Business success is based on many factors, one of which is negotiating the proper type of commercial lease. Both short-term and long-term leases have benefits and drawbacks depending on the needs of the business owner. Short-term leases offer flexibility, while long-term leases offer predictability and typically a better price. If neither option is suitable, business owners may also want to consider negotiating certain clauses in the lease terms, like rights to early termination or the ability to renew without renegotiating terms. For more on this continue reading the following article from JDSupra.
When negotiating a commercial lease for your business, the length (or “term”) of the lease is a key issue to consider. Both short-term and long-terms leases can have benefits, so its important to determine which option is best suited for your business.
One of the greatest benefits of a short-term lease is flexibility. Because you are not tied down for an extended number of years, short-term leases give you the freedom to address changes in your business. Therefore, if you expect your business to grow or your location needs to change in the foreseeable future, a short-term lease may be a better option.
For start-ups, short-term leases are also less risky should the business fail to take off. However, if the business is successful, the landlord may demand higher rent should you seek to renew the lease.
Long-term leases are often a good fit for an established business that is not afraid to commit to a particular location. While short-term leases offer flexibility, long-term leases offer stability by locking in a predictable monthly payment. In addition, many landlords will offer concessions in exchange for committing to a long-term lease.
Finally, long-term leases are also better suited for businesses that require a highly customized space, seek to make improvements, or cannot be burdened by moving equipment and supplies every three to five years.
Sometimes, neither lease is a perfect fit. In these cases, it is possible to negotiate with the landlord to come up with a deal that works. For instance, if you are seeking predictability but are afraid your business might outgrow the space, you may want to consider a long-term lease that contains an early termination clause. This provision in the lease allows the tenant to terminate the lease prior to the end of the lease term in exchange for a fee.
Alternatively, businesses may also want to pursue a short-term lease that contains an option to renew. Essentially, an option to renew gives the tenant the right to exercise an option to stay by notifying the landlord in writing before the initial lease period expires. Since the landlord may charge higher rent for the renewal period, you should always negotiate the terms of the renewal in advance.