Have a Nice [Business] Day!

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Every tenant is unique. Two tenants may be in the same business/industry with the same number of employees, years in business, etc., but their financial situation, growth/strategic plans, etc. may be different. Tenants/companies are as unique as the people that comprise them.

On the other side of the transaction, every landlord is unique. There are buy and hold landlords as well as buy and flip landlords. Like tenants, landlords have different financial situations. Holding periods and financial strength are only two factors that combine to create the framework; governing landlord decision-making.

Every commercial real estate deal is unique because of the nearly infinite combination of unique tenants and unique landlords. As a result, every commercial lease is different. Certainly landlords have their standard lease agreements, but these are unique one, because the tenant, space, etc. are unique. Secondly, while most commercial leases contain the same provisions, i.e. Events of Default, Subordination, Assignment/Subletting, etc. they are subject to negotiation and, depending on the tenant’s leverage, (broker’s) negotiation skills, etc. may look markedly different when an executable document is finally reached.

Commercial leases are full of legal jargon and paragraph-long sentences that require thorough, in-depth review. Still there are certain changes that should be made to every lease. One such example is changing “days” to “business days” or vice versa. This is a relatively easy change but, as in all things, there are subtleties involved. The importance of “days” in a commercial lease is that they establish notice and grace periods. They govern the timeliness of the landlord and tenant’s responsibilities to the other.

First, it’s important to understand what a business day is. As one may reasonably intuit, business days are typically Monday through Friday. The exceptions are federally recognized holidays, i.e. Thanksgiving, Labor Day, etc. An important distinction must be made for retail tenants whose business may primarily be conducted on the weekend.

Second, it’s important to distinguish between timeframes for “days” and “business days.” For example, 5 business days is essentially the same as 7 days (one week). Thirty days (one month) is essentially the same as 20 business days. If the intention is a week then there is no reason to change the language. If the landlord initially proposes “10 days;” however, tenants should request 10 business days to provide themselves with a minimum 2 weeks. Business days are of primary importance when considering the impact of weekends and holidays. For example, if a tenant is required to execute an estoppel certificate within 10 days versus 10 business days and the landlord provides notice on the Friday the week before a long weekend, the tenant may be in serious risk of default. Two weekends and a full week equals 9 days, add a Monday holiday and the 10 day period has expired. What if the tenant is on vacation and does not receive the notice until they return? If the tenant had simply negotiated 10 business days they would have had an additional week to execute the document thus saving themselves from default.

Another example, where business days can be to the tenant’s detriment, is in the case of service interruption and rental abatement. In this situation, business days can negatively impact the tenant. For example, if the landlord is willing to concede to rental abatement if services are interrupted for a period of 3 business days, rental abatement starting on the 4th business day, the tenant should change “business days” to “days.” Three business days, if spanning a long weekend is actually 6 days. That means the tenant would be without critical services for nearly a week before they are entitled to rental abatement and, as mentioned previously, this could be devastating to a retail tenant.

General rule of thumb, you want your party/client to have as much time as possible and the other to have as little as possible. All of this should be grounded in reasonableness and based on an understanding of each party’s business. When it comes to timeframes for responding to the landlord, tenants should always change “days” to “business days” to prevent unintentional defaults due to weekends and holidays. Conversely, in situations where the landlord must respond (provide consent/approval) or remedy a default, make a repair, etc. “business days” should be changed to “days.” Lastly, tenants should seek uniformity in their various timeframes, again to prevent confusion and unintentional defaults.

*I generally recommend 5 business days before late charges are assessed for nonpayment of base rent and 5 business days after written notice of nonpayment of base rent before it becomes an event of default. Ten business days are sufficient for such cases as estoppel certificates, subordination agreements, restoration of the security deposit, etc. Finally, in the case of nonmonetary events of default, 20 business days or 30 days are reasonable.

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