Use Notice, Not Clause to Set Commencement Date

Many important events and options for you and your commercial tenant are measured from your lease’s commencement date. The commencement date controls critical information, such as when the lease will expire, when rent starts, and when the tenant’s special options must be exercised. But if you don’t know the commencement date at the time you sign the lease, you could make a costly mistake: including a clause saying that the lease is subject to a commencement date “to be determined later.” Instead, use a “commencement date notice”—an easy and advantageous means of setting a commencement date after the lease is signed.

Although a commencement date notice is preferable to a lease clause, you’ll still need to be careful when using one. For example, you’ll need to specify in the lease that you’re using such a notice. You’ll also have to make sure that the notice is drafted well—that is, excluding extraneous information that could give the tenant more leeway to challenge it. We’ve asked our experts how to properly draft a lease whose commencement date will be set out later in a commencement date notice. And we’ll give you a Model Notice: Send Commencement Date Notice to Avoid Disputes that you can adapt for your leases.

Advantages of Using Notice

Let’s say that your building’s or center’s construction or the space’s build-out is still unfinished when it’s time to sign the lease. You could choose to amend the lease later to set the actual commencement date, but it’s a better idea to send the tenant a “commencement date notice.” That’s because preparing an amendment can be a waste of time and money if a tenant refuses to sign it. If the lease allows you to use a commencement date notice, that notice can formally set the commencement date, even if the tenant never signs it.

A commencement date notice also can help avoid disputes by providing precise calendar dates of important events and options, not just the commencement date itself. And if you plan on refinancing or selling your property, a lender or potential buyer may demand to see commencement date notices. They provide important information to help the lender or potential buyer determine when a lease starts and ends, when rent bumps will occur, and when cancellation options could be exercised—all of which can affect how much money the lease will generate.

Draft Lease to Allow Use of Notice

Unless you properly authorize the use of a commencement date notice in the lease, there’s no reason a tenant must accept your notice. So make sure that your lease lets you fix the commencement date. Say in the lease that you’ll determine on which day the commencement date falls—either the day that you substantially complete your build-out of the tenant’s space or the day that the tenant moves into its space. Otherwise, the tenant may want to make that determination. Ask your attorney about adding the following language to your lease. (Remember to define “Landlord’s Work” elsewhere in the lease.)

Model Lease Language

“Commencement Date” shall mean the earlier of:

(1) the date upon which Landlord’s Work shall be substantially completed; or

(2) the date on which Tenant shall have taken possession, control, or occupancy of all or any portion of the Premises, as ascertained by Landlord in its sole judgment.

Make sure that the lease gives you authorization to send the notice. Say in the lease that you—or your property manager—has the right to prepare and send the commencement date notice to the tenant. Otherwise, you may be forced to delay the commencement date while you formally amend the lease to include the commencement date. To do this, add the following language to your lease:

Model Lease Language

On or about the Commencement Date, Landlord or Managing Agent shall prepare and deliver to Tenant a commencement date notice (“Commencement Date Notice”).

Also, the lease should note what information you can provide in the commencement date notice. For example, you may want to set out not just the commencement date but also the expiration date and the date when the first rent payment is due. Give yourself enough flexibility to add other important information to the commencement date notice—such as the rent escalation dates—by adding the phrase “among other things” when listing what information will be in the commencement date notice.

Model Lease Language

The Commencement Date Notice shall, among other things, set the Commencement Date, the Expiration Date, the date that the first payment of Minimum Rent is due, and [insert other key dates, e.g., the date by which the option to renew the lease must be exercised].

It’s important to require the tenant’s signature. Say in the lease that the tenant must sign the commencement date notice and return it to you. This signature is key because it holds the tenant to the dates set in the notice—that is, the tenant can’t later claim that these dates are incorrect. Give the tenant a short time to review and return the notice—say, five business days—so you keep the process on track.

Model Lease Language

Tenant shall accept and agree to the terms of the Commencement Date Notice by signing a copy of same and returning it to Landlord within [insert #, e.g., five (5)] business days of the receipt thereof.

In case the tenant doesn’t sign the commencement date notice by the deadline you’ve set, say in the lease that the tenant is deemed to have consented to the commencement date notice. You need certainty that the commencement date has been set, even if you never hear back from the tenant.

Model Lease Language

Tenant’s failure to sign the Commencement Date Notice and return same to Landlord as provided in this Clause shall be deemed to be Tenant’s acceptance of all the terms in the Commencement Date Notice, including, but not limited to, the Commencement Date and the Expiration Date contained therein.

Carefully Word Notice

Commencement date notices are sometimes overloaded with unnecessary details about the lease. If you put too much information in it, you’re inviting a challenge by the tenant. Instead, make the commencement date notice as uncontroversial as possible. Consider sending the commencement date notice by certified mail, return receipt requested, or another form of delivery for which you’ll get a receipt from the tenant. Otherwise, the tenant may argue that it never got your commencement date notice. This could lead to trouble if you claim that the tenant’s failure to sign should be deemed its consent. Your notice, like ours, should include:

Key dates and information. The commencement date notice should list: The lease’s commencement date [Notice, par. 1]; the lease’s expiration date [Notice, par. 2]; the amount of the first payment of minimum rent and when it’s due [Notice, par. 3]; the dates of each rent escalation and the amount of minimum rent due [Notice, par. 3]; if the tenant gets free rent, the amount and date of each month of free rent; if the minimum rent payment starts on a day other than the first of the month, the amount of the prorated minimum rent for the first month of the lease (and the last month, if needed) and how the proration was calculated [Notice, par. 4]; and the deadline(s) by which you must get the tenant’s notice that it’s exercising any special right(s) or option(s) (for example, a termination option) [Notice, par. 5].

Reminder to sign notice. Remind the tenant that it’s required to sign and return the commencement date notice to you by a set deadline and that if it doesn’t, it will be deemed to have consented to the commencement date notice [Notice, pars. 6 & 7]. Give the tenant two copies of the notice—one to sign and return to you and one for its files.

Requirement to pay rent with notice. It’s a good idea to require the tenant to include a rent check with the signed commencement date notice [Notice, par. 6]. This way, you might get paid faster.