Lease Commencement Costs Explained

To begin talking about lease commencement costs, we have to first understand what lease commencement is.  This event marks the date the landlord’s and tenant’s obligations under the lease begin.  The lease commencement date is a specifically defined term, and can coincide with lease signing date, rent commencement date, and possession date, but in most cases these are all separate dates in the leasing timeline.

There are two types of costs associated with lease commencement, the first group are defined costs that are directly referenced in the lease, while the second group are ancillary costs which may or may not be relevant depending on your business.  Let’s dive in.

Defined Costs

• First Month’s Rent – Many commercial leases require the first month’s rent payment as a certified bank check at lease signing.  
• Security Deposit – Typically due at lease signing.  I’ve never seen a lease that didn’t require security of one month, but more often than not two months worth of rent is required.
• Insurance – Leases often have an entire section outlining the type of insurance and coverage minimums.
• Commission – Commercial leases rarely require the tenant to pay the brokerage commission and instead there is an agreement between the listing broker and the landlord describing the landlord’s obligation to pay the broker commission.
• Renovation – A tenant work letter is sometimes attached to the lease which describes a dollar amount or specific renovation work that the tenant is required to perform. 

Ancillary Costs

• Renovation – Outside of renovation costs that are stipulated in the lease, there are sometimes other renovations that the tenant may want to undertake for convenience, like moving electrical outlets, or coating a warehouse floor.
• IT and Communications installation – While some spaces are wired for phones and data, each tenant is normally responsible for doing their own hook up to the providers services and pulling their own wires.
• FF&E aka Furniture, Fixtures, and Equipment – You need desks right?  This could also include fans, stoves, computers, machinery, etc.
• Moving – If you don’t have that one friend with a pickup truck, you will likely need to hire movers, buy boxes, etc.
• Utilities transfer – Many industrial and retail spaces are separately metered for electric and gas.  If this is the case the landlord will provide the tenant with meter numbers so they can speak to National Grid, PSEG, or whomever to set up an account in the tenant’s name.
• Licenses and Permits – Some businesses require specific municipal licenses and/or permits..

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Next week we’ll talk more about Renovation, one of the biggest costs described above.