Early Access Provisions in Commercial Leases
Early access provisions, also known as beneficial occupancy periods, provide tenants with entry to the leased premises before the official lease commencement date. This access period allows tenants to prepare the space for their intended use, such as installing fixtures, equipment, or making necessary modifications prior to commencing business in the space. While such periods are often treated informally by the parties, a well drafted lease will provide clear guidance on the various responsibilities and conditions applicable to such periods to ensure that new tenancies start smoothly and without unnecessary conflicts between landlord and tenant.
What Is an Early Access or Beneficial Occupancy Period?
An early access period grants the tenant the right to enter the premises before the lease officially begins, typically without the obligation to pay base rent or additional rent during this time. This period is designed to give tenants a head start on setting up their business operations, enabling them to be fully operational by the lease commencement date.
During the early access period, tenants can perform necessary alterations, set up equipment, or stock inventory, depending on their business needs. However, the tenant’s activities during this period must comply with the terms of the lease, particularly with regard to insurance and the scope of permissible work.
Key Considerations in Negotiating Early Access Provisions
When negotiating early access provisions in a commercial lease, both landlords and tenants must consider several important factors to ensure a smooth transition and prevent disputes.
1. Insurance Requirements During the Early Access Period
One of the most crucial considerations during the early access period is ensuring adequate insurance coverage. Tenants and their contractors typically need to maintain insurance that covers their activities and any potential damage to the property.
Considerations:
– Tenant’s Insurance: The lease should specify that the tenant must maintain appropriate insurance coverage during the early access period. This coverage should include general liability, property insurance for tenant improvements and contents, and any other necessary policies to protect against risks associated with their activities.
– Proof of Insurance: The tenant may be required to provide proof of insurance before gaining access to the premises. This requirement ensures that both the tenant and the landlord are protected against potential liabilities or property damage during the setup phase.
2. Responsibility for Utilities and Other Costs
During the early access period, it is common for tenants to be responsible for utility costs, even though they are not yet paying base rent or additional rent.
Considerations:
– Utility Costs: The lease should clearly outline the tenant’s responsibility for utility costs during the early access period. This includes electricity, water, gas, and any other utilities necessary for preparing the space.
– Additional Operating Costs: If the tenant’s activities during the early access period incur additional operating costs, such as increased security or cleaning services, these costs should be addressed in the lease. The agreement should specify whether the tenant or landlord will bear these expenses. While the tenant is not yet responsible for base rent or additional rent, such as operating expenses, under the lease, it is still appropriate that they be responsible for costs that relate solely to their access and use of the premises during the early access period.
3. Coordination of Work and Contractor Cooperation
If both the landlord and tenant are performing work on the premises during the early access period, coordination is critical to avoid conflicts and ensure timely completion.
Considerations:
– Contractor Cooperation: The lease should include provisions requiring cooperation between the landlord’s and tenant’s contractors. This may involve scheduling, sharing access to certain areas, and coordinating the use of shared resources like elevators or loading docks. However, if the commencement date of the lease is tied to the completion of work being performed by one of the parties, it may be important to specify that the work of that party receives precedence during the early access period. This can be critical to avoid frustrations relating to a delated commencement date.
– Access and Safety: Both parties should agree on protocols for access and safety, especially if multiple contractors are working simultaneously. This includes clear guidelines on site access times, safety measures, and communication protocols to prevent disruptions and ensure safety.
4. Limitations on Use and Alterations
The lease may place specific limitations on the tenant’s use of the premises during the early access period, particularly concerning the nature and extent of the alterations that may be performed and providing that while the tenant may access the premises to make it ready for the tenant’s occupancy. Additionally, if the tenant actually commences conducting business from the space, the tenant may be obligated to begin paying rent under the lease.
Considerations:
– Scope of Work: The lease should define the scope of permissible activities during the early access period. This definition helps prevent unauthorized modifications that could affect the property or violate local regulations. It also helps avoid frustrations relating to the perception that the tenant is receiving additional, unanticipatedr rent credits under the lease.
– Approval Requirements: The tenant may need to obtain the landlord’s approval for any alterations or improvements. This requirement ensures that the work aligns with the overall building standards and does not negatively impact other tenants or the property as a whole.
5. Security and Risk Management
During the early access period, the premises may be vulnerable to theft or damage, especially if the space is not fully secured.
Considerations:
– Security Measures: The lease may specify the tenant’s responsibility for securing the premises during the early access period. This responsibility can include installing temporary security systems, securing entry points, or hiring security personnel. The costs of these measures are commonly borne by the tenant.
– Risk Management: Both parties should discuss risk management strategies, including handling unforeseen issues such as construction delays, damage to the property, or accidents. Clear procedures for addressing these issues can prevent disputes and ensure a smooth transition to the lease commencement date.
Conclusion
Early access provisions offer valuable flexibility for tenants and can be an effective leasing incentive for landlords. However, careful negotiation and clear terms are essential to ensure that both parties understand their rights and responsibilities during this period.
