# Landlord Fit-Out Contributions and Rent-Free Fit-Out Periods

> A rent-free fit-out period is time after handover during which a tenant builds its fit-out without paying rent; a fit-out contribution is money or work the landlord provides towards that fit-out. Both are lease incentives tied to the handover condition, the lock-in and often reinstatement. Their value depends on when the clock starts and what the floor contains when it does.

## A rent-free period is only worth the weeks you can actually use

When a tenant leases office space, the landlord often offers two incentives: a
rent-free period to build the fit-out, and a contribution towards the cost of
that fit-out. Both appear in the term sheet as headline numbers, and both are
usually negotiated early, by the business and its broker, before anyone has
looked closely at the floor.

The misconception is that a rent-free period is a fixed amount of free time. It
is not. **It is a window that opens on a date the lease defines, against a floor
in a condition the lease defines.** If the window opens before the floor is
genuinely ready, or before the landlord has approved the design, part of it is
spent waiting. If the fit-out programme is longer than the window, rent starts on
space nobody can yet use, and the business may also be paying for the premises it
is trying to leave.

For a CFO, the value of these incentives lies less in their size than in how they
are tied to handover, approvals, lock-in and exit. Those links are where most of
the money is won or lost.

## The incentives and what each is tied to

| Incentive | What it is | What it is usually linked to | What to check |
| --- | --- | --- | --- |
| Rent-free fit-out period | Time after handover with no base rent, to build the fit-out | Handover date and condition; sometimes rent commencement on occupation | Start trigger; which charges remain payable; what happens if the landlord's works or approvals are late |
| Fit-out contribution | Money towards the tenant's fit-out, paid against evidence of spend | Lease term and lock-in; sometimes repayment on early exit | Payment timing and evidence; what it may be spent on; repayment conditions |
| Landlord's works | Items the landlord builds before handover, such as ceilings, lighting or air conditioning distribution | Handover specification annexed to the lease | Whether your layout keeps them; whether they count against any contribution |
| Rent reduction or stepped rent | Lower rent for an initial period in place of cash | Lease term and escalation | Total effect over the term, not only the first year |
| Additional rent-free during the term | Further rent-free months spread later in the term | Lock-in and renewal | Whether it is lost on early exit |

The lease is the only document that settles what applies to your building. The
table shows the categories worth asking about.

## When does the clock start?

This is the most important clause in the incentive, and the one least often
negotiated.

**Handover means a condition, not a date.** If the rent-free period starts on a
calendar date or on the landlord's notice of handover, it can start while the
landlord's own works are incomplete or while services are not yet live. Ask for
the start to be tied to handover of the floor in the condition the lease
schedules, confirmed at a joint inspection. What "warm shell" or "bare shell"
actually includes is set out in [bare shell vs warm shell: what the landlord hands
over](/blog/bare-shell-vs-warm-shell-office-handover), and the period should be
sized against that schedule, not against the label.

**Landlord approval of the design runs inside the period.** Most buildings
require the tenant's drawings to be reviewed before work starts. If that review
is slow, the rent-free weeks are consumed without any work on the floor. Ask
how long design review takes, and whether the period is extended if the
landlord's review or the landlord's works run late.

**Statutory approvals have their own timetable.** Fire and life safety provisions
sit in **NBC 2016, Part 4**, and building services in **NBC 2016, Part 8**. What
a particular layout needs, and how long any approval takes, is for the project's
consultants and the authority having jurisdiction to establish. It belongs in the
programme that the rent-free period is negotiated against.

## Size the period from the programme, not the market

Brokers often quote what is "normal" in a market. A normal period is of little
use if your fit-out does not fit it.

The better sequence is to ask a designer or design-and-build contractor for an
outline programme on the shortlisted floor before the term sheet is agreed. That
programme should cover design and design freeze, landlord review, any statutory
approvals, ordering of long-lead items, installation, testing and commissioning,
and the move. Construction project management guidance such as **IS 15883
(Part 1)** treats planning and scheduling as a project discipline, and the same
logic applies here: the date depends on the activities and their sequence, not
on an expectation. Where fit-out time is usually lost, and which items govern the
date, is covered in [office fit-out programme: where the time actually goes](/blog/office-fit-out-programme-where-time-is-lost).

The building's rules matter as well. If noisy work and deliveries are restricted
to nights and weekends, the same work takes longer. Those rules are in the
fit-out guidelines, covered in [reading the landlord's fit-out guidelines before
design](/blog/reading-landlord-fit-out-guidelines-before-design).

## Contributions, lock-in and reinstatement are one negotiation

A fit-out contribution is the landlord's investment in securing a tenant for a
period. That is why it is so often linked to the lock-in, and why some leases
ask for an unrecovered part to be repaid, or a rent-free period to be clawed back,
if the tenant leaves early. Whether and how such a clause operates is a legal
question for your lawyer; commercially, the contribution is not free money if the
business may need to exit.

Three further links are worth settling at the same time:

- **What the contribution may be spent on.** Some landlords restrict it to
  permanent works such as ceilings, services and washrooms, and exclude
  furniture, IT and moving costs.
- **Who owns what it paid for.** If the landlord funded part of the fit-out, the
  lease may treat those items differently at exit, either as the landlord's
  property to be left in place or as tenant works to be removed.
- **What must be reinstated.** Reinstatement is a future cost created by today's
  design, and the incentive should be read alongside it. See [lease-end
  reinstatement: what you owe the landlord](/blog/lease-end-reinstatement-what-you-owe-the-landlord).

The accounting and tax treatment of lease incentives, including how rent-free
periods and contributions are recognised over the term, is for the CFO and the
organisation's auditors and tax advisers to confirm.

## Common mistakes

- **Agreeing the rent-free period before the handover condition is known.** The
  period is then fixed against work nobody has scoped.
- **Letting the clock start on a date, not a condition.** Weeks are lost while the
  landlord finishes its own works.
- **Forgetting the charges that are not waived.** Maintenance, utilities and
  parking start at handover while rent does not.
- **Ignoring design review time.** The landlord's approval of drawings consumes
  the period before work begins.
- **Taking landlord's works the layout will remove.** A generic ceiling and
  lighting grid is paid for in the deal and then demolished in the fit-out.
- **Treating the contribution as separate from the lock-in.** An early exit turns
  it into a repayment.
- **Signing on the broker's "normal" period** instead of a programme for this
  floor.

## What to ask before signing the term sheet

- What exactly triggers the start of the rent-free period, and is it tied to the
  handover condition in the lease schedule?
- Which charges are payable during the rent-free period, and from when?
- Is the period extended if the landlord's works, design review or base-building
  services are late?
- How long does the landlord's design review take, and is it inside the period?
- What may the fit-out contribution be spent on, how is it paid, and against what
  evidence?
- Is any contribution or rent-free period repayable on exit during the lock-in?
- How are landlord-funded items treated at the end of the lease?
- Does our outline fit-out programme fit inside the period, with the building's
  working rules applied?

A design-and-build contractor should be able to give you that outline programme
from a draft layout and the handover schedule before you negotiate, so the
incentives are agreed against real dates.

## Standards referenced

Fire and life safety provisions in **NBC 2016, Part 4**; building services
provisions in **NBC 2016, Part 8**; construction project management guidance in
**IS 15883 (Part 1)**. Rent-free periods, fit-out contributions, lock-in and
reinstatement are contractual terms specific to each lease; their legal effect
must be confirmed by the tenant's lawyer, and their accounting and tax treatment by
the organisation's auditors and tax advisers. Statutory approvals and services
requirements for a particular floor are for the project's consultants and the
authority having jurisdiction.

## Frequently asked questions

### What is a rent-free fit-out period?

It is a period, usually starting at handover, during which the tenant has access to the premises to carry out its fit-out but does not pay rent. It recognises that the space cannot be used while it is being built. What it covers, when it starts and whether other charges are payable during it are set by the lease, so read those clauses together.

### Do we pay maintenance charges during the rent-free period?

Often, yes. Many leases waive base rent but leave maintenance, utilities, parking or other charges payable from handover, because the building is being used and serviced. Some landlords waive those too. It is a negotiable point that is easy to miss, so ask for each charge to be listed with its start date in the term sheet.

### What is a landlord fit-out contribution?

It is a contribution by the landlord towards the tenant's fit-out, sometimes called a tenant improvement allowance. It may be paid as money against invoices, delivered as works the landlord carries out, or given as a rent reduction. It is an incentive to sign, and it usually comes with conditions on term, lock-in and repayment if the tenant leaves early.

### Can the landlord ask for the fit-out contribution back?

Some leases require the tenant to repay part of a contribution, or lose part of a rent-free period, if it exits during the lock-in. The wording varies widely, and its legal effect is for your lawyer to advise on. Commercially, treat any contribution as linked to the lock-in until the lease says otherwise.

### How long should the rent-free fit-out period be?

Long enough for design, landlord approval of the design, any statutory approvals, procurement of long-lead items, installation, commissioning and moving in. That depends on the handover condition, the size and complexity of the fit-out and the building's working rules. Build the programme first and negotiate the period from it, not the other way round.

### Is it better to take a larger contribution or a better handover condition?

It depends on your layout. A landlord-built ceiling, lighting and air conditioning layout is only valuable if your design keeps it; a cellular or specialised layout may remove much of it. In that case a contribution or longer rent-free period in place of the landlord's works can be worth more. Test the options against a draft layout before agreeing.

## Sources

- [NBC 2016, Part 4](https://www.bis.gov.in/standards/national-building-code/) — Fire and life safety
- [NBC 2016, Part 8](https://www.bis.gov.in/standards/national-building-code/) — Building services
- [IS 15883 (Part 1)](https://standards.bis.gov.in/website/published-standards/department-wise) — Construction project management - guidelines - general

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Source: https://hagerstone.com/blog/landlord-fit-out-contribution-and-rent-free-period