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A lease commencement date is when your commercial lease officially starts, and often when rent kicks in as well. Does not sound too complicated, right?
Here are the top 5 considerations to ensure you have picked the right commencement date:
While you are negotiating a commercial lease, you have to estimate just how long this negotiation will take. Will you go on holidays? Will the landlord? What about your lawyer? What about the landlord's? Does the landlord have a board of directors?
While you may be in a rush to get the lease signed, most landlords are working on multiple lease deals at the same time and a lengthy negotiation is almost inevitable.
In some cases, even if a landlord is not overly busy, he or she may purposely delay the process so as to not appear too keen.
The average commercial real estate negotiation is about 4-6 weeks - much longer than most tenants account for.
Let's say you have asked the landlord to demise the space, or put in new lighting, or demolish some walls and install a kitchenette. What work requires a permit? How long does your city typically take with building permits (hint: most cities are 4-6 weeks).
What does the lease say about the penalty if the landlord does not deliver on time? Do you get free rent as an abatement?
Once you have a final space plan that you and your designer have finalized, guess what?
Now it has to go to an engineer to turn it into mechanical and electrical drawings (you know, so the building doesn't burn down and all that stuff). Would you be surprised to know that four weeks is a normal time for that process? Tip: get this stuff done while you are waiting for the landlord to complete their work.
Next is your actual work - the swinging of the hammers. A general industry rule is to allow two months for this.
Smaller jobs will require less time, but two months should allow for some change orders, delay in ordering some supplies, and some shortage of labor with the sub-trades.
Always always always give yourself one more month of breathing room because everything that can go wrong on a construction project usually does! You do not control construction strikes and mistakes often happen when ordering materials (carpet, drywall, office furniture, etc.).
There are often issues with the sub-trades as well - workers being sick, quitting, not working to the pace of the schedule, etc.
Make certain that the offer to lease or letter of intent states that if the landlord fails to deliver possession of the space on time, that you either have the right to get out of the lease (not practical), or that there will be an abatement of rent or a financial penalty incurred by the landlord.
1) Two months worth of free rent for every month the landlord is delayed in providing possession.
2) Additional damages, such as an overholding penalty at the current premises.
3) Temporary space provided by the landlord.
As a general rule we would recommend taking a commencement date that is about five or six months after the current date and that will allow for acquisition of building permits and two or three months of construction with a little bit of buffer time so that the tenant can enjoy some free rent prior to the commencement date started.