This piece of advice (refer to title) sounds intuitive enough, but I see many business owners get hit with paying rent before their business is open. How does this happen? Delays in lease execution, permitting, construction, or financing can push back opening dates. Overly aggressive project scheduling or flaws in the initial project scheduling can wreak havoc on your commitment dates as well.
So how can you avoid putting out rent money until you’re pulling in revenue? The answer is simple: hinge your rent commencement date (not to be confused with your lease commencement date) on the opening of your unit.
Now, a savvy Landlord will look at this proposal and say, ‘Nice try, Tenant. How do I know that you’re going to open in a timely fashion? You could drag this out infinitely.’ It’s a valid question.
So I insert another clause with a very conservative timeframe. We’ll insert 180 days in this example. The hinge for this clause is pulling a building permit.
The completed Rent Commencement Language reads:
“Rental Payments shall commence the later of (a) 180 days after Tenants receipt of all permits, or (b) when Tenant opens for business to the public”
Did you notice the ‘later of’ language I inserted at the beginning of the two clauses? How this language is written is that whichever case is the latest to occur will govern. If I open before the 180 day mark (measured from building permit pull) then I’ve essentially given myself some amount of free rent. On the other hand, if I go over the 180 day mark, and open, say at 210 days, then I’m still not paying rent because of the ‘later of’ clause.
Now, a savvy Landlord will counter our ‘later of’ clause with an ‘earlier of’ clause. But even if they do strike your ‘later of’ clause and replace it with the ‘earlier of’, you should be ok unless you’re building something like a hotel. 180 days is a long time to be under construction.