There are many dates to be aware of when you are negotiating a lease agreement.
While many tenants think they are across the details of this, it is important to know exactly what the legalities are to avoid any confusion.
Being really clear about the details of things like when your deposit, insurance & security are due, or when your lease commencement, rent free period or early access date commences can reduce delays, loss of free rent or even legal action from the owner.
Find out more about the lease commencement process and the requirements for tenants and landlords before a business moves in, or does a fit out.
What is a lease commencement date?
In commercial property agreements, the lease commencement date is defined as the official start date of the lease agreement.
This is when both the landlord and the tenant have legal rights and obligations under the lease, making it a significant date for both parties.
The lease commencement date may be different from the date of occupancy or even the start of rent payments.
Under lease agreements, it’s possible that tenants can be given earlier occupancy to fit out a premises and so the official lease commencement date may be after these works are completed or while they are ongoing. These are typically defined as rent free period, or “early access”.
Understanding the lease commencement process
The lease commencement process involves the consideration of a number of factors - the lease agreement, negotiations and amendments, dates for when insurance and security are due, potential rent-free, early-access or fit out periods, and handover and possession.
The lease agreement should be very clear on the start date. While it may seem clear at the time of signing the lease agreement when the lease formally starts, it is important to document this date clearly so there can be no confusion later.
The commencement date can be negotiated, and the lease agreement amended if there are any concerns.
If there is provision for a rent-free period in the lease agreement, the tenant can move in and not have to pay any rent for the agreed number of weeks or months, however the lease is deemed to have started.
Likewise, the lease agreement should also cover any early access period for a fit out, if this is included as an incentive.
In simple terms, the handover and possession date are when the landlord hands over the keys to the tenant. However, while it is an exciting milestone for a tenant, it is important at this time to conduct a thorough inspection of the property or fit out and document its condition before taking possession. It is a good idea to take photographs, especially of any defects or concerns, to assist in the event of any dispute at a later date.
Requirements before lease commencement date and occupation
There are a number of requirements that need to be satisfied before the lease commencement date and occupation can begin.
These include finalising the lease documentation, security and rent arrangements, insurance, utility connections, and any permits or licences.
Lease agreements typically involve the payment of security in the form of a deposit, bank guarantee or some type of personal or company guarantee to secure the property against any potential lease default, such as the failure to pay rent).
The terms and amount will be in the lease agreement. Likewise, both parties should agree on the insurance arrangements for the property. Insurance typically required for commercial properties includes personal liability insurance, plate glass, and fittings and stock insurance to protect against any damage. Prior to occupying a new premises, it’s important to connect essential utilities like electricity, water, internet and telephone.
And depending on the nature of the business operating at the leased premises, specific permits and licences may be required from local authorities. These can include specific fit out certifications, food and beverage licences, or building and commercial activity licences.
Communication and coordination of the lease commencement
As with any relationship, it is important for tenants and landlords to communicate openly during lease negotiations and leading up to lease commencement. This is also where a professional leasing agent can assist.
With so many activities to coordinate, fostering a good relationship will be key to helping the transition go smoothly.
There will be a number of factors to consider leading up to lease commencement including move-in logistics like the handover of keys, access arrangements, utilities connection and any special requirements.
Understanding lease commencement
It is important for both parties to discuss and agree on a lease commencement date and to be clear about the rights and obligations that apply after this date.
The lease agreement is the binding document that will clarify the lease commencement date and set in stone the obligations before occupancy, so it’s important for both tenants and landlords to engage in the negotiation process and understand what they are signing.
Fostering open communications and seeking legal advice can help this process go smoothly and minimise the risk of disputes and misunderstandings.
Finally, as with any agreement, ensuring all terms, conditions and changes are properly documented in writing, and agreed and signed by both parties is a tool to help avoid disputes and maintain a positive landlord-tenant relationship.