By Sandra Gold Slon, Sslon@troygould.com
The relationship between the date rent first becomes due and the date construction of tenant improvements is complete is critical because it directly affects the tenant’s rental cost and the landlord’s income stream. In the current economic climate, landlords are seeking ways to start collecting rent earlier, and tenants are trying to ensure that they are not paying rent before they are able to use their space. These competing needs make it more important than ever that the parties involved understand the definition of the rent commencement date and that it is clearly described in the lease.
Who controls construction?
A preliminary issue is whether the landlord or the tenant is responsible for the tenant improvements. For the tenant, construction can be a time consuming and frustrating experience. Since the tenant is operating a business at the same time, and doesn't necessarily know how to efficiently bid, contract and supervise the work, unless it’s a small job or the tenant has a good project manager, it’s generally best to have the landlord manage the process. However, when the landlord handles the construction, there will be a landlord supervision fee (the tenant can try to negotiate the amount) and the landlord may not competitively bid the project, so the cost may be higher. These issues should be taken into account when setting the amount of the tenant improvement allowance.
The parties should agree what work must be completed during non-business hours, because requiring off-hours work adds to the cost and may delay completion. The risk of delay that is not the fault of either party (“force majeure” events, such as earthquakes, floods, strikes, and delay in obtaining permits) should be negotiated during the rent commencement date discussion.
Control of construction and rent commencement date
It’s standard that the party who controls the construction is the party who assumes the risk of a delay in completion. If the tenant controls the construction, the rent commencement date will be a date certain (the date construction should reasonably be completed), regardless of wh