Free Rent Provision May Extend Term of Lease

Free rent is customarily given by a Landlord to a Tenant as an incentive to lease a particular space. Besides the obvious benefit to Tenant, Landlord also benefits by being able to list the lease on the rent roll starting on the day the lease begins, even if no rent is being collected. But does free rent extend the term of a lease? According to a recent New Jersey Appellate decision, it does.

In R.A.M. Holding Corp. v. Hoboken No. 1 Blimpie, Inc., No. L-1267-08 (N.J. Super. Ct. App. Div. July 24, 2009 ), Landlord and Tenant negotiated a 10 year lease commencing on September 1, 1997 and terminating on August 31, 2007. Because of necessary renovations, Landlord offered to abate rent for the first two months and the parties executed a rider to that effect. The rider also provided for an option to extend the term for an additional five years provided notice was given within 60 days of the date of termination. Tenant gave notice to Landlord that it intended to extend the lease on October 2, 2007, after the original lease term would have terminated. Landlord commenced dispossess proceedings, claiming that the lease had already terminated on August 31, prior to the notice of extension.

 

The court found in favor of Tenant, and held that the rider provision giving Tenant two months of free rent actually amended the term of the lease and extended the date of termination to November 31, 2007, which in turn granted Tenant an additional 60 days to give notice of Tenant’s decision to extend the lease.

 

While not all free rent provisions will extend the term of a lease, Landlords should ensure that the language of any lease or rider specifically states that any free rent incentive given is to be taken during the lease term and state the particular date on which the lease is to terminate.