The term clause sets when the lease starts and ends, and often separates the commencement date from the date rent begins. Early possession lets a tenant enter before commencement to install racking, cabling and equipment, usually without paying base rent but with other lease obligations in force. Writing specific calendar dates into the lease prevents most disputes over this clause.
What this clause does
The term is the period you have the right to occupy the building, from the commencement date to the expiration date. Several other dates hang off it: when you get early access, when rent starts, when you begin paying operating expenses and when your renewal notice window opens. Each can be different, and each has money attached.
Term length is a business decision as much as a real estate one. A longer term usually earns better rent, more improvement dollars and more free rent, because the owner has more months to recover its investment. A shorter term keeps you flexible if your volumes, customers or network may change. Keep in mind that five firm years plus a renewal option for five more is a different commitment from ten firm years, for you and for the owner.
Full-year terms are customary, but you do not have to accept an expiration that lands in your peak season. If you ship heavily in the fourth quarter, ask for a term that ends in a quieter month. Landlords are usually willing to accommodate a request like that, particularly when it comes up early in the negotiation.
Pin down the dates
A frequent source of confusion is a commencement date tied to an event, such as substantial completion of improvements, instead of a calendar date. Years later nobody remembers when that happened, and the memo confirming it was never signed or was lost. Rent schedules, escalations and option deadlines all turn into arguments.
Where you can, write actual dates into the lease: commencement, rent commencement, expiration and each rent increase. If commencement has to float with construction, require a short written confirmation of the final dates once they are known, signed by both sides and kept with the lease.
Watch how free rent interacts with the term. Abated months can sit inside the term or be added to it, and escalations can run from commencement or from the first paid month. Those choices change what you pay and when you leave.
Early possession
Early possession, often called early occupancy, gives you access before the term begins so you can install racking, run data cabling, set conveyors and move in furniture. It can also bridge a few days so your lease starts on the first of the month. What separates it from free rent is that early access is usually nonexclusive: the landlord or its contractor may still be working in the building, and you generally cannot run your business yet.
During early possession, most of the lease still applies. Expect to carry insurance, pay for the utilities you use and follow the building rules. Some landlords also charge operating expenses during this period, and others do not. If you want those waived, ask early.
Put the early possession start date in the lease too, and tie it to steps you control, such as delivering your insurance certificate and the funds due at signing, rather than leaving it to the landlord's discretion. Racking permits and installation crews book weeks out, so a vague start date can cost you more than a week of access.
Institutional owners tend to be cautious about early access because of safety and liability during construction, while smaller private owners are often more flexible. Either way, define which areas you can use, for what work, and whether you can receive inventory.
Where it goes wrong
A common mistake is treating the new lease and the old lease as separate projects. Your schedule should start with the expiration of your current lease and work backward through permits, racking installation, IT and the move itself. If early possession slips, you may need more time in your old building, which can mean holdover rent at a steep premium.
Start early. For a smaller warehouse, renewal and relocation talks often begin three to six months out. For large distribution buildings, a year or more is common. Have a real estate attorney review the dates, the early possession terms and how they connect to your current lease before you sign.
If you are the tenant
- Write specific calendar dates for commencement, rent commencement, expiration and each rent change into the lease.
- Define early possession in writing: which areas, what work, whether you can receive inventory and what you owe during that period.
- Ask for operating expenses to be waived during early possession and any free rent period, and state it plainly.
- Choose an expiration month outside your peak shipping season.
- Plan your move backward from your current lease expiration, including permit and racking lead times.
If you are the owner
- Require a signed lease, the funds due at signing and a certificate of insurance before granting early access.
- Limit early possession to installation work and state that it does not permit business operations.
- When dates float with construction, send a written commencement confirmation and get the tenant's signature on it.
Go deeper in Justin's books
Both books walk through leases chapter by chapter, from the tenant side and the owner side.
The key differentiator between early occupancy and free rent is that in early occupancy, you are granted nonexclusive possession of the space.
Common questions
Do I pay rent during early possession?
Usually not base rent, but other obligations generally apply, such as insurance and utilities, and some landlords charge operating expenses. The lease should state exactly what is owed during that period. If it is silent, ask before you sign.
What is the difference between the commencement date and the rent commencement date?
The commencement date starts the lease term. The rent commencement date is when base rent begins, which can be later if you negotiated free rent. Listing both as specific dates in the lease helps prevent disputes over escalations and expiration.
Can I run my business during early possession?
Typically no. Early possession is meant for installing equipment, cabling and furniture, often while the landlord is still working in the building. If you need to operate early, negotiate it explicitly and expect the landlord to ask for rent or other terms in return.
General information about how industrial leases commonly work, not legal advice. Every lease is different: have a California real estate attorney review yours before you sign.