When choosing between a short or long commercial lease, there are certain things to consider. In this article, we are going to explore the benefits of choosing either a short-term commercial lease or a long-term commercial lease for your business.
Benefits of Short Commercial Leases
A short commercial lease is generally less than 5 years. For companies who want to test their concepts and their markets, they will often find a short-term commercial lease the best.
An “Easy-Out”
According to Bloomberg, 80 percent of businesses fail in the first 18 months. Since starting a business is a risk, having a short-term lease will save business founders from the hook of unpaid rent if they go out of business. With short-term leases, entrepreneurs can experiment their new ventures with a low-risk rent.
Flexibility
With a short-term lease, tenants can scale up or down without any difficulties. They can also move to a new location without significant loss in rent payment. However, long-term tenants would have to transfer or sublease their lease to another tenant in order to relocate.
Benefits of Long Commercial Leases
A long-term commercial lease is a lease that is more than 5 years. To control rent expenses over a long period, many businesses (especially retailers) negotiate leases in excess of 20 years. Here are additional benefits of signing a long commercial lease.
Predictability
When you sign a long commercial lease, you know how much your rent will increase annually, regardless of what happens in the market conditions. This helps businesses to make long term business plans without being concerned about market fluctuations.
Stability
With predictability comes stability. Stability helps your business. Customers love to transact with businesses which they know will be around tomorrow. By having a long commercial lease, you will be around for a while—enough to register your brand in the mind of your customers. Also, it will help ease the inconvenience that your employees may experience if you were changing locations annually because you are on short term leases, and had to be forced out of your space unexpectedly.
Tenants Improvements or concessions
With a long commercial lease, you have more bargaining power. There are certain rights that tenants who sign long commercial leases enjoy that those on short term leases do not have. For example, landlords are more willing to give tenant improvement allowance like free rent or access to a larger space. These deals are often off-the-table for short term tenants and are extremely hard to negotiate.
Both short commercial leases and long commercial leases have their advantages and disadvantages. The choice between short or long commercial leases depends on a number of factors. Careful considerations must be made in examining the business objectives before signing the leases. In addition, you have to consider your company’s future as you enter into a long or short-term lease agreement. If you expect to be around for a long time, you may want to consider a long commercial lease, otherwise, it would be safe to sign a short commercial lease.
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