Sunday August 01, 2021

Flexible Leasing Terms

After you have decided on your dream office space and start the process of leasing, a typed or printed commercial lease will be presented to you. The property owner or the property owner’s lawyer prepares the commercial lease.

Here are some tips to keep in mind:

  1. The terms will mostly likely favor the property owner
  2. Many terms are mostly likely negotiable with little effort

Generally, lease terms are typically negotiable. The negotiating power is dependent on the local rental market, whether it is hot or cold. You may be able to negotiate property owner concessions if many commercial spaces are available. You will have less of an advantage in negotiations if the market has less available spaces or looking for a unique space.

Length of the Lease
An important area to focus on is the length of the lease commonly known as the “term”. The shorter-term lease allows for more flexibility as your business grows and changes. As your business grows, you may need more space or a different location. Although, a long term lease offers a great office space for a definite amount of time.

Long-term leases are generally anywhere from 5 – 10 years and have their own benefits.  As a tenant the longer the term the greater the landlord concessions.  A few examples of these concessions are decrease rental rate, free months’ rent, and landlords contribution to renovating the office. In addition as an owner of a business a stable location is good for both customers and employees.  Other major benefits is savings in moving costs.

A short-term lease is a major benefit for a business that is not dependent on location. A mail-order business, testing lab, or dot-com startups may not focus on location for office space. A short-term lease can be even more beneficial if the neighborhood has several commercial spaces. A new space will be easy to find whether the lease is renewed or not.

A business, in which location is important, the lease terms to best suit you are more ambiguous. For retail shops, restaurants, or medical offices, location is an important facet. If the location contributes to your business’ success, extending the lease might be the right decision. On the contrary, a short-term lease might be an option if for an unfortunate reason the business goes under.

A great point to negotiate for is a short-term lease would be an option to renew. The option to renew gives you the right to extend the time and inform the property owner in writing before the lease expires on a predetermined date.

Although, this option may sound ideal the property owner may ask for a higher rental rate. The property owner may ask for an additional fee in the option to extend the term especially if the location is attractive. If the space is a key part of your success, the fee might be worth it for t he extension.

Summary
The common term minimum is approximately three years. For some businesses, three years might too long. Many businesses such as, startups and smaller businesses require more flexibility, which shorter lease terms offer to them. Smaller businesses need the flexibility to help establish themselves.

A business searching for smaller office space with a short-term lease and flexibility might run into a problem. Property owners normally prefer a long-term lease for stability in rent and may oppose month-to-month contracts or shorter-term leases. Negotiating flexible lease terms is easier in a soft market.

There are other downsides for a business searching for a short-term lease. A business may find a smaller office space in a great building with a property owner open to a short-term lease, but may find the property owner is less receptive to other concessions. Therefore this makes the rent higher than if a business where to do a longer term lease This may sound like an impossible task, but there are smaller offices with flexible terms available in the market. A good broker has the knowledge to achieve the best deal for a short or long term lease.  There are many unconventional options in the commercial market for any business.