Understanding Commercial Lease Agreements: Lease Execution and Commencement Dates

Understanding commercial lease agreements is crucial for both property owners and tenants. This knowledge ensures clear expectations and responsibilities, provides legal protection, aids financial planning, and mitigates risks for both parties.  

“Knowing your lease terms and dates empowers both landlords and tenants to navigate negotiations effectively. Landlords can strategize lease renewals and modifications, while tenants can secure favorable terms for options like expansion, renewal, or early termination, aligning their lease with evolving business needs,” said Staci Sansone, NAI Earle Furman Property Manager.

When both parties thoroughly understand these agreements, it leads to a smoother, more productive, and legally sound relationship that benefits their respective financial and operational goals.

This blog series will assist property owners and tenants with the basics of understanding commercial lease agreements. Here’s a simple breakdown of the three key dates in commercial lease agreements and why they matter:

Lease Execution

  • What is it: When the lease agreement is officially signed by both the landlord and tenant.
  • Why it matters: This date marks the formal agreement to the lease terms but does not necessarily indicate when the tenant will start occupying the space or when rent payments will start.

Commencement Date

  • What is it: The start of the lease term. This is often when the tenant is allowed to take possession of the property.
  • Why it matters: This date triggers various obligations for both parties, such as the landlord’s duty to provide the space in the agreed condition and the tenant’s responsibilities as specified in the lease.

Rent Commencement Date

  • What is it: When the tenant’s obligation to start paying rent begins.
  • Why it matters: This date can differ from the commencement date, especially if there is a build-out period (time allowed for the tenant to modify the space) or a rent-free period negotiated at the start of the lease.

By comprehending these essential dates, tenants can better plan their move-in and business processes, and property owners can manage their property and financial planning more effectively. This foundational knowledge is essential for building a mutually beneficial leasing relationship.