When should rent payments start?

[Kevin Noesner]

I have a retail building that needed some work and customization before the restaurant could open for business. We agreed that I would get it to a "vanilla box" state where it's up to code and then they would add the plumbing/electrical and other features needed for their business. Enter the muddy waters. Both our work has been happening simultaneously the last 6 months to avoid extra permits, drawings and inspections. I haven't received any rent yet and now we're deciding who should have paid for that time which went way over schedule. I have a lease that says they should pay for it but I also want to be fair with the delays that occurred. I verbally told them to hold the payments until July and I was ok with that as long as they made it back up after they open. What is typical for this type of retail shop that requires customization?

[Joel Owens]

Rent typically starts at CO ( certificate of occupancy ) although sometimes free rent for a few months is baked into the lease.

It varies across the board what you negotiate whether a mom and pop tenant, national company, or a franchisee with a regional or national brand.

[Kevin Noesner]

Thanks Joel Owens So the certificate of occupancy is typically given before they build out or after?

[Damon DiPlacido]

I do a good amount of chain restaurant leasing as a tenant rep - mostly franchise concepts. 

From the tenant's perspective you want the "commencement" clock to start ticking upon receipt of permits.  I often propose rent and lease term to commence  150 days from receipt of permits, and will often secure 120 days. Landlords, on the other hand, will prefer to start the commencement clock upon a certain number of days from lease execution, or if the LL will be performing work after lease execution, it will be x number of days from turnover. Also, most landlords will negotiate for an "earlier or" clause as part of commencement. For example, commencement language may read as "rent and lease term to commencement 120 days from turnover or opening of business, whichever is earlier."

Depending on the deal terms, the concept, and the strength of tenant, condition of the space landlords will be more agreeable to base commencement on receipt of permits, rather than lease execution.