You Want to Lease, But Your Landlord Has Work to Do by Cliff Ennico on Creators.com

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You Want to Lease, But Your Landlord Has Work to Do

"I'm starting a retail business and have found a perfect location in a local shopping center.

"We were going to sign the lease next week, but my contractor called me yesterday to tell me he can't get a building permit from our town because the shopping center has a couple of issues to resolve. Specifically, the septic system for the shopping center is out of date and needs to be brought up to code.

"These are big issues, and I'm sure will take time to resolve. Even if I can get a building permit for the space soon, I don't want to spend nearly $50,000 in construction costs and then find out I can't get a certificate of occupancy because the landlord hasn't done its work. I really want this space, but I can't afford to wait years to take occupancy. What do I do?"

The good news here is that your contractor was on the ball — he found out about the problem BEFORE you signed the lease. That gives you a lot more leverage to deal with the landlord.

Whenever you sign any lease, you want the landlord to say (in writing) that the shopping center is in compliance with "all applicable laws, rules and regulations, including without limitation building codes." That forces the landlord to do some homework to make sure you will be able to build out your space once you sign the lease.

In this case, you will need something more than that. Every commercial lease has two commencement dates — the date you sign the lease and get the keys to your space (the lease commencement date), and the date you must start paying rent (the rent commencement date). Because it usually takes 60 to 90 days to build out your space and get a certificate of occupancy, most landlords will give you 3 to 4 months use of the space rent free before this date kicks in.

Talk to your lawyer about extending the lease commencement date until the date you can obtain a building permit from the town. Generally, municipal building departments will allow shopping center tenants to get building permits once the landlord's plans for correcting the septic issue have been approved.

You still may not get a certificate of occupancy, however, until the landlord has corrected these problems to the town's satisfaction. For that reason, I would push back the rent commencement date until such time as you get your certificate of occupancy for the space.

The necessary language would read something like "90 days from the lease commencement date or the date on which Tenant receives a certificate of occupancy from the town of blank for the demised premises, whichever is later." The "later" is important, as it automatically extends your rent obligation for as long as it takes the landlord to satisfy the town's building code.

Now here's the problem. During all this time you will be spending money building out your space, paying your contractor and other out of pocket expenses, without knowing when you will be able to open your retail store. The good news is that the landlord will have to wait for its rent. The bad news is that you won't be generating revenue to cover your startup expenses.

You have a difficult choice here.

Choice One: You wait until the landlord has completed its work to the town's satisfaction and then sign the lease. That's the safest alternative because you won't have to do any construction work until you know you have the legal right to occupy the space. Some landlords, however, will not want to keep the space open for you indefinitely — if another tenant comes along who is more willing to gamble that the landlord's work will be accomplished in a relatively short time, the landlord may give the space to that other tenant instead of you.

Choice Two: You sign the lease now, but with two very important provisions. First is a clause saying that if the rent commencement date (the date you receive your certificate of occupancy) hasn't taken place within 6 months of the lease commencement date, either you or the landlord can terminate the lease and get out of the deal "without obligation or liability to the other hereunder."

The second clause says that if you terminate the lease because the rent commencement date hasn't occurred by the specified date, the landlord will have to return your security deposit AND reimburse you for "any and all documented expenses incurred by Tenant on and after the lease commencement date for improvements to the demised premises, in an aggregate amount not to exceed X dollars."

The landlord won't be wild about this and may negotiate the "X" rather hard, but you will at least be assured the landlord will have a strong incentive to get its act together and solve the septic problem as quickly as possible.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

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