Incentives provided by landlords to tenants

What is an incentive?

A landlord may give a tenant an incentive to enter into a lease. An incentive is generally (but not always) recorded in a separate incentive deed. See the Precedent Lease incentive deed. It is common practice for all or part of the incentive(s) to be repayable by a tenant in the circumstances specified in the relevant incentive deed, e.g., assignment or early termination. From a landlord’s perspective, it is important that the repayment of an incentive is not precluded by being found to constitute a penalty. See, e.g., GWC Property Group Pty Ltd v Higginson and Repayment of incentives — case example (below) and Law relating to penalties (below).

Practice Tip: If you need to draft an incentive repayment provision, consider referring to GWC Property Group Pty Ltd v Higginson. It may assist in drafting an appropriate clause.

There are three main types of incentives (discussed below), namely:

• rent-free periods;
• rent abatements; and
• fitout contributions.

Rent-free periods

A landlord may agree to allow a tenant to occupy the premises for a period of time during the term without the need to pay rent. During this time, a tenant will still generally be required to contribute towards outgoings and, if applicable, a car parking licence fee.