What Happens if a Tenant’s Build-Out Permit Is Delayed by the City?
Why Permitting Delays Matter
In Manhattan, every office build-out requires Department of Buildings (DOB) permits—whether for demolition, new walls, plumbing, or electrical. These approvals are often routine, but in 2025, backlogs and stricter review standards mean delays are common.
For tenants, this creates a critical question: if city permitting delays push back your construction and move-in, do you still have to start paying rent on time?
How Permitting Affects Rent Commencement
Direct Leases (Tenant Build-Outs with TI Allowance)
- Tenant Responsibility: In most NYC leases, permitting and construction fall on the tenant. If DOB delays the permit, the rent commencement date does not move.
- Result: Tenants may end up paying rent on space they can’t use while waiting on approvals.
Prebuilt Spaces (Landlord Responsible for Build-Out)
- Landlord Responsibility: When the landlord builds out the space (via a turnkey or workletter), delays caused by permitting typically fall on them.
- Result: Rent commencement is usually tied to actual delivery of the space—not the scheduled date.
Typical Lease Language in Midtown
- Tenant-Managed Build-Outs: Rent begins on a fixed date, regardless of permit status. Tenant bears the risk.
- Landlord-Managed Build-Outs: Rent begins upon “substantial completion” or delivery of possession. Landlord bears the risk, including DOB holdups.
- Outside Date: Some leases include an “outside delivery date,” giving tenants the right to cancel if delivery is delayed beyond 90–180 days.
Real-World Examples
- Midtown South Tech Tenant (7,000 RSF): Tenant-managed build-out. DOB delayed approvals 45 days. Rent still began on the original date, forcing the tenant to pay $90,000 in rent on unusable space.
- Midtown East Law Firm (12,000 RSF): Landlord prebuilt suite. DOB delayed permit sign-offs. Landlord absorbed the delay, with rent starting only when space was ready.
- Hudson Yards Finance Tenant (25,000 RSF): Negotiated clause tying rent commencement to the later of delivery or permit issuance. Protected them from $250K in overlap costs.
Tenant Risks of Permit Delays
- Double Rent Exposure: Paying holdover rent in old space + rent in new space.
- Construction Crew Standby Costs: Contractors billing for idle time while permits are pending.
- Compressed Build-Out Timeline: Delays may force rushed (and more expensive) construction.
Tenant Negotiation Strategies
- Tie Rent Commencement to Permit Issuance
- Push for language: “Rent shall not commence until 30 days after all required permits are issued.”
- Secure Outside Dates
- Add a termination right if delivery or permits are delayed beyond a certain timeframe (e.g., 120–180 days).
- Negotiate for Free Rent Cushion
- If landlord refuses to shift commencement, ask for extra free rent upfront to cover possible delays.
- Landlord Oversight in Tenant Build-Outs
- Some tenants negotiate to have the landlord pull permits on their behalf, shifting risk away.
- Budget for Contingencies
- Even with protections, build in 1–2 months overlap to avoid last-minute disruptions.
Tenant Takeaway
In Manhattan, permit delays at the DOB don’t automatically adjust rent commencement.
- If the tenant is building, you usually bear the risk.
- If the landlord is building, delays are more likely absorbed on their side.
- The smartest tenants negotiate permit-tied rent triggers or outside dates to avoid paying for unusable space.
Where We Fit In
We make sure your lease is structured to protect against DOB delays. Our tenant-only advisors will:
- Review delivery and commencement language
- Push for permit-contingent rent starts
- Negotiate outside dates and free rent cushions
Contact us to avoid paying for space you can’t use while waiting on city approvals.
Fill out our 📋 online form or give us a call today 📞 212-967-2061 — let’s find the right office for your business.
