Effective rent accounts for concessions by:
Correct Answer
D) Spreading their cost across the lease term
Why this is correct: Effective rent accounts for concessions (like free months) by amortizing the value of the concession over the lease term. For example, two free months on a 24-month lease reduces the annual effective rent by spreading the 'cost' of those free months across the entire lease. Why the other choices are wrong: 'Deducting them from the reversion' incorrectly applies concessions to the property's future sale value. 'Adding the concession value to the face rent as income' would inflate income, not reflect the true lower rent actually paid. 'Ignoring them as a marketing expense' would misstate the actual income stream a property generates. Exam tip: To compare leases with different concessions, always calculate and use the effective rent.
Why This Is the Correct Answer
Why this is correct: Effective rent accounts for concessions (like free months) by amortizing the value of the concession over the lease term. For example, two free months on a 24-month lease reduces the annual effective rent by spreading the 'cost' of those free months across the entire lease. Why the other choices are wrong: 'Deducting them from the reversion' incorrectly applies concessions to the property's future sale value. 'Adding the concession value to the face rent as income' would inflate income, not reflect the true lower rent actually paid. 'Ignoring them as a marketing expense' would misstate the actual income stream a property generates. Exam tip: To compare leases with different concessions, always calculate and use the effective rent.
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