Can an incomplete and unsafe building be rented to a tenant on a commercial lease if the building never received a certificate of occupancy?
Yes.
The General Rule
In commercial leases, to a much greater degree than in residential leases, the principle of buyer beware (a.k.a. caveat emptor) applies. Commercial leases are typically negotiated between sophisticated parties, and if the tenant doesn't want to start paying rent until the certificate of occupancy is issued despite a lease that says otherwise, then that is tough luck and the tenant is bound to the terms of the lease.
Commercial leases are generally rented in "as is" condition, sometimes with and sometimes without a tenant finish and improvements allowance from the landlord.
The burden is on the tenant to do "due diligence" including a physical inspection of the property by a professional inspector and independent review of the zoning status of the property to confirm that the tenant's business is allowed to operate at that location, much as a buyer of real estate would. If the tenant identifies an objection during the due diligence period set forth in the lease or contract to enter into a lease with the tenant, then the tenant can choose to get out of the lease obligation. But, there is only a due diligence condition if the tenant bargains for it.
The lease allocates responsibility to maintain the building in good repair and may allocated this responsibility to the landlord or the the tenant. In one of the most common types of commercial leases, called a triple net lease, virtually all maintenance obligations are the tenant's responsibility:
The triple net absolves the landlord of the most risk of any net lease. Even the costs of structural maintenance and repairs must be paid by the tenant in addition to rent, property taxes and insurance premiums.
Many states have statutory or common law implied warranties of habitability in the case of residential leases. And, New Mexico, in particular, has many statutory protections for residential tenants (statutes found here). But, almost none of these protections extend to commercial leases, because commercial leases are not leases of dwelling units, as defined in the relevant statutes.
Examples Of Situations Where This Would Not Be Required In A Fair Deal
Most commercial tenants insist upon terms that say that the obligation to pay rent starts when a certificate of occupancy is issued and the tenant is allowed to take possession of the premises. But, there would certainly be some times when a commercial tenant would pay rent on property that does not yet have a certificate of occupancy.
For example, in what is called a "pad rental", a business rents a basically vacant lot with only a concrete foundation and utility hookups and zoning approvals in place, and then the tenant builds a shop or office building on the pad. See, e.g., this commercial lease offer on Loopnet, a major internet site for listing property available to be leased by businesses:
ABOUT 4900-5100 N WICKHAM RD , MELBOURNE, FL 32940
Rental Rate $3.79 /SF/Yr
Listing ID: 15146692 Date Created: 2/11/2019 Last Updated: 3/19/2019
1 LOT AVAILABLE -
Rental Rate $3.79 /SF/Yr
Lease Term 20 Years
Service Type To Be Determined Date Available Now
Space Type Relet Lot Size 0.69 AC
DESCRIPTION
Pad ready site with all utilities, parking field, ingress/egress, retention, and site lighting IN.
Join Goodwill, Einstein's Bagel, Verizon, Twins Car Wash, Wickham Road Music, and Nail Salon in this 100% leased new retail center.
HIGHLIGHTS
Pad ready site.
In a commercial PAD lease, typically, a tenant would start paying rent immediately and the length of time needed to get the tenant's shop built and approved for occupancy by local government officials is their problem. But, even then, the terms would depend on what was negotiated between the landlord and the tenant which would depend to a great extent on how hot the local commercial real estate market was and on the other terms. A landlord will usually offer more favorable terms in a weak market, but may also decide to have very tough lease terms but a somewhat lower monthly or annual rental rate. Also, as in the example above, conditioning rent payment on occupancy or availability for occupancy, is less common in a very long term lease such as the twenty year lease being offered for the pad rental above.
Something very similar is done in an existing building that requires tenant finish. At one extreme, the landlord will do tenant finish to the tenant's specifications at the landlord's expense and the tenant will only start to pay rent when the tenant takes occupancy. At the other extreme, the tenant will start paying rent immediately and do the tenant finish at the tenant's sole expense. In between, the tenant may do the tenant's own tenant finish pursuant to landlord approved plans, with the landlord contributing a tenant finish allowance that will often be less than the full anticipated cost of tenant, and the rent will be reduced or waived for a set period of time which may or may not correspond to the actual time that it takes to complete the tenant finish.
In yet another example, it wouldn't be terribly uncommon for a landlord to rent a commercial space that is already occupied by squatters or holdover tenants, to a new tenant on a triple net basis under which the tenant is responsible for evicting the current occupants, rather than the landlord.
Conclusion
It all boils down to the terms of the lease and a reasonable construction of the relevant lease terms.
The fact that there is such a thin amount of legal protection from unfair lease terms is one of the reasons that most commercial tenants hire an attorney to help them negotiate the terms of a commercial lease, in addition to, or instead of, a commercial real estate broker.