Is Lessor Penalized for Delivering Possession Late?

According to the various AIR lease forms, Lessor is required to use its “best commercially reasonable efforts” to deliver possession of the Premises on the Commencement Date. If Lessor uses such efforts and is unable to deliver the Premises on time, is Lessor required to compensate Lessee? No, Lessor is not “subject to any liability” for delivering possession late.

However, Lessee does have recourse under the AIR lease. If Lessor has not delivered possession within 60 days after the Commencement Date, Lessee has a 10-day window to terminate the Lease. Again, Lessor is not required to compensate Lessee for any damages Lessee may have suffered in connection with the delay. The parties would simply walk away.

These provisions work well the overwhelming majority of the time. However, tenants that have strict timing requirements should consider modifying these provisions in order to apply pressure on Lessor. The two most common options tenants use in this situation are:

  1. Reducing the 60-day period before Lessee’s right to terminate begins.
  2. A liquidated damages provision requiring Lessor to pay a certain amount for each day of delay.

Some of the most desired retail tenants demand the liquidated damages provision in virtually all of their leases. Also, tenants who will pay holdover rent if there is a landlord-delay sometimes demand a liquidated damages provision.

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By | 2018-02-19T15:33:14+00:00 May 7th, 2015|Leasing|Comments Off on Is Lessor Penalized for Delivering Possession Late?