If you are a healthcare tenant and have experience securing a lease for your medical facility, you are likely familiar with terms such as lease commencement and rent commencement from the lease negotiation process.
Securing the best terms possible, specifically with lease and rent commencement, can help you start your lease in a favorable financial position.
Let’s break down the two terms:
- The lease commencement date is the date the lease term begins.
- The rent commencement date is the date that rent begins for the space.
When it comes to lease and rent commencement, the fairest situation is where a deal is negotiated and agreed upon, a lease is signed, and rent and lease commencement start on the same day. This day comes after the construction is completed and a certificate of occupancy is received.
However, this is not always the case, as different market conditions or space conditions can affect the rent start date.
Having a strategic plan in place is important for lease negotiation as tenants and landlords will have competing interests to navigate.
Tenant Perspective
Healthcare tenants will likely prefer a rent commencement date that is further out than the lease commencement date. This could be in the form of free rent, a construction build-out period, or an early occupancy period.
Delaying rent commencement is beneficial for healthcare tenants for a number of reasons but especially when construction is not yet finished on the new location. For example, if it is a new urgent care location, the healthcare tenant will likely need to hire new staff and acquire new equipment. Having a construction period built into the contract will allow the healthcare tenant time before paying rent to get set up and start running at full capacity, instead of playing catch up.
While the leasing process can unfold in various ways, the most common outcome is a situation such as this example: A lease is signed July 27th, and the lease starts August 1st (the lease commencement date) for a space that is ready to go.
Landlord Perspective
The landlord will typically want an early rent commencement date as this will help them generate income as soon as possible, improving their bottom line.
When a landlord uses the term “free rent”, they are generally referring to the construction or build-out period in early occupancy where tenants can come and take care of some work to get the facility set up and ready for use. If a tenant is looking for a concession from a landlord, rent abatement is needed, which is true free rent.
Whether you are a tenant or a landlord, having knowledgeable and experienced representation on your side for negotiating the best possible terms and concessions is essential.
About HBRE
Headquartered in Nashville, Tennessee, HBRE is a full-service commercial real estate firm specializing in healthcare real estate. With over 50 years of combined industry experience serving 28 states across the U.S., we deliver exclusive healthcare solutions so you can provide the best patient care.
If you have any questions about leasing, buying, or selling a commercial property in Nashville or beyond, connect with our team today.
