Leasing 101: Proper Delivery of the Premises
It normally is critical for a tenant to have new premises delivered by a landlord on time. The tenant has to open for business as scheduled and begin to generate revenue as budgeted.
When Delivery Occurs
The premises should not be deemed delivered until landlord has fulfilled its requirements for delivery, and the rent commencement should not occur until, at least, delivery occurs.
Premises Condition at Delivery
The condition of the premises at the time landlord delivers the leased premises should be clearly stated in the lease. Ideally, landlord will deliver the premises with any landlord construction completed. The premises should be free of any other claims for tenancy or possession. There should not be any mechanics liens affecting the leased premises. Landlord should be willing to state that the leased premises will not contain any hazardous substances. A helpful provision is to have landlord indemnify tenant from all costs and liability associated with the presence or removal of hazardous materials in and around the leased premises that were not introduced by the tenant.
It also is helpful to have the lease state that the leased premises should be structurally sound, in good and proper working order, and in compliance with all laws, rules and regulations including the Americans with Disabilities Act. This will avoid any problems with building code or other issues that may delay receipt of a certificate of occupancy and will generally protect a tenant from any delays in opening its business.
Rent Commencement Date
The rent commencement should not occur until the leased premises are delivered to tenant with landlord’s delivery obligations complete. Often, the lease will provide one of two things: a) a gap period between the delivery and the rent commencement date to allow tenant to complete its construction in the leased premises, or b) a rent abatement period immediately after the rent commencement date to allow tenant to complete its build out without incurring rent.
Retailers and the Holiday Season
For retail tenants, it is possible to also negotiate a free rent period if the rent commencement date were to occur during the Thanksgiving and Christmas holiday season. If tenant opens for business during this period, it will miss most of the benefit of the holiday sales by opening too late in the holiday season. It is therefore fair to the tenant either to not have to open the store in this period or to open and not pay rent.
Remedy for Late Delivery
Since it is critical for a tenant to have the leased premises delivered on time so the tenant can open for business as scheduled, the tenant should negotiate a remedy into the lease for late delivery. Typically, that remedy is a rent credit.
If landlord were to fail to deliver the leased premises with landlord’s work substantially complete by the set delivery date, tenant could receive one day of rent credit for each day of delay and two days of rent credit for each day after thirty days of delay. In addition, tenant also can have a termination right if delivery does not occur after a period of time, as well as a reimbursement of tenant’s out of pocket costs related to the lease.
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