Guide
A free month or a lower rent? Rent concessions for NYC owners
A free month and an equivalent rent cut cost you the same in the first year. The free month keeps the lease rent higher, which matters to a lender, an appraisal and the building's comparables. A lower rent is usually better when you want the tenant to stay, because the concession disappears at renewal and the full rent arrives with it.
The math
What is net effective rent?
Net effective rent is what the tenant pays over the whole lease, spread evenly across every month. The gross rent is the rent written in the lease before the concession.
The formula: gross rent, times the months the tenant pays, divided by the months in the lease. The table works it through for an apartment with a gross rent of $3,000, as an illustration rather than a market figure.
| Offer | Gross rent | Net effective rent |
|---|---|---|
| No concession, 12-month lease | $3,000 | $3,000 |
| One free month, 12-month lease | $3,000 | $2,750 |
| One free month, 13-month lease | $3,000 | $2,769 |
| Two free months, 24-month lease | $3,000 | $2,750 |
So one free month on a 12-month lease and a rent of $2,750 bring in the same money over the year. Everything else in this guide is about what differs between them.
The case for a free month
Why offer a free month instead of lowering the rent?
Because the gross rent is the number that lasts. It goes on the rent roll, it becomes the comparable for the next unit, and it is where the next lease starts.
The rent roll. Lenders and appraisers look at the rents in the leases. If you are refinancing or selling, a building full of $3,000 leases with a free month reads differently from one full of $2,750 leases, even though the cash is the same.
The next comparable. The rent one unit signs for becomes the benchmark for the next vacancy in the same line. A cut resets it; a concession leaves it where it was.
It is easier to take away. When the market firms up, you stop offering the free month on the next listing. Raising an asking rent back after a cut is harder to do and easier to notice.
This is why concessions are standard in new buildings leasing up many units at once. How we approach lease-ups.
The case for a lower rent
When is a lower asking rent the better choice?
When you want the tenant to renew. At renewal the free month is gone and the tenant is asked to pay the full gross rent, which feels like an increase even if the lease rent never changed.
The renewal step-up. A tenant who has effectively been paying $2,750 and renews at $3,000 is looking at a jump of about 9% before you have raised anything. Some will move instead, and the vacancy you saved a year ago comes back. For an owner of a few units, where every turnover is a real cost, that often decides it.
Qualifying renters. If you set your income requirement against the gross rent, as many NYC owners do, a concession does not widen the pool of renters who qualify. A lower rent does.
Simplicity. A lower rent needs no explanation. A concession has to be understood by the renter, written into the lease correctly, and explained again at renewal.
Doing it right
How should a concession appear in the listing and the lease?
Plainly, in both places. Show the gross rent as the price, state the concession and the net effective rent next to it, and write the same terms into the lease.
The listing. Since 2020, StreetEasy has shown the gross rent as a listing's price, with the concession terms and the net effective rent alongside it (Brick Underground, September 2020). Leading with the net effective figure elsewhere makes the apartment look cheaper than the lease will say, and renters who notice stop trusting the rest of the listing.
The lease. Write the gross rent, which month or months are free, and what happens at renewal, in plain terms. The most common source of friction with a concession is a tenant who did not understand that the renewal would start from the gross rent.
Which month. A free first month helps a renter with move-in costs, which is often what they are short of. A free month later in the lease, or a credit spread across it, keeps rent coming in from the start. Pick one and state it.
Straight answers
Owner questions about concessions, answered directly
Is a free month or a rent cut better if my apartment is not renting?
First find out whether price is the problem at all. If renters are coming to showings and not applying, neither will fix it. How to tell why an apartment is not renting. If it is price, the renewal question above usually decides between them.
How do I set the gross rent in the first place?
Off what comparable apartments have signed for nearby, not what other listings are asking. A concession on top of an overpriced gross rent is still an overpriced apartment. How to price an apartment for rent.
Can I offer a concession on a rent-stabilized apartment?
The rules for stabilized units turn on the registered legal rent and any preferential rent, which a concession can interact with. Talk to your attorney before offering one on a stabilized unit.
Should the concession depend on a longer lease?
It can. A free month on a 13-month lease costs you less per month than on a 12-month lease, as the table above shows. It also moves the lease end date by a month, so check which season the next vacancy would land in.
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