How to Set a Lease Commencement Date

Setting a workable commencement date for a lease to begin is one of the most important aspects of lease negotiations. But it often isn’t thought through by either owners or tenants. As with many overlooked parts of a lease deal, it takes a back seat to big ticket items like cotenancy clauses, renewal options, and use provisions. However, so many things depend on when the lease begins, you need to make an informed decision about how you should set a lease commencement date.

Crucial items—like the tenant’s obligation to pay rent and other charges; the tenant’s obligation to pay operating expenses/CAM costs; the date the tenant must open for business; the success of a new shopping center’s grand opening (or a renovated center’s reopening); the lease’s expiration date and the commencement of any renewal period; and your ability to attract other tenants—are all riding on your lease commencement date.

It’s important to know that you can use several different methods to set the lease commencement date. But the method you choose will depend on several factors, such as whether the space is in a new or existing building, a shopping center or office building, or a single tenant or multi-tenant building.

One popular method is to use the exact date, say, April 1, 2017, as the lease commencement date. The pros for this method are that this may be the easiest way to set a commencement date because all you must do is plug the date into the lease. It’s also the clearest way to set the commencement date. It leaves no room for dispute over when the lease begins. And it lets both you and the tenant plan easily.

But there are cons. Choosing an exact date that works for you is easier said than done. Many things can happen to prevent you from giving the tenant possession on an exact date. And, typically, a tenant will insist on some remedy in the lease if you can’t deliver the space to it by the lease commencement date. You could even lose the tenant. So use this method only in an existing building where you’re relatively certain you can deliver the space on the given date.

And if you do use this method, try in the lease to limit your liability if you can’t give the tenant possession on the commencement date. You can agree to set damages—or a rent abatement—for each day you delay in delivering the space. Ask your attorney about using the following language to accomplish this:

Model Lease Language

Unless this Lease shall be sooner terminated or extended as provided herein, the term of this Lease shall be for [insert #, e.g., 10] years, commencing on [insert date, e.g., April 1, 2017] (Commencement Date) and ending on [insert date, e.g., March 31, 2027] (Expiration Date), both dates inclusive.

For more options and an explanation of the benefits and possible pitfalls of each one so you can use a lease commencement date that suits your and the tenant’s needs, plus model lease language, see “How to Choose a Lease Commencement Date,” available to subscribers here.