Leases are the fundamental building blocks of commercial real estate. Whatever the endeavor—underwriting, due diligence, financial modeling, lease administration— it starts with the humble and unassuming commercial real estate lease, a detailed, complex and usually lengthy document that serves as a legally binding contract between a landlord and tenant and defines the specific terms under which the space will be leased and managed.
Some of the core and most essential components of any commercial real estate lease, in turn, are the Term Dates. As the term implies, Term Dates are the principal dates and deadlines in the lease, such as when the lease starts, when it ends and when rent is due. Term dates are part of the basic and elemental framework of the lease, which we explain in our comprehensive guide to leases, “The ABCs of Commercial Real Estate Leases”. They should be included in any lease abstracts and tracked closely by whoever is administering leases for the building. Because Term Dates specify critical dates, such as when the tenant will take possession of the space, start paying rent and when their obligation to pay rent ends, they have a direct and material impact on a property’s revenue and overall profitability.
Common Term Dates In Commercial Real Estate Leases
The type of Term Dates that are in commercial real estate leases can vary, depending upon the nature of the lease, the collective terms in the lease or by individual tenants, landlords or buildings. Typically, leases run for several years and start on the first day of the first month the lease commences and end on the last day of the last month of the lease term. Some of the more common and essential Term Dates include:
Commencement Date
The date upon which the landlord’s and tenant’s respective rights and obligations under the lease begin. The Commencement Date can be synonymous with Lease Effective Date or the Lease Start Date but, as rule, is not interchangeable.
Rent Commencement Date
The date upon which the tenant’s responsibility to pay the landlord for use of the space begins. A Rent Commencement Date is very often contingent upon the completion of improvements made by the landlord and/or the ending of a lease abatement period.
Move-In Date
The date upon which a tenant takes physical possession of the leased premises. The Move-In Date may or may not correspond to the Commencement Date or Rent Commencement Date.
Expiration Date
The date upon which the parties’ rights and obligations under the lease end.
Full Calendar Months
As a means of simplifying and clarifying Lease Term expiration dates, most commercial real estate leases count a lease’s duration in full calendar months. As a result, a 60-month lease that commences on December 2, 2021, would end on December 31, 2026. This can get confusing when the expiration date is calculated on the Lease Effective Date as opposed to the Rent Commencement Date. A simple way to avoid Expiration Date ambiguity is to specifically state the actual Expiration Date in the lease.
Commencement Letter
A document that codifies the official start of the agreement. These one-page letters usually include explicit definitions for all terms, but often do not become official until executed by both parties.
Term Dates Can Be Fluid
As you can probably tell from the preceding definitions, sometimes it’s not easy to pin down the Term Dates in commercial real estate leases. Ideally, the lease provides clear commencement and expiration dates. However, the dates are often fluid or floating or a time frame is given rather than a firm date. This typically occurs when the parties agree to make improvements to the space before the tenant takes possession, making it difficult to pinpoint an exact lease commencement date. In such cases, the lease may state that the lease commences within a certain timeframe once the landlord completes all or most of the work. The expiration date is then adjusted accordingly.
To accurately determine the commencement and expiration dates and term of the lease, it is imperative to review any sections of the lease or lease abstract that may impact those Term Dates, such as the work letter, for example, if improvements are going to be made to the leased space.
Additional Resources and Information on Term Dates and Commercial Real Estate Leases
The Realogic consulting team fields a lot of questions about commercial real estate leases, so we’ve updated some of the most popular blog posts from our original series on Commercial Real Estate Lease Fundamentals. These include the posts on:
You can click on any of the links above to read the updated posts, or go to our Blog homepage, scroll through all the posts and read any that catch your eye.
In addition, if you’d like to learn more about commercial real estate leases, there are several resources in our Library that you might be interested in- the aforementioned The ABCs of Commercial Real Estate Leases, a comprehensive primer on leases, and our expansive Glossary of Commercial Real Estate Lease Terms, which has definitions to over 140 lease terms, from the common to the obscure.
By Terry Banike, Marketing Manager, Realogic