Whether a company is relocating to a new space or preparing for its first opening, the terms of a commercial lease can make or break a potentially promising business opportunity. As businesspeople themselves, landlords usually create lease contracts that are profitable to their own bottom line.
Deciding on the length of a lease is one of the most important aspects of negotiating a commercial contract. Some companies may want to invest in the security and stability of a longer-term lease, while other businesses may prefer the agility of a more flexible, short-term agreement.
Make an informed choice between a long- or short-term contract
In general, landlords prefer longer leases that provide a stable flow of cash while allowing them to recover the up-front costs involved in installing a new tenant.
However, in many cases a business owner may prefer a shorter-term lease. Companies that anticipate rapid growth may want to keep their expansion or relocation options open, while entrepreneurial groups may not be ready to commit to a specific space.
Consider potential advantages of signing a longer lease
One the other hand, landlords may be willing to offer prospective tenants certain advantageous terms during lease negotiations if lessees are willing to commit to a longer contract. In addition to a reduced cost per square foot, a landlord may agree to potentially significant tenant improvements to enhance the space before the business moves in.
Pay attention to renewal options
An option to renew a contract, either automatically or via formal request, is also important in a commercial lease. Businesses with an established presence may benefit from a longer contract with multiple renewal options. However, a company that is new or prefers to stay agile may prefer a short initial term followed by one or more renewal options.
Know that terms are negotiable
Whether a business is just developing or needs room for expansion, commercial leases are almost always negotiable. Business owners should know that they may be able to work out more favorable terms if they take the time to examine their options.