Commercial Real Estate 101 Understanding Lease Terms, Chapter 2 – Term

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A lease abstract is a document that summarizes specific, key information from a lease agreement. Leases can be lengthy documents with confusing legalese. Lease abstracts allow users to easily reference and review fundamental lease terms to ensure that both the tenant and landlord are in compliance with applicable obligations, timeframes, etc. This series will go through a typical lease abstract and explain the various terms with emphasis on what is important for a tenant to understand.

In this section, I will go through typical language pertaining to the lease term:

Lease Commencement Date

  • The date on which the lease term begins.
  • What’s important – may be the same or different from the rent commencement date and/or occupancy date. It is the date on which tenant is responsible for complying with all terms of the lease. If the occupancy date is a day other than the first of the month, the lease commencement date will generally be considered to the first day of the following full calendar month.

Rent Commencement Date

  • The date on which tenant’s rental obligation begins
  • What’s important – may be the same or different from the lease commencement date depending on the amount of rental abatement, if any. In triple net leases, tenant is generally responsible for paying triple net charges during the rental abatement period.

Lease Expiration Date

  • The date on which the lease expires and tenant is required to vacate the leased premises
  • What’s important – ensuring tenant complies with specific provisions of the lease detailing the condition in which the tenant must return the property to landlord, requirements to remove any tenant alterations and/or cabling/wiring, etc.

Term

  • The length of time in years and months that tenant shall lease/occupy the subject property.
  • What’s important – the length of the lease term affects many other terms of the lease including but not limited to amount of rental abatement, amount of improvement allowances/scope of turnkey build out, assignment/subletting, etc. Rent will escalate over the term of the lease based on the negotiated escalation rate/method.

Holdover

  • Situation in which tenant continues to occupy the leased premises after the lease expiration date. Lease provisions dictate notice requirements and penalties associated with holdover.
  • What’s important – Tenant may be penalized with increased rental obligations, i.e. 150%-200% of the then escalated rental rate and/or any damages incurred by landlord caused by tenant’s holding over.

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