only be granted at the end of the tenancy.

Your job as a landlord is to minimise the length of the rent-free period. Ideally, you do not have to give any rent-free period. In the event that your tenant insists on a rent-free period, always seek to understand why your tenant wants rent-free. The key is to be creative, flexible, but not to FOMO when negotiating rent-free with a new tenant.