What follows are our general observations and opinions. It is not legal advice, and it is not a definitive statement of California law. Every lease is different, and the wording of your own document will drive the outcome.
The question we are asked most often about a build-out is a simple one: if the landlord hands the space over late, when do we start paying rent? The honest answer is that it depends almost entirely on how three dates were defined when the lease was drafted, and that most tenants sign without noticing there are three of them at all.
Those dates are the delivery date, when the landlord is obliged to hand over the premises in an agreed condition; the term commencement date, when the lease period formally starts; and the rent commencement date, when money starts flowing. In our experience the single most expensive drafting error in a Los Angeles retail or office lease is a rent commencement date fixed to the calendar rather than tied to delivery. If that date arrives and the landlord has not delivered, a tenant can find itself paying rent on a space it cannot occupy, let alone trade from.
What “delivery” is supposed to mean
Delivery is only meaningful if the lease says what condition the space must be in. A lease that promises delivery of the premises without describing them is an argument waiting to happen. What we want to see defined is the base building or shell condition, the landlord’s work if there is any, and the specific systems the landlord warrants — typically the roof, the structure, and HVAC in working order at handover.
Two definitions do most of the heavy lifting. Substantial completion should be tied to something objective rather than the landlord’s satisfaction, and the punch list should be described as a process with a deadline, not as an open-ended obligation the landlord attends to eventually. Where landlord’s work is involved, we also want a mechanism for the tenant to inspect before accepting delivery, because acceptance is often drafted to waive complaints about anything a reasonable inspection would have revealed.
The LADBS problem, which is a Los Angeles problem
Tenant improvement work in the City needs permits, and plan check through the Department of Building and Safety takes as long as it takes. We would not treat any schedule that assumes a fast permit as realistic. Several things commonly extend it further: a change of use from the prior tenancy, which can pull in accessibility upgrade obligations and sometimes fire sprinkler requirements; work in an older building where the existing conditions do not match the record drawings; and anything that requires a separate Planning sign-off, a health department approval for a food use, or a conditional use permit for alcohol.
The practical consequence is that a tenant who negotiated a generous free rent period measured from lease signing rather than from permit issuance may spend most of it waiting on the City. We would rather see the clock start when the tenant can actually build.
Remedies when the landlord is late
Assuming delivery is defined and the landlord misses it, the remedies in ordinary use fall into a fairly short list, and they escalate:
- Day-for-day abatement. Rent commencement pushes back by one day for each day of delay. This is the baseline and it is barely a remedy — it puts the tenant back where it started and costs the landlord nothing but time.
- Penalty abatement. Two days of free rent for each day of delay, sometimes more after a threshold. This actually creates pressure.
- A termination right at an outside date. If delivery has not occurred by a fixed long-stop date, the tenant may walk and recover its deposit and often its documented costs.
- Reimbursement of holdover or double-rent costs at the tenant’s existing premises, which is the real loss for a relocating business and is frequently left out.
The clause that quietly removes most of this is the force majeure carve-out. If landlord delay caused by anything outside the landlord’s reasonable control is excluded, and the definition is drawn broadly enough to include permitting and labor and material availability, then in our view the abatement remedy is substantially illusory. We would push for permitting delay to be excluded from force majeure, or at minimum for the outside date to be a hard date that force majeure extends only by a capped number of days.
If there is no outside date at all
This is worth saying plainly because it is common. A lease with delay remedies but no long-stop date leaves a tenant collecting free rent indefinitely on premises it may never get. California does recognize doctrines that can help a tenant out of an agreement that has become impossible to perform, but our view is that relying on them is a poor substitute for a date in the document. They are uncertain, they are expensive to litigate, and the outcome turns on facts that will be disputed.
Certificate of occupancy and the trading date
One more sequencing point that catches retail and restaurant tenants. Finishing construction is not the same as being permitted to open. Where the tenant’s ability to trade depends on a certificate of occupancy or a final sign-off, we would want rent commencement tied to that rather than to completion of the work, or at least a further abatement if the sign-off is held up by something within the landlord’s control — an outstanding violation on the building, for example, or unfinished landlord’s work in a common area.
Where we would spend the negotiation
If a tenant has limited leverage and can only fix two things, we would spend it on the outside date with a real termination right, and on making rent commencement contingent on permit issuance rather than on the calendar. Those two together protect against the scenario that actually ruins a deal: paying rent, and possibly double rent, on a space that is not ready and has no deadline for becoming ready.
We should be candid that leverage matters here. A strong landlord in a tight submarket will resist a penalty abatement and may refuse a termination right outright. Knowing which points are worth the friction on a particular deal is most of the value of a lease review.
Commercial lease review is work we handle on an hourly or flat-fee basis, agreed with you before we start — this is not contingency work. If you have a letter of intent or a draft lease with a build-out in it and want the delay provisions looked at properly, call us at (310) 556-9692.
Related reading: our commercial lease resource page — everything we have written for business tenants; tenant improvement allowances and how they are paid — the money side of the same build-out; what to negotiate in a letter of intent — where these dates should first appear; and who repairs the HVAC and the roof — the systems most often warranted at delivery.
These are our general observations and opinions only. They are not legal advice, they are not a definitive statement of California law, and reading this does not create an attorney-client relationship with our firm. Lease language varies enormously and the specific wording of your document is what will decide the question.
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