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The Pitfalls for Landlords to Avoid in Leases Involving New Construction

By Ira Fierstein

New construction always involves myriad unknowns ' cost and timing are two of the biggest. However, if you add the complication of negotiating a lease at the same time, the problems quickly multiply. This article addresses some of these issues and provides advice for the landlord's use to avoid ending up in a situation where the lease becomes unprofitable.

The most obvious issue the parties face when negotiating a pre-construction lease is deciding on the date that the landlord is obligated to deliver possession of the completed premises to the tenant. It is important for the landlord to negotiate something less than absolute completion. The delivery date should therefore be determined when the landlord substantially completes its work in accordance with required plans. Substantial completion means completion sufficient to allow a tenant to take possession and operate the space, but may require the completion of minor punch list items. Similarly, if the landlord is required to deliver a certificate from an architect or contractor, the certificate should be one of substantial completion. This allows the clock to start ticking for determining when the rent begins and when the tenant is required to open for business. The landlord can complete any punch list items after the delivery.

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