SPACE Tips on holding over, possessing early, delaying a lease
By Christina S. Porter
When committing to a lease, one of the less-complicated conditions is how long the term of the lease will be — when it will commence and when it will terminate. There are a couple of variables that could apply, and they are the possibility of “early possession” and “delay in possession.”
Early possession is a provision in a lease that benefits the lessee. The lessee is permitted to occupy the space for a period of time prior to lease commencement without payment of base rent. Most of the time (unless negotiated differently) all other terms and financial obligations of the lease apply. Financial obligations of a lease, other than paying base rent can be paying for common area expenses, property taxes, utilities, property insurance and property maintenance, if applicable. Early possession is in addition to the lease term and does not affect the lease commencement or termination date. Early possession is usually granted to prepare the space for occupancy, such as installing a computer network and other tenant improvements.
Delay in possession is a provision that benefits the lessor. Most leases allow for unforeseen delays in the ability of the owner to deliver the property to the lessee on the commencement date. A couple of obvious reasons that this could happen are if the owner is providing tenant improvements for the lessee and they are not completed on schedule, or if there is an existing tenant that does not vacate on time.
Both of these provisions could have a serious impact on your company’s ability to function. The biggest problem with moving is the down time. Early possession could make the move less painful by allowing you to get the office ready for occupancy prior to having your employees and equipment moved in.
Delay in possession could have no affect or be a complete disaster. Consider the possibility of how long you can hold over in your current space should your landlord, for the new space, have to exercise the right to a delay in possession and limit the amount of time that possession can be delayed. Do your own tenant improvements so you have control of this and use early possession or rental abatement for the time to construct them. Nip it in the bud and request that the delay and possession clause be taken out completely. If there is a tenant occupying the space you intend to occupy, this is a red flag. Find out if the current tenants have a place to go and exactly when they are scheduled to be out. I would make sure that you are allowed to hold over in your current space and negotiate with your new landlord to provide any extra funds necessary should you have to hold over in your current space.
In many leases there is a hold-over clause. This clause provides for the tenant to stay beyond the lease-termination date with all other lease terms and conditions in full force — usually at an added cost. I have seen hold-over provisions that cost nothing and others that can be as much as 200 percent of the rent at the time of the hold over.
The above-mentioned should be explained in more depth prior to commit-ting to a lease and are just a few of the many things to think about when entering into a lease negotiation. (Christina S. Porter is a senior associate at NAI Capital Commercial Real Estate, where she specializes in leasing and selling office and industrial buildings.)
Originally published in the Santa Monica Daily Press print edition on December 17, 2003. Read the original PDF.