- The Most Important Date You Ever Had: Critical Dates in Retail Leasing
- June 13, 2013 | Author: Sharon Nelson Craig
- Law Firm: Lerch, Early & Brewer, Chartered - Bethesda Office
Retail leases generally contain a myriad of dates by when certain events are to take place. These dates are usually captured in defined terms in the lease such as “Execution Date,” “Delivery of Possession,” “Acceptance of Possession,” “Lease Commencement Date,” “Rent Commencement Date,” “Term” and “Expiration Date.”
Landlords and tenants and their counsel need to pay close attention to the definitions of these terms in a retail lease, and how they work together. For purposes of this article, we will focus on the following sample definition of “Rent Commencement Date”:
“Rent Commencement Date” shall mean the earlier to occur of the following: (a) the date that the tenant opens for business in the premises; or (b) 90 days after “Delivery of Possession.”
“Delivery of Possession” shall mean the date (the “Delivery Date”) that the landlord delivers possession of the premises to the tenant in the following condition: (a) vacant and free of all tenancies, rights of possession or any similar claims of any nature or description; and (b) with landlord’s work substantially complete.
As demonstrated in the above example, these date-oriented definitions usually are layered with other defined terms, such as “Landlord’s Work” and “Substantial Completion,” all of which have an impact on when certain conditions have to be satisfied that trigger the relevant dates. Sophisticated retail tenants may further negotiate the above provision to require the 90 day period to commence not with Delivery of Possession, but with “Acceptance of Possession,” meaning that in addition to the leased premises being vacant and the landlord’s work being substantially complete, other conditions have to be satisfied before the tenant is obligated to accept possession of the leased premises, such as delivery of a non-disturbanceagreement from landlord’s lender, receipt of a leasehold title policy (if applicable) and receipt of all of tenant’s permits-just to name a few.
If you are a landlord, the key is making sure that you have a high degree of control over the matters required to satisfy the conditions for delivery of possession or acceptance of possession, as the case may be, and that you negotiate in the lease the obligation of the tenant to diligently pursue the conditions over which it has control (i.e., tenant’s permits) and include fixed dates by when if the tenant condition is not performed, the clock still ticks toward rent commencement.
These provisions usually are heavily negotiated by the parties in a retail lease. Or sometimes not, as in lease reviews for acquisition deals, when you map out the timing from the execution date to the rent commencement date (and we mean literally, sketching the timeline on a piece of paper) and the timeframes and triggers for lease commencement, delivery of possession, acceptance of possession and rent commencement are unclear or are subject to interpretation. This can lead to fierce battles between landlords and tenants at critical points in the process, such as when a landlord and its lender expect to see the rental income, or when a retail tenant has missed or is about to miss its targeted store opening date.