Rent-Free Periods in Commercial Leases: When and How to Offer Them

A shop, showroom or office floor sitting empty costs you money every single month. Yet many good commercial tenants in Bangladesh ask for the same thing before signing: "Give us a few months without rent while we do the interior." A rent-free period in a commercial lease is one of the most useful negotiating tools a landlord has, but it is also one of the easiest to get wrong. Offer too little and the tenant walks away; offer too much, or write it loosely, and you may end up funding someone else's fit-out and then chasing them for months.

This guide explains what a rent-free period is, when it makes sense for landlords of shops, markets, shopping malls and office buildings in Dhaka, Chattogram and elsewhere, how to calculate its real cost, and exactly how to write it into the agreement so that it protects you. It also covers common mistakes, a worked example with numbers, and the questions landlords most often ask.

What Is a Rent-Free Period?

A rent-free period (sometimes called a "fit-out period", "rent holiday" or "rent concession") is an agreed number of days or months at the start of a lease during which the tenant has possession of the space but does not pay the base rent. The lease itself has started: the tenant holds the keys, can bring in contractors, and is bound by every other clause. Only the rent obligation is postponed or waived for that window.

In Bangladesh, rent-free periods are most common in:

• Shopping malls and markets, where a new shop needs shelving, lighting, signage and a shopfront before it can trade.
• Office space, where a company needs partitions, cabling, air-conditioning and furniture before staff can move in.
• Showrooms, restaurants and clinics, where the fit-out is heavy and may take two to four months.
• Warehouses and factory floors, where racking, flooring or electrical upgrades are needed.

It is rare, and usually unnecessary, for ordinary residential flats. A family moving into a furnished or semi-furnished flat does not need weeks of construction work, so residential landlords typically discuss other concessions instead, such as a smaller advance or a fixed rent for two years.

Rent-free is not the same as "no charges at all"

A well-drafted rent-free clause usually waives only the base rent. The tenant still pays for things they actually consume or that cost you money during the period, such as electricity through their own meter or sub-meter, water, gas where applicable, and often the service charge for common areas, security and lifts. Make this distinction explicit. Many disputes start because the tenant believed "free" meant everything was free.

Why Landlords Offer Rent-Free Periods

At first glance, giving away two or three months of rent looks like pure loss. In practice, a sensible rent-free period can increase your total income over the life of a lease. Here is why.

1. It fills a vacant unit faster

Every month a unit stays empty, you earn nothing and still pay for security, cleaning, common electricity and sometimes staff. If a rent-free offer closes a deal in three weeks instead of four months, you are already ahead.

2. It protects your headline rent

Suppose the market is soft and a tenant wants a lower rent. If you cut the monthly rent from Tk 60,000 to Tk 52,000, that lower figure becomes the base for every future increase and sets a benchmark for other units in your building. Offering two months rent-free instead keeps the agreed monthly rent at Tk 60,000, and future escalations are calculated on that higher number. Read more about how yearly increases compound in our explainer on what rent escalation is and how it works.

3. It attracts better tenants

Established brands, banks, clinics and corporate offices invest heavily in fit-out. They prefer landlords who acknowledge that investment. A good anchor tenant in a market or mall also brings footfall that helps your other shops.

4. The tenant's fit-out improves your property

Much of what a tenant installs, such as better wiring, false ceilings, flooring or a proper shopfront, often stays behind or at least improves the unit. Your agreement should say what stays and what must be removed, but either way a well-fitted unit is easier to re-let.

When a Rent-Free Period Makes Sense (and When It Does Not)

Not every deal needs a concession. Use the table below as a quick decision guide.

The key principle: the length of the rent-free period should roughly match the genuine fit-out work and the length of the lease. A three-month concession on a one-year lease is a 25% discount. The same three months on a six-year lease is closer to 4%.

How to Calculate the Real Cost of a Rent-Free Period

Landlords should always look at the effective rent, that is, the total rent you actually receive over the lease divided by the number of months. This lets you compare offers fairly.

For example (illustrative): A tenant wants a ground-floor shop in a Dhaka market. Two offers are on the table.

• Offer A: Rent Tk 50,000 per month, 3-year lease, 2 months rent-free, 10% increase every year after the first year.
• Offer B: Rent Tk 45,000 per month, 3-year lease, no rent-free period, 10% increase every year.

Offer A:

• Year 1: 12 months minus 2 rent-free = 10 paying months x Tk 50,000 = Tk 500,000
• Year 2: 12 x Tk 55,000 = Tk 660,000
• Year 3: 12 x Tk 60,500 = Tk 726,000
• Total = Tk 1,886,000; effective monthly rent = Tk 1,886,000 / 36 = about Tk 52,389

Offer B:

• Year 1: 12 x Tk 45,000 = Tk 540,000
• Year 2: 12 x Tk 49,500 = Tk 594,000
• Year 3: 12 x Tk 54,450 = Tk 653,400
• Total = Tk 1,787,400; effective monthly rent = about Tk 49,650

Even after giving two months free, Offer A earns Tk 98,600 more over three years, and when the lease is renewed, you negotiate from Tk 60,500 rather than Tk 54,450. This is why experienced commercial landlords often prefer a rent-free period to a permanent rent cut.

Tip: Always run both numbers, the effective rent and the rent you will be renegotiating from at renewal. A concession that feels expensive today is often cheaper than a lower headline rent you live with for years.

How Long Should the Rent-Free Period Be?

There is no legal standard in Bangladesh for the length of a rent-free period; it is purely a commercial agreement between landlord and tenant. Some practical guidelines:

• Tie it to the fit-out plan. Ask the tenant for a simple schedule: design approval, civil work, electrical, furniture, opening. If they need 45 days, do not agree to 90.
• Scale it to the lease term. Longer commitments justify longer concessions.
• Consider the unit's condition. A raw concrete shell justifies more than a painted, tiled unit with lights.
• Check local practice. Ask a couple of market committee members or building managers what is usual in your area, and treat it as guidance rather than fact.

It is common to offer the rent-free period as "up to X months or until the business opens, whichever is earlier". This stops a tenant from delaying opening just to extend free occupation.

Different Ways to Structure the Concession

Full rent-free at the start

The simplest form: months 1 and 2 are free, rent begins in month 3. Easy to understand and administer.

Half-rent period

Instead of 2 months free, the tenant pays 50% rent for 4 months. The landlord receives some cash flow during the fit-out, and the tenant still gets meaningful relief.

Staggered or spread concession

The concession is spread across the first year, for example one month free at the start and one month free at month 7. This helps tenants whose business takes time to build footfall.

Rent-free in exchange for landlord's works

Sometimes the landlord agrees to do certain work, such as installing a lift connection, upgrading the transformer load or fixing the shutter, and the tenant accepts a shorter rent-free period. Put both sides of the trade in writing.

Deferred (not waived) rent

Here, rent for the first months is postponed and repaid later in instalments. This is really a loan, not a concession, and it must be documented carefully with a clear repayment schedule.

What to Write in the Lease Agreement

A rent-free period should never be a verbal promise. Put it in the signed agreement with clear dates. For a full walkthrough of commercial agreements, see our guide to the commercial lease agreement in Bangladesh. The rent-free clause itself should cover the following points.

1. Lease commencement date: the date the tenant takes possession.
2. Rent-free period: exact start and end dates, e.g. "from 1 March 2026 to 30 April 2026 (inclusive)".
3. Rent commencement date: the first date rent is payable, e.g. "1 May 2026".
4. What is waived: base rent only, or base rent plus service charge. List what the tenant must still pay (utilities, sub-metered electricity, service charge if applicable).
5. Purpose: state that the period is granted for fit-out, and that the tenant must follow building rules, working hours and safety requirements during the work.
6. Early opening: if the tenant starts trading before the end of the period, whether rent starts from the opening date.
7. Clawback (repayment) clause: if the tenant leaves or breaches the lease within an agreed initial period, the value of the rent-free months becomes payable or can be adjusted from the security deposit.
8. Escalation timing: whether annual increases are counted from the lease commencement date or from the rent commencement date.
9. Fit-out approvals: the tenant must share drawings and get written consent before structural, electrical or plumbing changes.
10. Reinstatement: what the tenant must remove or restore when the lease ends.

Sample clause (for guidance only, adapt with your lawyer): "The Landlord grants the Tenant a rent-free period from [start date] to [end date] for the purpose of carrying out approved fit-out works. During this period the Tenant shall not pay the monthly base rent but shall pay all utility charges and the monthly service charge. If the Tenant terminates this Agreement or is in material breach within the first [24] months of the term, the Tenant shall pay the Landlord an amount equal to the base rent waived during the rent-free period, which the Landlord may adjust against the security deposit."

Commercial leases often involve stamp duty and, for longer terms, registration under the Registration Act 1908 and the Stamp Act 1899. Rent-free months may still affect how the total lease value is assessed. Confirm the current requirements and costs with a lawyer or deed writer before signing.

Rent-Free Periods, Security Deposits and Salami

In Bangladeshi markets and malls, the total "package" often includes a security deposit (jamanat), advance rent, and sometimes position money (salami). A rent-free period should be negotiated as part of this package, not in isolation.

• Security deposit: collect it at signing, before the rent-free period begins. It is your protection if the tenant abandons the unit mid-fit-out.
• Advance rent: if you take advance rent, specify which months it covers. Advance adjusted against months that are already rent-free makes no sense and creates confusion.
• Salami: if a tenant is paying substantial position money, they may reasonably expect a longer fit-out window, or they may accept none. Learn how salami works in our explainer, what salami in shop rent means.

Tax and Accounting Points to Keep in Mind

This section is general information, not tax advice. Rental income from commercial property is taxable under the Income Tax Act 2023, and in certain cases VAT and withholding tax (tax deducted at source by corporate tenants) may apply under the relevant laws. How a rent-free period is treated for tax, for example whether income is recognised on a cash basis or spread over the lease, can depend on your circumstances and the current rules. Keep a clear record of the rent-free dates, the waived amounts and the rent start date, and discuss the treatment with a tax lawyer or chartered accountant.

For your own management records, show the rent-free months as zero-rent invoices or clearly noted concession months rather than simply leaving a gap. When you review your ledger a year later, a blank month looks like unpaid rent; a noted concession explains itself.

A Step-by-Step Process for Offering a Rent-Free Period

1. Know your numbers first. Calculate your minimum acceptable effective rent before negotiations start.
2. Ask for the tenant's fit-out plan. Scope of work, contractor, expected duration and opening date.
3. Offer a range, not a gift. For example, "up to 6 weeks, linked to a 3-year lease."
4. Link it to commitment. Longer lease, larger deposit or guarantor in return for a longer rent-free period.
5. Write down every date. Possession, rent-free end, rent commencement, first escalation.
6. Collect the deposit and signatures before handing over keys.
7. Monitor the fit-out. Visit weekly, check that work matches approved drawings and building rules.
8. Issue the first rent invoice on time. Set a reminder for the rent commencement date so it is not missed.

Common Mistakes Landlords Make

• Vague wording: "Two months free" without dates. Two months from when? From signing, from key handover or from the day the contractor starts?
• No clawback clause: the tenant enjoys the free months, opens briefly, then leaves. Without a clawback, the concession is simply lost.
• Waiving service charge unintentionally: you still pay guards, cleaners and lift maintenance during the period.
• Handing keys before collecting the deposit.
• Allowing unapproved structural work: breaking walls or overloading electrical lines during fit-out can create safety risks for the whole building.
• Forgetting the rent start date: the first invoice is delayed by weeks, and the tenant gets extra free time by default.
• Offering the same concession to everyone: it quickly becomes an expectation and weakens your position in a stronger market.

Tips for Tenants Asking for a Rent-Free Period

If you are on the tenant side, a fair request is more likely to be accepted. Share a realistic fit-out schedule, offer a longer lease term in exchange, be prepared to pay utilities and service charge, and accept a reasonable clawback clause. Landlords are far more generous with tenants who show they are serious and organised.

Final Thoughts

A rent-free period is not charity; it is an investment in a longer, stronger tenancy. Used well, it fills vacant commercial space faster, protects your headline rent and future escalations, and attracts tenants who will stay. Used carelessly, it becomes free occupation with no protection. The difference lies in the numbers you run beforehand and the dates and conditions you write into the agreement.

If you manage several shops, offices or a whole market, it helps to keep each unit's lease dates, deposits and rent start dates in one place. Bariwala ERP (বাড়িওয়ালা ERP) lets you record agreements and units, generate monthly invoices in bulk once rent begins, and track dues and advance payments, so a rent-free period never quietly turns into an unpaid one. Whatever tools you use, write it down, set the reminder, and review the effective rent before you say yes.