Hello landlords and tenants, I’m here to discuss the meaning of the word “year” in commercial real estate leasing. My name is Jenna Zebrowski and I’m the attorney behind LawByJZ.com. Everybody knows that a year is 12 months long. However, a year in a lease is a period of 12 consecutive calendar months. It could start on October 23rd or March 17th or February 2nd.
So if the lease doesn’t start on January 1st, the calendar year and the lease year are different. This could affect everything from the timing of cost increases to the dates of the lease and the option. It’s important to know what the year means during the term of the commercial real estate lease!
Commercial Real Estate Case Study
Year: It’s 12 Months, but So Much More
Everybody knows that a calendar year runs from January from December, but in Carlos’s case, it was really important to define a lease year as 12 consecutive months. His lease called for 3% annual increases in rent. Carlos accepted the rent increases, but didn’t want his rent to go up any sooner than it needed to.
One December, Carlos got a letter from his landlord about a rent increase. He ignored it, because his rent increase wasn’t tied to the calendar year, but instead it was tied to his lease year. Then, in January, he got a default notice that he had paid the wrong amount of rent. He wasn’t prepared for a rent increase, and he definitely didn’t want to lose his lease, so he turned to his attorney to solve the issue.
Carlos’ lease had a lot of moving parts. The lease was effective as of July 1, but he had received free rent, and his monthly rent payments didn’t start until later, on October 1. The attorney confirmed that the year that the rent increase were tied to were the year starting in October 1, when rent started being paid. The lease defined the year as starting on that date, and there was a commencement agreement everyone signed, stating when the lease started, and when rent started, since they were different dates.
As a result, all rent increases were calculated from the lease year that started in October, not the calendar year that started in January. Carlos was not in default of his lease and had another ten months to go before the rent increase was effective. The landlord rescinded the default and agreed that Carlos didn’t owe the increase yet. Carlos also confirmed the key lease dates were associated with the correct definition of year. He had two options as well as the rent increase, and he didn’t want to inadvertently lose his lease because someone got the lease dates wrong in a particular year!