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Wins & Insights

Tenant Leasing Illustrated – May 2017 – Lease Construction Extra Innings

Lease Construction Extra Innings

Melting snow and the crack of the bat prove that Spring has arrived.

But as opening day loomed, there was national pastime sacrilege in the land as Major League Baseball executives considered “speeding up” games by reducing them from nine to seven innings.

Why settle for less of a good thing?

You don’t settle for Moe and Larry without Curly. You cannot have the Good, the Bad and, oh well, whoever. And you certainly would never even think to enter into a commercial lease with a “Mintz” but no “Gold” (or even no “LLP”).

The New York Times recently asked reporters and readers their thoughts and proposals to shorten the game in an article entitled “Baseball’s Too Slow. Here’s How You Fix It.

Many pointed out that if MLB wants to shorten games, simply reduce the commercial breaks.

There were also some good suggestions about the yakking time on the mound, relief pitchers taking warm-up pitches after warming up in the bullpen for 20 minutes, and batters constantly stepping out of the batter’s box to spit and read the latest issue of Leasing Illustrated.

But baseball is not about speed; it is about the relaxed pace of a summer game, and the escalating tension of an October playoff game. So, for me, “if it ain’t broke, don’t fix it.”

Now, sometimes even laid back commercial leasing attorneys get a bit antsy and need to stop chewing their sunflower seeds and speed things up.

For example, when a tenant needs its space built out and delivered quickly, landlords can seem to be doing the equivalent of playing with the rosin bag and chatting up the catcher.

And this can cost the tenant greatly in terms of dollars and cents.

If the landlord is providing a turnkey buildout, the tenant can be delayed and subject to holdover penalties in its current space.

And if the tenant only needs the landlord to finish its base building work so that the tenant can build out its space, delays can eat into the “free rent” period.

In either event, the tenant may be losing valuable efficiencies from working out of cramped quarters or in multiple locations while waiting for possession.

Many states place statutory obligations on landlords to timely deliver leased premises (see Section 223-a of the New York Real Property Law allowing tenants to rescind a lease in certain circumstances), but most statutes allow, and most leases provide for, an express provision to the contrary in the lease, so tenants need to provide their own protection.

Think outside of the batter’s box when addressing delivery of the premises under your lease with the following seven suggestions:

  • Extend the Rent Commencement Date. Perhaps obvious, but if your landlord cannot timely deliver your space, your commencement date (and hence rent commencement date) should be extended accordingly (surprisingly, some leases provide a fixed date for rent commencement and “neglect” to appropriately push this date back).
  • Require monetary penalties for late delivery. Your landlord may (correctly) point out that it already has a large incentive to deliver your space and start receiving rent, but the best way to assure timely delivery of possession is by requiring an additional abatement or “free rent” on a day for day basis in the event of late delivery. It is not unreasonable for you to require (perhaps after some grace period) an additional day for day abatement, increasing at some point thereafter (e.g., 30, 60 or 90 days) to one and one half or two days of additional abatement for each day of delay.
  • Clearly delineate delivery condition. Your lease needs to outline your landlord’s obligation by specifying the required condition of your premises. Generally, this means that your landlord has “substantially completed” its work at the premises and tendered possession in broom-clean condition, free of all tenancies and other rights of occupancy. Substantial completion should be defined as completion of all work other than minor “punch list” items, in compliance with all legal requirements, so that you can start your initial work and use the premises as contemplated under your lease. Often, delivery will be deemed to have occurred if you take possession earlier for the conduct of business.
  • Carefully define “tenant delay”. It is reasonable for the required delivery date to be extended by tenant delays. But “tenant delay” should be defined to mean actual delay (“no harm, no foul”) caused by specified reasons (e.g., changing the agreed upon plans, failure to timely select materials, etc.). Any simultaneous tenant delays should be deemed to run concurrently, not consecutively, and not be “double counted.” You should also require that your landlord promptly notify you in detail after it has knowledge of a tenant delay, with no deemed tenant delay if you cure or rescind a request within a short period of time (e.g., 2 business days) after such notice.
  • Beware force majeure. Your landlord may also require that the date of delivery be extended due to force majeure (i.e., unavoidable delays beyond its control). But you should not alone bear the burden of a force majeure event, and your commencement date (and hence rent commencement date) should also be extended. It may be reasonable for the force majeure event to extend the date that your landlord is penalized with additional rent abatement for late delivery, but there should be a cap on such extension (e.g., 30, 60 or 90 days) since most force majeure events do not go on forever and you again should not bear the full burden of such delay.
  • Provide a “fail-safe” termination date. If your landlord is unable to deliver the space by some outside date (often six to twelve months after the anticipated date), you should have the right to terminate the lease. Termination is not always a practical solution, but there does need to be a point when you can walk away (notwithstanding force majeure).
  • Include an exception for early access. You should obtain a right of access to conduct certain pre-construction activities in the premises while your landlord is performing its work (e.g., taking measurements, verification of field conditions, inspection of construction materials and the installation of customary telecommunications wiring and/or cabling). This access will be conditioned upon not interfering with landlord’s work, complying with lease requirements (other than payment of rent) and providing evidence of sufficient insurance coverage.

Yogi Berra famously said that baseball, “ain’t over ’till it’s over” and the same is true for your landlord’s delivery of possession. Yogi also said “it gets late early out here” and I think he was referring to delays by his landlord in delivering his leased premises. Follow the seven suggestions above and you will protect yourself in case your leased premises delivery gets late early. Remember, there’s no crying in commercial leasing.