Lease Commencement Date vs Rent Commencement Date: What’s the Difference?

When managing commercial properties, it’s crucial to track the commencement dates for each of your lease agreements. Here’s what you need to know about lease commencement dates vs rent commencement dates.

What is a lease commencement date?

A lease commencement date is the anniversary of the day that you and your tenant signed the lease agreement. 

What is a rent commencement date?

A rent commencement date is the anniversary of the day the tenant began paying their rent.

Why they may be different

If the contract specified a free rent period, the lease commencement and rent commencement dates will be different.

For example, let’s say you and your tenant entered into a contract in April, but the tenant didn’t open for business and begin paying rent until June. In this case, the lease commencement date will be in April. If the rent escalation is slated to occur on the anniversary of signing the lease, their rent increase will occur in April of the following year even though they haven’t yet paid for twelve months of rent.

To ensure that everything is spelled out clearly, the language in the lease should look something like this:

“The lease commencement date is April 12, 2022.

The rent shall commence the later of 120 days after the lease commencement date or tenants opening for business, whichever is sooner.”

The language will vary based on the details of the specific agreement, but notice how the lease commencement date is clearly written out. Write your leases so that if you ever have any questions about when an escalation should occur, all you have to do is look at the original lease agreement.

It should also state how much the rent is set to increase and when it is set to increase. Whether it is a fixed increase, a percentage increase, or an inflation-based increase, make sure to state it clearly. Spell out whether the increase is to occur annually or at another interval of time – such as once every three years, or upon renewal of the lease.

Why it’s important to keep track

As a landlord, it’s your responsibility to manage each of your leases and calculate escalations accurately and fairly. This can be difficult if you manage multiple leases that all have different terms. 

However, your tenant is unlikely to come to you and remind you when it’s time for their annual rent increase, so it’s up to you as the property manager or owner to keep track of important dates like these.

If the contract states that escalations will occur on the anniversary of the lease commencement date, you need to bill tenants accordingly. Failing to do so can result in disgruntled tenants when you bill them later due to a mistake that you made.   

How to keep track of important dates and lease escalations

STRATAFOLIO makes it easy to track when all of your escalations will occur. You won’t have to manually go through and set up all your lease escalations. STRATAFOLIO automates it for you, freeing up your time to focus on growing your business! Schedule a 1:1 demo to see how STRATAFOLIO can streamline and improve your CRE business.