The fourth most common mistake in the ITRA Global survey of “Facility Acquisition Mistakes” is not allowing for unexpected construction delays. This list of common mistakes resulted from a survey taken among the members of ITRA Global. Each participant drew from an average of over 20 years of commercial real estate tenant representation experience, representing and advising national and local commercial tenants in thousands of leases totaling millions of square feet.

Generally, when a landlord improves commercial space for tenants, there is always some risk to the tenant of a delay in occupying the space.  If the lease has a hard date for lease commencement, the tenant would be at risk of paying rent or using up their free rent days on a space that they are not occupying.  This has been a disaster for many inexperienced tenants who found that unexpected delays in the planning, permitting or construction stages cancelled out their rent-free build-out period and caused budget nightmares. 

Suggestions:

In many leases, rent commences on a certain hard date.  In these instances, business owners should negotiate for a clause to be added to the lease providing a shift of the lease commencement date if pre-opening delays encountered are beyond the tenant’s control.  Some examples are:

• The lease start date shall not occur until Landlord provides Tenant with a certificate of occupancy or a letter from the project manager certifying that the improvements to the space have been substantially completed and the premises are ready for occupancy.
• The lease start date shall be the later of either the date defined as the lease start date, or the date that the business occupies the space and is open for business.

Your tenant representative can provide you with other options for how to navigate lease start dates, and how to protect your company so that you don’t pay for space that you aren’t using yet.