Early Access by Tenant: More Complicated Than You Think

by Jonathan Newman, Esq.

The lease agreement is almost fully negotiated. You are down to the final one or two issues to wrap it up. The issue? The tenant wants the right to enter the premises prior to the commencement date (and during the landlord’s renovations) to perform some renovation work and install furniture and fixtures. No problem, right? Not so fast. There are a plethora of issues lurking in this request.

The main issue is the inherent conflict that results when both the landlord and the tenant each attempts to complete renovation work at the same time and in the same place. More often than not, it is the landlord who is responsible for successfully negotiating and completing the majority of the tenant improvement work and delivering the premises to the tenant. A complicating factor is that the commencement date of the lease agreement (and the start date for rent payments) is typically contingent upon the landlord’s completion of the improvements on time and on budget. The consequences for the landlord’s failure to complete construction on time and deliver the space in the condition promised can be devastating. Examples include abated rent, significant monetary penalties, and sometimes, the ability for the tenant to terminate the lease agreement.

Caution is advised: If the tenant is granted the right of early entry and if the tenant’s or its contractor’s actions cause or contribute to the landlord’s failure, the tenant should be held responsible.

Reasons Landlord Might Allow, Restrict, or Deny Early Access

Tenants want early access whenever it is convenient for the tenant or its contractor(s). There are certain times during the landlord’s construction when it might make sense to allow the tenant’s early entry. For example, it is efficient and cost effective to allow the tenant to lay its wires for phones, data, and cable before the walls are closed up. But this early entry may be a dangerous proposition for a landlord for several reasons.

There are other situations where unrestricted tenant’s work might simply get in the way of or delay the landlord’s work. For example, a landlord might want to restrict the tenant from using the freight elevator on the same day the landlord is expecting significant deliveries for its work. Or, if the landlord has a tight completion deadline (with a penalty for failure to meet a certain commencement date or delivery date), early access by the tenant for its own purposes might make no sense at all from a landlord’s point of view, and must be denied.

Restrictions to Consider Any Time Early Entry Is Allowed

If early entry by the tenant is agreed to by the parties and the timing and scope of such entry is acceptable to the landlord, there remain numerous issues that must be considered and negotiated. Your early access clause, like our Model Clause: Put Limits on Early Access by Tenant, should cover at a minimum the following points:

Legal requirements. All of the tenant’s work must be in full compliance with legal requirements. If the tenant or the tenant’s contractor fails to fully comply with all laws with respect to its early entry it could, among other things: (1) hamper or prevent the landlord from completing its responsibilities regarding the tenant improvements; or (2) prevent the landlord from successfully obtaining a certificate of occupancy or other required permit or government approval [Clause, par. (i)].

Cooperation with the landlord. There are bound to be conflicts when both the landlord and the tenant are simultaneously performing construction in the premises. The following should be considered:

• The tenant and the tenant’s contractors and employees must fully cooperate with the landlord during any time frame that the tenant requires early entry into the premises;
• The tenant and its contractors must agree to minimize disruption to the landlord’s work and avoid delaying the performance of the landlord’s work; and
• The tenant must agree to comply with reasonable rules and regulations prescribed by the landlord for coordinating the tenant’s work with the landlord’s work [Clause, par. (ii)].

Costs. The tenant must be fully responsible for all costs related to the tenant’s early entry [Clause, par. (iii)].

Tenant delay. Many commercial leases have tenant delay provisions that provide a day-for-day extension to the landlord deadlines to the extent the delay is caused by the tenant’s actions. It should be deemed a “Tenant Delay” (as defined in the lease agreement) if the tenant’s work delays the performance or completion of the landlord’s work [Clause, par. (iv)].

Lease provisions apply. The landlord should require that any work commenced by the tenant comply with all provisions of the lease agreement, including without limitation the “alterations” provision and provisions requiring trash removal, approval of plans, mechanics lien issues, and conflicts with unions or other laborers [Clause, par. (v)].

Damage to the landlord’s work. The lease agreement should clearly state that the tenant is responsible for any damage or replacement to the landlord’s work caused by the tenant or the tenant’s contractors or vendors [Clause, par. (vi)].

Maintenance and repair. Who is going to maintain and repair the cubicles, light fixtures, or other improvements installed by the tenant? It is imperative that the landlord be released from any subsequent responsibility for maintenance and repair of the tenant’s work (and any item of the landlord’s work that is materially impacted by the tenant’s work). For instance, if the tenant installs a generator for its computer server that adversely affects the electrical systems of the premises or building in general, the tenant should be responsible for all repairs (and delays) that installation causes–not simply the repair of its own generator[Clause, par. (vii)].

Tenant’s risk. All of the tenant’s work must be at the tenant’s sole risk [Clause, par. (viii)]. 

Indemnification and insurance. Most well-drafted lease agreements have a comprehensive insurance clause requiring the tenant to provide various policies of insurance and name the landlord as an additional insured. The landlord should require that the insurance provision in the lease be comprehensive enough to cover all work performed by the tenant prior to the commencement date. Similarly, the lease agreement should contain an expansive indemnification clause in which the tenant indemnifies, defends, and holds the landlord harmless for actions and omissions by the tenant and pays directly or reimburses the landlord for additional expenses incurred by the landlord caused by the tenant’s actions or inactions or a tenant delay [Clause, pars. (ix), (x), and (xii)].

Landlord priority. If a conflict arises as a result of the landlord and the tenant simultaneously performing construction and renovations in the premises, the landlord needs to be sure that the landlord’s work will be given priority. This is especially important if the landlord has agreed to penalties or termination rights in the event the landlord misses deadlines or fails to deliver the premises by a certain date. This can be accomplished by providing the landlord with a right to: (1) deny the tenant access to the premises; or (2) force the tenant to cease its ongoing work if the landlord, in good faith, determines that the tenant’s work has or will interfere with the prosecution or completion of the landlord’s work [Clause, par (xi)].

Alternative solutions. There are some other alternatives that create less potential for conflict. Maybe the landlord could limit the tenant’s early entry to the weekend following substantial completion of the landlord’s work. Maybe the landlord could agree to abate rent following the commencement date for a limited number of days to allow the tenant an opportunity to complete small renovations or fixturing.

At the end of the day it becomes a negotiation. But being aware of the issues and the severity of the consequences is always a good position to begin with.

Jonathan Newman, Esq. is Vice President and Chief Division Counsel for Lord Baltimore Properties, a Baltimore-based, national real estate investor, owner, and manager. He has been practicing law for 26 years, the majority of which have had an emphasis on landlord-oriented commercial leasing.