The commencement date of a tenant’s lease signifies more than just its right to possession of the premises. The rent commencement date, the expiration date and the tenant’s lease obligations (among other things) are all triggered by the commencement date.
In today’s issue, we provide ten important areas to cover when defining the commencement date under your lease.
Mintz & Gold LLP
Tom Terrific and Lease Commencement Dates
I would like to have a Leasing Illustrated moment of silence for Tom Seaver, New York Mets Hall of Fame pitcher, who passed away this past month.
“Tom Terrific” won 311 games, was a 12-time All-Star, had a 2.86 earned-run average over a 20-year MLB career, won the Cy Young Award three times and racked up 3,640 strikeouts.
What the heck was he doing on the Mets?!
Hall of Fame manager Sparky Anderson once said, “My idea of managing is giving the ball to Tom Seaver and sitting down and watching him work.”
Not unlike how I know many of you feel when you give your lease to Mintz & Gold.
And, of course, Tom was the leader of the Miracle Mets 1969 championship.
I was ten years old when the Mets won the championship in 1969 (yeah, do the math, it’s not pretty).
I listened to playoff games in school and on the bus on a transistor radio with an earpiece.
Oh, c’mon! What’s a transistor radio? Pleeeez!
My dad even took us to a World Series game.
After that, I was hooked and subject to countless years of futility.
The Knicks and Jets won that year too (imagine that!) and kids in New York thought winning championships was normal.
It was like growing up over the past few years in Boston and only now learning that “Tahmie” was actually human, got old and moved to Florida like the rest of us.
Such disappointment, but like a duckling imprinting attachment to mama duck, once you are on board there is no getting off that train, even if the conductor is Mr. Met.
Which goes to show that beginnings matter and that is certainly true in a commercial lease (yeah, I know, you were wondering how I would get from Mets purgatory to leasing).
Everything in a commercial lease runs from the commencement date.
This usually includes more than just possession of the premises. For example, the rent abatement or “free rent” period will run from the commencement date, as will tenant obligations for repairs, compliance with laws and other obligations under the lease.
Many landlord first lease drafts, however, define the commencement date as nothing more than delivery of the premises in its “as is” condition, either as of the date of execution of the lease or some other specific date.
There is so much more that you will want to cover, not only because this will allow you to enjoy the use of your premises, but also since so many important lease milestones are directly tied to the commencement date.
Cover the following ten matters when defining your lease commencement date and it will not take a miracle for your lease term commencement to work out as planned:
- Require possession. Pretty basic, but your lease term should not commence until you receive possession of the space. Incredibly, some leases provide for commencement on a particular date without specifying what happens if the landlord does not deliver the premises on that date (e.g., per diem penalties).
- Space should be vacant. Your landlord should be required to deliver vacant and exclusive possession free of any tenancies, occupants or other rights of possession. You are not looking for roommates and the prior tenant or your landlord should make sure that all furniture, fixtures and equipment have been removed.
- Deliver clean. Your space should be delivered broom clean, i.e., free of personal items and debris, and having been swept or vacuumed.
- Landlord’s work should be completed. Whether your landlord is performing base building work prior to your own initial alterations or a full turnkey build out, your commencement date should not occur until all landlord work has been substantially completed. Substantial completion is often defined as completion of all work other than “punch list” items and any portion of such work which as part of good construction practices should be completed after completion of your work. Punch list items are minor details of construction, decoration and mechanical adjustment which if not completed will not interfere with your use of the space or performance of your work. Your lease should spell out a clear deadline for the completion of the punch list and, perhaps, per diem penalties for failure to do so.
- Systems working. All building systems (mechanical, electrical, plumbing, elevator, etc.) should be in working order as a condition of commencement. Some landlords will be reluctant to make any representations as to the condition of the premises and point out that the lease obligates them to repair any non-working building systems. A covenant to repair rather than a representation is acceptable, but working order should be a prerequisite for commencement.
- In compliance with laws. Your premises should be delivered in compliance with all applicable laws and ordinances (including the Americans with Disabilities Act). We often also provide that if there are any violations of law (other than those caused by you) which delay or prevent you from obtaining permits or performing your work, then your landlord should cure and remove those violations. If not cured and removed within a short period of time, you should be entitled to a day for day abatement for each day that you are actually delayed.
- No hazardous materials. Your landlord should deliver your premises free of hazardous materials, such as asbestos and asbestos containing materials. In New York, this can be shown by requiring that the landlord deliver an ACP-5 certificate indicating the absence of asbestos and ACM.
- Require notice. Your landlord should provide you with prior notice (e.g., three, five seven business days) that your space is substantially complete and your landlord is ready to deliver possession. Some landlords will object and point out that there will be regular communication with their construction team but, while this may be accurate, it is reasonable to require some notice to allow for mobilization on your part, even if such notice is of anticipated substantial completion, not the actual substantial completion.
- Exclude early access. Many leases provide that the commencement date occurs when you, or anyone claiming by, under or through you, first takes possession of the premises. You should make clear that such possession is for the regular conduct of your business and exclude and specify any right of early access, such as preparation work involving taking measurements, performing layouts and surveys or even performing certain approved work (e.g., installing telecommunications wiring). You will, of course, be obligated to meet the lease obligations other than for payment of rent during such access, including indemnification and providing evidence of appropriate insurance.
- Certify Date. Many leases require that each party execute a certificate confirming the commencement date (and the rent commencement date and expiration date) of the lease. This is a good idea, although it should be clear that failure to do so should not affect the validity of the actual dates or be deemed a default under the lease.
Tom Seaver once said “There are only two places in the league – first place and no place”. Since he left the team, my Mets have followed his advice and stayed firmly in no place. But as Tom Terrific proved, miracles do happen (how do you think we manage to get your leases done?!). Follow the suggestions above and you will not need a miracle for your commencement date to be protected.