Real Estate Articles
Move in Date Issues for Office Leases
Written by Brent Pace for Gaebler Ventures
As you get close to finalizing negotiations for your office lease, don't forget to pay attention to the passages that involve your move-in date.
Negotiating the correct move in date, often called the commencement date in the lease, can be very important to the success of your lease.
Landlords will want to get you in the space and collecting rent as soon as possible. In many instances, your incentives are aligned. But make sure that you don't get stuck paying rent for space that isn't ready. Here are some details on how the commencement date passage of a lease works.
The commencement section of your lease will typically have three sections. These sections specifically address the three possible dates that could mark your commencement date. Please note that these clauses exist only if you are having construction performed to prepare your space. If you are taking your space as-is, you simply negotiate a date certain and enter it into the lease. If construction, and its accompanying uncertainty, is involved you will have the following three clauses:
1. Occupancy. The simple date that is always included in the lease is occupancy. The first day of your occupancy is the first day that you pay rent. Your lease term will officially begin on that date at a bare minimum.
2. Substantial Completion. When construction is done on your space, it is often called substantial completion. It could also be denoted by receipt of a certificate of completion delivered by the local municipality's building inspector. Once this is done, the rent will start soon after that date - giving the tenant time to move in. A typical clause will give a Tenant seven to ten days beyond the date of substantial completion.
3. Date Certain. Sometimes the Landlord will also include a clause with a date certain. As you will find, the Tenant has a lot of control in the construction process. The Landlord is building your space out in the way that you have specified. If you constantly drag your feet on decisions you could take what should have been a 60 day construction process and turn it into a 6 month construction process. Given that this presents a significant risk to the Landlord, they will often specify a date that is 3 to 6 months out as a date certain when rent commences whether or not you have taken occupancy.
All of these clauses are legitimate, and your lease could contain any or all of the three. The big thing to focus on is to make sure that all three of them work together in a way that works for you. Don't let your Landlord slip a date certain in there that is only 30 days away if your construction could take three months. The last thing you need as an entrepreneur is to pay for two office spaces at the same time.
Finally, you should be aware that most leases contain clauses that hold the Landlord responsible for mistakes they make in the construction process. If your tenant finish build out takes six months, and you had an occupancy date that was only four months out, the Landlord will try to get you to pay for those two months even though you did not occupy the space. If the Landlord was responsible for the delays then you do have some recourse and should discuss the matter with legal counsel. Examples of delays that are the Landlord's fault can deal with a failure to pay the contractor, liens on the building, failure to secure the proper permits and certificate of occupancy and more. If you are worried that this is happening to you consult legal counsel immediately.
Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.
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