Lease Comparison & Effective Rent Calculator

Work out the net effective rent of a commercial lease after rent-free months and fitout contributions, and compare two offers side by side. Checking one lease? Just fill in Option A.

Side-By-Side Comparison
Option 1
$
$
months
$
years
Net Effective Rent$0 p.a.
Effective rent per month
$0
Total incentives
$0 (0.0% of face rent)
Total cost over the term
$0
Option 2
$
$
months
$
years
Net Effective Rent$0 p.a.
Effective rent per month
$0
Total incentives
$0 (0.0% of face rent)
Total cost over the term
$0

TCO vs Net Effective Rent

When comparing commercial leases, landlords often offer "Incentives" like rent-free periods or fitout contributions to attract tenants. This makes the Face Rent (the number on the lease) look higher than the actual cost.

Net Effective Rent is the average annual cost after subtracting all incentives from the total rent paid over the entire term. This is the only way to compare two properties with different base rents and incentive structures fairly.

Typical Trade-offs

  • 1
    Higher Incentive = Higher Face Rent: Landlords use incentives to preserve the "Face Value" of the asset for banking and valuation purposes.
  • 2
    Outgoings Variance: Always check if outgoings are included (Gross) or additional (Net). This calculator handles both by adding Est. Outgoings to the base rent.

Working out effective rent from a lease incentive

Landlords often prefer to offer incentives such as rent-free months or a fitout contribution instead of lowering the rent. The higher face rent supports the building's value, because valuers capitalise rent, while the incentive still wins the tenant.

For a tenant, the number that matters is the effective rent: the total rent over the term minus the value of the incentives, spread evenly across each year. This calculator spreads incentives on a straight-line basis and doesn't discount for the time value of money.

Worked example: $120,000 face rent with incentives

A tenant is offered a 5-year lease at $120,000 a year, with 6 months rent-free and a $40,000 fitout contribution.

Face rent over 5 years
$600,000
6 months rent-free
$60,000
Fitout contribution
$40,000
Total incentive
$100,000
Incentive as a share of face rent
16.7%
Effective rent per month
$8,333
Effective rent per year
$100,000

The lease says $120,000, but over the term the tenant pays the equivalent of $100,000 a year. Compare other offers on this effective figure.

Common mistakes

  • Comparing offers on face rent

    Two leases with the same face rent can have very different effective rents once incentives are counted.

  • Forgetting reviews apply to face rent

    Annual increases are usually calculated on the face rent, so the incentive does not reduce future reviews.

  • Ignoring clawback clauses

    Many leases require part of the incentive to be repaid if the tenant leaves early. Check the lease before relying on it.

  • Overlooking the tax treatment

    Rent-free periods and cash fitout contributions can be treated differently for tax. Ask your accountant before signing.

Need help negotiating your lease?

Lease terms are complicated and often weighted in the landlord's favour. Speak to a tenant representative to ensure you get the best possible net effective rate and lease conditions.

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