Category: Long-Term Lease

Pros and Cons to Short or Long Leases

So which is best for companies?

If you’re getting ready to lease a commercial space, finding the right property or unit is just the first step in the process. To get the most benefits out of the right space or property, you need the right lease agreement in place between you and your landlord and that means deciding whether a short or long-term lease is the better option for your business.

There is no single answer. Short and long-term leases both have distinct benefits and drawbacks that you need to be aware of before you begin lease discussions with a prospective landlord.

Advantages of a Short-Term Lease

– Your Business Is More Mobile. With a short-term lease, you’re not limited to your current space for long. If the location proves to be less than ideal, you decide a particular market isn’t right or your business grows by leaps and bounds, you’ll have the chance to relocate.

– The Process Will Move Faster. Short-term leases are usually much less complex, so if you need space quickly, they can be a good option.

Disadvantages of a Short-Term Lease

– Your Future Is Less Certain. With a short-term lease, you don’t have many guarantees about the future. It’s not easy to forecast expenses when you don’t know how much rent will cost in the future. There is also always a risk that the building may sell or your current landlord may decide to take the building in a new direction, leaving you unable to renew.

– You May Pay More for Your Lease. Short-term leases often end up being more costly for businesses not only because the rental rates are usually higher, but also due to the higher risk of costs associated with relocating once leases are up.

Advantages of a Long-Term Lease

– You Have More Bargaining Power. Landlords typically prefer long-term leases, and if you’re willing to commit to one, you have more leverage to negotiate. Concessions like lower rents and more flexible terms can make long-term leases very attractive.

– You Can Plan for the Future. Once the lease is signed, you can easily forecast rental costs and be assured that you won’t have relocation costs for a set period of time.

Disadvantages of a Long-Term Lease

– Negotiations May Be Lengthy. The complex nature of long-term leases can make for a slower negotiation process.

– You Are Locked In–Probably. With long-term leases, you usually won’t have the flexibility to move into a different market or to expand into a new location. That said, some landlords will offer break options at certain times during the lease period, giving you the chance to move if you need to.

Ultimately, you need to think of your company’s future as you consider whether to enter into a long or short-term lease agreement. If you’re not sure whether or not you want to remain in the area, suspect that a period of growth is on the horizon or are otherwise uncertain of the future, a short-term lease will likely be the best choice for your company’s needs. On the other hand, businesses that are ready to become established in an area, are no longer expanding rapidly and are financially stable can benefit largely from a long-term lease.

Benefits of Short & Long Commercial Leases

When choosing between a short or long commercial lease, there are certain things to consider.  There are 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.

According to Bloomberg, 80 percent of businesses fail in the first 18 months. 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.

Tenants can scale up or down without any difficulties. They can also move to a new location without significant loss in rent payment.  long-term tenants would have to transfer or sublease their lease to another tenant in order to relocate.

Benefits of Long-Term 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.

In a long-term 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.  With predictability comes stability. Stability helps your business. you will be around  for a while—enough to register your brand in the mind of your customers.  It  helps ease the inconvenience that your employees may experience if you were changing locations often.

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.  Landlords are more willing to give tenant improvement allowance like free rent or access to a larger space.

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.

Related Article:  Pros and Cons to Short or Long Leases


Source:   Don Catalano  Re-Optimizer