Concession

Definition

Concession refers to several distinct business and legal practices:

Small Shop or Vending Machine: A concession can refer to a small retail space, such as a kiosk, shop, or vending machine located in the lobby of a hotel or office building. This type of concession is typically run by a businessperson who pays the property owner to operate in that specific location.
Government-Granted Right: Concessions often involve the granting of rights, usually by a government entity, to use property for specified purposes. Examples include running a service station on a highway or setting up a commercial establishment in a public park.
Reduced Rent: In the context of real estate leasing, a concession might refer to a temporary reduction in rent during the early period of a lease, used as an incentive to attract tenants.
Corporate Underwriting Compensation: In finance, a concession might denote the per-share or per-bond compensation awarded to a selling group involved in a corporate underwriting process as compensation for selling securities.

Examples

Vending Machine in an Office Lobby: A businessperson might place vending machines in a corporate office building’s lobby, with permission from the building owner.
Service Station on a Highway: A government entity might grant a company the right to build and operate a service station on a major highway, offering concessions as an incentive.
Reduced Rent Lease Agreement: A landlord offers new tenants a concession in the form of reduced rent for the first six months to encourage lease signings.
Compensation for Underwriting: A financial firm participating as an underwriter in a public offering receives a concession of $1 per share sold as their compensation for the underwriting effort.

Frequently Asked Questions

Q1: What are typical examples of government-granted concessions? A: Typical examples include permits to operate commercial facilities like cafes or retail shops in public spaces, or licenses for utilities to use public land.

Q2: How does a rent concession benefit tenants and landlords? A: For tenants, it reduces initial costs and makes leasing more attractive. For landlords, it helps to quickly attract tenants and secure occupancy.

Q3: What are the risks associated with retail concessions? A: Retail concessionaires face risks such as fluctuating foot traffic, dependency on property owner’s terms, and market volatility affecting sales.

Q4: In corporate underwriting, how is the concession amount determined? A: The concession amount is typically determined as part of the overall underwriting agreement and is based on competitive market practices and negotiations.

Leasehold Concession: A rent reduction or other incentives provided during the term of a lease.
Government Franchise: Official approval for a private business to operate a public service.
Underwriting Spread: The difference between the price paid by underwriters to the issuer and the price at which securities are offered to the public.
Kiosk Lease: Agreement to operate a small retail store within a larger commercial space.

Online References and Resources

Suggested Books for Further Studies

“The Concession Industry in Retail: A Complete Handbook” by Sarah Morris.
“Corporate Underwriting: Concepts and Applications” by Alexander J. Hill.
“Government Concessions: Management and Policy” by William P. Meyers.

Fundamentals of Concession: Business Law and Real Estate Basics Quiz

### Is a vending machine in a hotel lobby considered a concession? - [x] Yes, it is an example of a concession. - [ ] No, only large retail outlets are considered concessions. - [ ] Only food-related businesses can be considered concessions. - [ ] None of the above. > **Explanation:** A concession includes small retail operations like vending machines in hotels or office building lobbies. ### What type of entity typically grants property use rights for specific purposes? - [ ] Private individuals - [ ] Corporate competitors - [x] Government entities - [ ] Non-governmental organizations > **Explanation:** Concessions are most often granted by government entities for specific uses of property. ### How does a rent concession typically benefit a landlord? - [ ] By increasing the rent for the term of the lease. - [x] By quickly attracting tenants. - [ ] By reducing maintenance costs. - [ ] By promoting subleasing. > **Explanation:** Offering rent concessions helps landlords quickly attract tenants, increasing occupancy rates. ### What is a common incentive offered in retail lease agreements? - [ ] Extended opening hours - [x] Reduced rent for initial lease period - [ ] E-commerce support - [ ] Free advertising > **Explanation:** Rent concessions, such as reduced rent for the initial lease period, are common incentives offered to attract tenants to retail spaces. ### In the context of corporate underwriting, what does a concession refer to? - [ ] A discount on stock prices for employees. - [x] Per-share or per-bond compensation to the selling group. - [ ] Tax incentives for investors. - [ ] Shareholder meeting allowances. > **Explanation:** In corporate underwriting, a concession is the per-share or per-bond compensation given to the selling group for their efforts. ### What normally determines the concession amount in underwriting? - [ ] Government regulations alone - [ ] The current stock price - [x] Competitive market practices and negotiations - [ ] Annual revenue reports > **Explanation:** The concession amount in underwriting is generally determined by competitive market practices and negotiation processes. ### What is one primary risk for retail concessionaires? - [ ] Consistently high rent - [ ] Ownership transfer restrictions - [x] Fluctuating foot traffic - [ ] Lack of initial inventory > **Explanation:** Retail concessionaires can face the risk of fluctuating foot traffic, which can significantly impact sales. ### Can concessions include government franchises? - [ ] No, franchises are different from concessions. - [x] Yes, they can. - [ ] Only in rare cases. - [ ] This is limited to private businesses. > **Explanation:** Concessions can include government franchises, where the government grants operational rights for public services. ### How long is a typical concession period? - [ ] One fiscal quarter - [ ] Until the business closes - [ ] It varies greatly - [x] Several years, depending on the agreement > **Explanation:** Concession periods can vary but typically span several years as defined by the agreement between the parties. ### Why are governmental concessions important in infrastructure? - [ ] They mainly aim to profit the government. - [ ] They replace social programs. - [ ] They mitigate political risks. - [x] They allow private sector involvement in public services. > **Explanation:** Governmental concessions play a significant role in allowing private sector involvement in the development and maintenance of public infrastructure.

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