Many people think that the only dates that matter in a commercial real estate lease are the start and end date. However, both start and end dates are actually quite complicated, and rates can subsequently change during their lives. Monitoring key dates as they approach is absolutely essential.
Lease Commencement
Lease commencement is an amorphous thing. Does a lease start when a tenant moves in, when they start paying rent, when construction starts on tenant improvements, or when a certificate of occupancy is issued? Depending on the lease, the answer could be any of these. Typically speaking, the "rent commencement date" is the date on which rent needs to start being paid. The "effective date" is the date that is the "official" start of the lease for the purpose of calculating remaining term and any other dates. The "move-in" or "occupancy date" is the date that the tenant can physically occupy the space, although it usually has little other impact on the lease.
During the Lease Term
The key dates during the lease terms are the CAM reconciliation dates and the anniversary dates for escalations. In many commercial real estate leases the tenant pays for their share of the Common Area Maintenance based on an annual budget. Once a year, often on January 1, the CAM contributions are compared to the actual expenditures and the tenant either sends or receives a conciliation check. For leases with periodic automatic rent increases, the increase dates, which are usually tied to the lease's effective date, are important to track.
At Lease End
While the lease's ending or "termination" date is usually clearly marked and easily understood, option dates require additional attention. Many commercial real estate lease agreements give tenants options to renew their lease at pre-negotiated terms. These options typically require them to notify the landlord of their intent to exercise the option in writing. The notification is frequently due three or six months before the lease's termination date. Options are extremely valuable for tenants who are in a building where rents have significantly increased.
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