What Is a Lease Commencement Date and Why Is It Used?
The expiration date is one of the most important parts of a lease agreement. You can usually find it in lease agreement documents. However, there’s another important date that people often forget – the lease commencement date. Here’s what you need to know about lease commencement dates and why they’re important.
What Is a Lease Commencement Date?
When leasing real estate, a lease commencement date refers to the official start of the lease term. It’s the day on which each party’s official rights and obligations under the lease begin.
This date might be the same as the date that the tenant starts paying rent. However, if there are contractors working on the property or the tenants negotiated for early occupancy, it’s likely that the commencement date won’t be the same as the day the tenant starts paying rent. It’s possible to have a separate lease commencement date, rent commencement date, and move-in date within the same lease.
Why You Need to Document Lease Commencement Dates
At the time you’re drawing up the papers, it might seem obvious when the lease begins. You probably already agreed to a day and time when you’ll hand over the keys to your tenant. But what about a year or two from now, after memories have faded? Will you remember exactly when the lease started?
You’ll have the date that the lease was signed by each party. However, unless a commencement date is present in the document, you may not know the official beginning of the agreement. This could be problematic when it comes time for lease escalations, the lease expiration date, and other important term dates.
At STRATAFOLIO, we do full-service onboarding and implementation for all our new customers. Part of this service involves reviewing leases. A missing lease commencement date is the most frequent issue we find when reviewing leases. In our article, 5 Common Commercial Real Estate Lease Mistakes to Avoid, we cover this.
How to Implement a Lease Commencement Date
Sometimes, the lease commencement date and the expiration date are very clearly defined from the start. Other times, instead of an actual firm date, they’re written as time frames in which the lease will begin. It’s OK for the date to be fluid or floating as long as it’s within defined parameters.
Different leases may have different definitions of the commencement date and other term dates. If you’re a real estate owner or property manager and you are responsible for drawing up lease documents, it’s important to clearly define the lease commencement date. This way, you can determine when the lease truly starts, allowing you to adjust escalations and expirations accordingly.
For example, your lease could state the following:
The Commencement Date will be the earliest of (a) the date on which Tenant occupies any portion of the Premises, (b) the date on which the Work (as defined in Exhibit C hereto) in the Premises is Substantially Completed (as defined in Exhibit C hereto), or (c) 90 days after the date on which Landlord tenders possession of the Premises to Tenant.
Be sure to stick to the definitions written into the lease and record the actual commencement date so that you have it for later use.
Do You Need Help Keeping Track of Important Lease Dates?
If you find it difficult to keep track of term dates, you’re not alone. It can be complicated, particularly when you’re managing multiple properties at once. STRATAFOLIO is an online software solution designed specifically to streamline and automate your commercial real estate operations. Plus we are integrated with QuickBooks. See how it works today by scheduling a 1:1 demo!