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The tenant fixturing period in real estate is synonymous with tenant's construction time.
It is the period in which the tenant fixes a commercial space for their purposes, and time permitting, to move in and conduct business prior to the lease commencement date.
Here are the four best tips to ensure your fixturing period goes smoothly:
The most common mistake tenants make with their fixturing is not providing enough time.
In working with your designer or construction manager, ask the following questions:
How long will mechanical and electrical drawings take?
How long is the permit process in my city?
With the scope of work involved, what is the estimated time for construction?
Is there enough time for the landlord to complete his/her work?
A sample fixturing period clause (from a recent lease in Illinois) to ensure the landlord will not be a bottleneck to the process is as follows:
Attached as Schedule "A" are specifications describing the improvements for the Premises to be provided and installed by the Landlord at its sole expense (the "Landlord's Work"). All other improvements to be installed will be completed by the Tenant at its expense (the "Tenant's Work"). The Landlord will substantially complete all Landlord's Work prior to the Fixturing Period in a good and workmanlike manner and in accordance with all requirements of applicable laws, by-laws, building codes. Provided the Lease is fully executed no later than <date>, the Fixturing Period (the "Fixturing Period") shall commence on <date> and shall end on <date>. The Landlord warrants that all Landlord's Work indicated in Schedule "B" will be completed prior to that date.
Most landlords have a pre-approved list of contractors that are allowed into their buildings.
Tenants who do not confirm with their landlord who can complete tenant's work can find out that when the work is about to commence, the landlord does not approve of their choice of workers.
The following is an example (taken from a recent lease in Texas) of how to confirm at the negotiation phase that the tenant can choose their contractor. If the landlord does not agree to this wording, ask them for a list of their pre-approved contractors.
The Tenant shall have the option of using the Landlord's contractor(s) or selecting its own contractor(s) and/or sub-contractor(s), subject to the Landlord's approval, acting reasonably, to construct such leasehold improvements.
It should clearly state that you are now allowed to both move in, and operate rent free. This is especially important if you are spending your own money before being reimbursed by the landlord with a tenant improvement allowance.
Hint: asking for a long fixturing period usually turns into a bit of gross free rent at the tail end of the fixturing period.
Sample Fixturing Period Lease Clause (taken from a recent lease in New York)
In the event that the Tenant completes its leasehold improvements in the Premises prior to the Commencement Date, then the Tenant shall be permitted to occupy the Premises and commence its business operations, provided that the Tenant remains governed by all applicable terms of the Lease as if the Lease were in full force and effect, save only as to any Net Rent and Additional Rent payable, excluding the Tenant's hydro, which will not be payable for any use of the Premises prior to the Commencement Date as outlined herein.
As most tenants rarely go through construction projects, they are usually lost on what the specific steps are.
Here is an example of a lease clause from Miami, Florida that confirms that the tenant is to submit their working drawings to the landlord. Be sure to include wording that states that the landlord must provide their approval in a timely fashion (putting in a specific time period is not a bad idea), and that the landlord must not deny their approval unreasonably.
The Tenant will submit for the Landlord's approval detailed working drawings for any work that the Tenant is required or proposes to do or install in the Premises. All plans, drawings and specifications for the Tenant's work and the Tenant's choice of contractors shall be subject to the prior approval of the Landlord, not to be unreasonably withheld or delayed.
For most tenants, the construction element of the leasing process is the most stressful and Murphy's law rules the day - anything that can go wrong probably will. Leave yourself ample time and plan ahead.
Have a qualified commercial lease expert review and abstract your lease (or your offer to lease) to ensure you are covered on all of the typical tenant issues that arise during the tenant fixturing period.
If you do not receive the premises in a timely fashion from the landlord, you will not be able to complete your leasehold improvements in time for your commencement date.
Therefore you should insert a financial penalty (such as free rent) to penalize the landlord for every day that your premises is delayed, or be able to cancel the lease (what is common is to have this right if the landlord is 60 days late in delivering possession of the premises).
The landlord may have lingering work to be completed and this may overlap with your fixturing period. Most commercial leases have language that allows for a co-construction by both landlord and tenant.
Check the lease to see if there is language around the landlord being substantially or sufficiently complete in order to provide you possession and then the remaining construction items are minor enough that the landlord completing them will not interfere with your construction.
Some leases provide for a tenant to be protected against launching during a dead period (example, wanting to build out and then open doors just prior to the holiday season, but not after). If this may be applicable to your retail lease, then be sure that you have the right to delay your fixturing period accordingly.