Commencement Date

The commencement date is the official start of the lease term and the anchor point for every downstream date in the lease - rent commencement, renewal option deadlines, lease expiration, and TI allowance draw periods all flow from it. Under ASC 842 (FASB) and IFRS 16 (IASB), the commencement date is also the date on which a tenant recognizes a right-of-use (ROU) asset and corresponding lease liability on the balance sheet, making precise identification of the commencement date a mandatory step in lease accounting compliance. Lextract AI extracts the commencement date determination method, any landlord delay provisions, and the rent commencement date as separate fields so lease administrators and accountants have the data they need without parsing the full lease.

How Commencement Date Is Determined

• Fixed calendar date: The simplest structure - the lease begins on a specific date regardless of construction progress. Common in second-generation (already-built-out) spaces where no tenant improvement construction is needed.
• Substantial completion trigger: Commencement occurs when the landlord achieves substantial completion of the tenant improvement (TI) construction work and delivers a certificate of occupancy from the local building authority. This is the most common trigger in new construction and first-generation build-out leases.
• Landlord's "ready" notice: The landlord delivers written notice that the space is ready for occupancy. The tenant then has a specified number of days to inspect and accept or identify punchlist items, after which the commencement date is deemed to have occurred.
• Tenant's occupancy date: Commencement is tied to the date the tenant physically occupies and begins operating in the space, regardless of construction status. Less common and disadvantageous for tenants who want certainty.

Commencement Date vs. Rent Commencement Date

The commencement date and the rent commencement date are frequently different, and conflating them is a costly mistake for both landlords and tenants. Tenants often negotiate a free-rent period - typically 1 to 6 months - during which the tenant can occupy the space for build-out and fixturing without paying base rent. During the free-rent period, the lease term has begun (commencement date has passed) but the obligation to pay base rent has not yet started (rent commencement date has not arrived). Under ASC 842, FASB requires that even free-rent months be included in the straight-line rent calculation, so the ROU asset reflects the full economic value of all rent-free months as deferred consideration.

Landlord Delay Provisions and Force Majeure

When the landlord fails to deliver the space on the agreed commencement date due to permitting delays, construction contractor issues, or supply chain disruptions, most leases provide automatic remedies: the rent commencement date is pushed back day-for-day matching the landlord's delay. After a specified threshold - commonly 90 to 180 days of landlord delay - tenants often negotiate the right to terminate the lease entirely and recover any pre-paid deposits. Force majeure clauses may extend landlord delivery deadlines for events outside the landlord's control, but well-drafted leases cap the total force majeure extension (e.g., 180 additional days) so tenants are not left waiting indefinitely for a space that cannot be delivered.

Commencement Date Memorandum

Because the commencement date is often determined by a construction milestone rather than a fixed calendar date, landlords prepare a commencement date memorandum - a separate document both parties sign once the actual commencement date is established. The memorandum confirms the exact commencement date, the rent commencement date, and the resulting expiration date of the lease term. This document is critical for lease administration because it supersedes any estimated dates in the original lease agreement. Lease abstraction platforms including Lextract flag the absence of a commencement date memorandum as a data gap requiring follow-up from the property management team.