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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Effective rent (lease incentives)

What is effective rent, and how do lease incentives hide behind face rent?

ONE OF 416 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Effective rent is the rent a tenant really pays once the incentives that won the lease are spread across its term: rent-free months, a fit-out contribution or a cash payment. Face rent, or headline rent, is the figure in the lease, and incentives can hold it up so that reviews and comparable evidence look higher than the market would bear. A five-year lease at a face rent of US$500,000 a year with US$500,000 of incentives has an effective rent of US$400,000 a year, ignoring the timing of the money. A lender reads the incentive behind each lease, and the cash missing in rent-free months, because interest falls due regardless.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Effective Rent: a Worked Example →

The lease says one rent. The landlord's bank account says another.

// WORKED IN

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