What is a Commercial Leasehold Inducement?

October 26, 2015 Published by
Post Categories: Tax Accounting

The current commercial real estate market in Ontario is seeing a number of commercial properties available for rent. When there are more rental spaces than there are renters, a landlord will typically attract tenants by offering leasehold inducements. While leasehold inducements can be beneficial for both tenant and landlord, the tenant often stands to reap even greater benefit from negotiating a lease with the landlord. At Hogg, Shain, & Scheck, our professional accountants can offer tax and accounting advice on negotiating the best possible commercial real estate lease for your new or existing business.

What is a commercial leasehold inducement?

A commercial leasehold inducement does’t fit into any one type of category. In fact, there are many types of leasehold inducements that a landlord can offer. Here are a few ways a landlord may choose to attract tenants.

    • The landlord may offer a rent-free period.
    • The landlord may buy out an existing lease.
    • The landlord may offer an interest free or low interest loan.
  • The landlord may offer to renovate the unit.
  • The landlord may offer to assist with moving expenses.

Negotiating a commercial leasehold inducement

When it comes time to move an existing business or open a brand new business in a commercial real estate space, targeted negotiation of a leasehold inducement should be straightforward and precise. This means, you will want to determine the best way for your business to benefit from a leasehold inducement. Do you need financing from a bank or would a few months free rent be sufficient to help out financially? Does the property need to be improved to suit you and your customers or are you already committed to a lease that you no longer want?

Associated tax consequences also need to be considered when negotiating a commercial leasehold inducement . In some cases, the leasehold inducement may be treated as taxable income. Your business needs a thorough understanding of both the tax benefits and possible tax costs of leasehold inducements before committing to the lease.
If you have found the perfect commercial real estate unit for your business in Ontario, contact the professional accountants at Hogg, Shain, & Scheck for advice and clarification on how your leasehold inducement may influence your business tax costs and your bottom line.