Hold New Tenant Financially Responsible for Construction Delays It Causes
Delays are apt to occur any time you perform pre-move-in construction work for a new tenant. Such delays may result in your not being able to complete the work by the date the tenant is required to begin paying rent under the lease. To protect tenants in the event of such a contingency, leases typically say that the duty to pay rent doesn’t kick in unless and until the work is “substantially complete.” That seems to be a fair rule, as long as it was your own staff or contractors that caused the delay. The problem is that it may not protect you when the delay is caused by the tenant.
Problem: Tenants Cause Delays to Their Own Construction
It’s not at all unusual for tenants to be at fault for construction delays. Common scenarios:
- The tenant delays giving you the plans you need to start the work;
- The tenant unexpectedly and unreasonably changes the plans after work begins;
- The tenant is slow in applying for the licenses, permits, or approvals necessary before the work can start; and/or
- The tenant dithers in making a decision about the construction that needs to be made before the project can begin or continue, such as with regard to dimensions, locations, or characteristics of certain features.
Solution: Hold Tenants Responsible for Delays They Cause
It’s unfair for you to give up rent as a result of delays that tenants cause through no fault of your own. That’s why attorneys suggest stipulating in the work letter that the tenant will be financially responsible for the delays it causes.
Phase 1: Hardball. Most of the attorneys we spoke to recommend that you start with a hardball approach. Specifically, say that if the tenant has any part in causing a construction delay, it must begin to pay rent on the rent commencement date—that is, the date that rent is first supposed to be paid under the lease.
Example: The rent commencement date is Oct. 1, the same date construction work is scheduled to be completed. But the work has to be put on hold for six weeks because the tenant doesn’t secure a needed permit on time. The tenant must pay rent on Oct. 1 even though the work isn’t substantially completed until Nov. 15.
For language you can use in your work letters, see our Model Clause: Require Tenant to Pay for the Construction Delays It Causes.
Phase 2: Compromise. Don’t be surprised if the tenant pushes back. After all, it’s pretty aggressive to demand that tenants be held totally accountable for all delays regardless of who actually causes them. If you don’t have the leverage or desire to insist on the hardball approach, you can back off by agreeing to delay the commencement date to correspond with only the delay for which the tenant is at fault.
Example: The rent commencement date is Oct. 1, the same date construction work is scheduled to be completed. Work stops for three weeks because the tenant doesn’t make a required decision about the color of a certain feature. The landlord’s contractor then gets three weeks behind schedule. The work is substantially completed on Nov. 15. The rent commencement date would be pushed back three weeks to Oct. 22 to account for the delay that the tenant caused.
See The Model Tools For This Article
|Require Tenant to Pay for the Construction Delays It Causes|