Lease Commencement Date vs Rent Commencement Date

Tenants often talk about when the lease starts as though there were one answer. A single lease may have several dates that each do something different:

• Lease date or effective date. When the document is signed and binding, even if you cannot yet occupy.
• Delivery date. When the landlord hands over possession, sometimes in a required condition.
• Substantial completion date. When the build-out meets the standard the lease sets.
• Commencement date. When the term starts, and usually when the expiration clock begins.
• Rent commencement date. When payment of rent begins.

Depending on how the lease is written, rent may start before a business opens, even if construction is unfinished or permits are pending. The trigger in the lease controls, not the day you open. Do not assume that your opening date, move-in date and rent date will match.

A lease can also treat base rent and other charges differently. Free rent may waive base rent while other charges still apply. So read what the rent commencement date actually covers, and whether operating expenses, taxes, parking or utilities start sooner.

Most triggers fall into a few groups. Your lease may use one or combine them, often with an "earlier of" formula, so read the definitions word by word.

• A fixed calendar date. It is simple, but the date may not move if the space is late unless the lease says so.
• Delivery of possession. The date floats to the handover. A landlord’s obligation may be more than handing over keys, for example delivering a required condition or resolving landlord work.
• Substantial completion. It depends on the agreed standard, required approvals and which unfinished items are allowed. Ballard Spahr suggests requiring an architect’s certification and, where required, a certificate of occupancy, and notes that a walk-through and punch list may also be conditions.
• A set period after delivery. When the tenant is building, Ballard Spahr says the rent start date is usually fixed after a reasonable construction period, so the tenant carries the schedule risk.
• Opening for business. A retail lease may use the earlier of opening or a stated latest date.

Delivery conditions can be elaborate, and they can create traps. A workshop outline from retail leasing attorneys at Seyfarth Shaw and Polsinelli, published by ICSC, shows a sample delivery clause requiring landlord completion, joint inspection, a certificate of occupancy, plan approval, permits and more. It also poses a circular problem: a certificate of occupancy that could not be issued until the tenant built restrooms, while the tenant would not start until delivery conditions were met. Check that the conditions in your lease can all actually happen, in the right order.

Hypothetical, for illustration only. This is not market data, and your lease would set its own terms. A tenant signs a five-year lease on March 1 with three months of base rent abatement. The landlord is building the space, and the commencement date is the date of substantial completion.

1. March 1: the lease is signed. The lease is binding, but the term has not started.
2. July 15: the landlord reaches substantial completion, so the term commences.
3. July 15 to October 14: three months of abated base rent. Other charges may still apply, depending on the lease.
4. October 15: rent commences.
5. Five years after commencement: the term ends. If this lease ends on the last day of the month, that would be July 31 five years later, and the tenant should confirm the date in writing.

Now change one fact. Suppose instead that the lease fixes rent commencement at October 15 no matter what, and substantial completion slips to September 1. The tenant now has about six weeks between delivery and rent, not three months. The negotiated abatement has shrunk by more than half, even though nobody changed the rent. If a free rent period is measured from a fixed date, delay can quietly consume it.

Ask for free rent to be measured from the date you actually receive the space in the required condition, not from a calendar date written at signing.

Two parties can cause delay, and well-drafted leases usually treat them differently. Landlords generally want the rent date to arrive as if the delay had not happened when the tenant caused it. Some leases use a deemed substantial completion date to do this. Tenants want the opposite treatment for landlord delays, but a landlord-caused extension may require proof that the missed obligation actually postponed completion. Where tenant changes overlap, the lease and schedule determine how delay is calculated.

State law also plays a part, and it varies. In New York, for example, Real Property Law section 223-a implies a condition that the landlord will deliver possession at the beginning of the term, unless the lease expressly says otherwise. Do not assume that unfinished tenant improvements alone bring rent relief. Ask your attorney what applies in your state.

Do not rely on background law for this. Ballard Spahr says tenants often set an outside delivery date that allows termination if it is missed, and that stronger tenants may negotiate rent abatement for late delivery or reimbursement of holdover costs. That last item matters if your current lease is expiring, since a late new space can produce a holdover in the old one.

Early access needs similar care. You may want to enter before commencement to install cabling and furniture. Ballard Spahr stresses that early entry should not count as occupancy for rent purposes, so ask for the lease to say so.

When dates float, the lease cannot state them at signing. Many leases therefore attach a commencement date agreement, a short document signed after delivery that records the actual commencement, rent commencement and expiration dates. It looks like a formality, but it can set the dates for your option notices and rent increases, and a buyer or lender may later ask you to certify them. Check it against what happened before signing, and ask your attorney about any language that says you accept the space.

Tenant Advisory Group represents tenants and buyers, and when a deal involves a build-out we map these dates against the construction schedule and the current lease’s expiration, so a slip on one side does not become a penalty on the other.

• ✓What exactly triggers commencement, and what exactly triggers rent?
• ✓Does rent commencement cover base rent only, or also operating expenses, taxes, parking and utilities?
• ✓Is free rent measured from delivery or from a fixed date?
• ✓Who certifies substantial completion, and can we walk the space first?
• ✓Are all delivery conditions possible in the order the lease requires?
• ✓Is tenant delay defined narrowly, with notice when the landlord claims one?
• ✓What remedy do we get for landlord delay, and is there an outside date?
• ✓Does the expiration date move if commencement moves, and do our option deadlines move with it?
• ✓Has our accounting team been told the date the space became available? Under ASC 842, the commencement date for accounting is when the asset is made available for use, which may differ from the date in the lease.
• ✓Have we signed a commencement date agreement and added the dates to our lease abstract?