Dates to Remember for Commercial Leases

If you are a commercial landlord or tenant, you have some key dates to remember regarding new or existing leases. It is important to carefully negotiate these terms before signing a lease, then enter them in your calendar or property management system (with reminders) or keep them in mind.

Lease agreements vary in complexity, and not every lease contains all of these terms.  In addition, the meaning of these terms may vary based on context and/or definition in the lease.  The following dates and deadlines are important in many commercial leases, and typically occur in the following order:

1. Effective Date: The date the lease is signed by the landlord and the tenant and becomes a legally binding contract.
2. Due Diligence Period: Some leases provide a due diligence period after the effective date in which the tenant may conduct inspections, research zoning and land use regulations, obtain government approvals, etc. Typically, the tenant may terminate the lease for any reason prior to expiration of the due diligence period.  If a lease does not provide a due diligence period, then the tenant must complete its due diligence before signing the lease.
3. Landlord Acquisition Date: In some cases, a lease is signed before the landlord acquires the property. The Landlord Acquisition Date is the date, or deadline, for the landlord to close on the purchase of the property, or either party may terminate the lease.
4. Possession Date: The date the landlord delivers possession of the leased premises to the tenant, typically after substantially completing any landlord improvements.
5. Commencement Date: The date the tenant’s rights and obligations commence under the lease. In some cases, rent does not begin to accrue until a later Rent Commencement Date.
6. Rent Commencement Date: The date that rent begins to accrue. In some cases, the Rent Commencement Date is later than the Commencement Date, to provide the tenant with time to make tenant improvements to the leased premises and/or move in.
7. Base Rent Due Date: The date that payment of base rent is due, typically on the same day of every month. The tenant default section of the lease may or may not establish a grace period for late payment of rent, or require the landlord to give notice of late payment and an opportunity to cure the default.
8. Additional Rent Due Dates: Typically, all amounts that the tenant is required to pay under the lease, other than base rent, constitute additional rent. The lease may provide that certain items of additional rent are due on the same day as base rent.  The lease may provide that all other items of additional rent are due a certain number of days after notice is given, or a certain number of days before payment is due to a third party.
9. Deadline to Open for Business: A lease may require the tenant to open for business by a certain date.
10. Continuous Operation: A lease may prohibit a tenant from closing for more than a specified number of days.
11. Audit of Operating Expenses: If a lease authorizes the tenant to conduct an audit of the landlord’s operating expenses, the audit must be requested and completed within the time allowed by the lease.
12. Estoppel Certificates: Typically, the tenant has only a short period of time to complete and return an estoppel certificate requested by the landlord to provide assurances to a potential buyer or lender related to the lease. Failure to comply is a default under the lease and may result in the loss of important rights under the lease.
13. Tenant Defaults: The “Tenant Default” section of a commercial lease lists various circumstances or events that constitute a tenant default immediately upon occurrence, or if not cured within a specified period of time. Some of those circumstances or events do not require notice from the landlord to start the clock.
14. Force Majeure: A commercial lease may contain a “Force Majeure” or “Act of God” provision that extends the period for the landlord or the tenant to perform certain obligations if the delay is necessary due to specified circumstances outside of their control. However, in order to take advantage of a force majeure provision, that party may be required to give notice to the other party within a short period of time, or they will be in default for failing to meet the original deadline.
15. Notice Deadlines: Commercial leases typically contain a “Notice” section listing the addresses of the parties, various methods by which notice may be given, and the time when notice by each method will be effective – for example, notice by e-mail may be effective if sent before 5:00 p.m. Eastern Time, and notice by certified U.S. mail may be effective three (3) days after deposit.  It is important to give any notice by an approved method, and early enough to be effective before the applicable deadline.
16. Option to Renew: If a tenant has an option to renew the lease, the tenant must give notice to the landlord a specified period of time (for example, six months) before the current term of the lease expires, or the option to renew is automatically terminated.
17. Option to Buy: If a tenant has an option to purchase the property, the tenant must exercise the option within the period of time specified in the lease, or the option is automatically terminated.
18. Right of First Refusal: If a lease gives the tenant the right to purchase the property from the landlord on the same terms as a third-party offer, the lease typically requires the tenant to give notice to exercise the right of first refusal within a short period of time after the tenant receives notice of the third-party offer.
19. Assignment or Sublease: Most commercial leases generally prohibit the tenant from assigning or subleasing without the landlord’s prior written consent.  The tenant should take into consideration any notice periods specified for this process, as well as the possibility that the landlord may not consent to a particular assignee or sublessee, in which case the tenant may need time to find another potential assignee or sublessee and obtain landlord’s consent.
20. Lease Expiration Date: The tenant must vacate and surrender possession of the leased premises by the last day of the term, or the tenant may be considered a hold-over tenant and rent may automatically increase, for example to an amount equal to 150% or 200% of the prior rent.

Key Takeaways

1. Commercial leases contain many dates and deadlines with significant consequences. It is important to keep track of key dates and to review the lease if circumstances change or events occur that may trigger rights or obligations under the lease.
2. It is important to open mail and read e-mails related to leases promptly, in case they contain notices or reminders regarding rights, obligations or deadlines.
3. An experienced real estate attorney can assist a landlord or tenant by identifying issues and alternatives, negotiating and drafting a new lease, or enforcing an existing lease.

Please Note: The information in this article is provided solely as general information and not as legal advice. Receipt of this information or its use does not establish an attorney-client relationship. Readers are urged to speak with a qualified attorney when making decisions regarding a specific legal issue.  For questions about any issue regarding commercial real estate transactions, please feel free to contact the author.