When negotiating commercial office space leases, most companies or business owners tend to focus on short-term leases as they think it will lend them more flexibility and reduce their risk and cost. While this might be the case in some situations, there are numerous businesses that may benefit more by signing a long-term lease (for more information, see https://m1businesscentre.com.au/meeting-rooms/). Ultimately, there’s no right or wrong answer and the solution depends on how long you have been in business, the number of employees, financial stability and what your company needs to be in the next several years.
So, What’s A Long-term Office Lease?
Before we delve further, it is important to know what short term and long term mean when it comes to leasing a commercial space. Short term leases often go up to 3 years while long term leases usually last for 3 to 5 years or even longer. For a startup, a 3-year lease may seem like a long time, but for commercial property owners, this is considered short-term.
The Benefits of A Long Term Office Lease
Lower Rent rate
Going for a long-term lease means that you have more leverage to negotiate a lower starting rental rate and even lower annual increases. Ideally, there’s the potential to freeze the rate for a particular period. If your lease is less than three years or you’re a month to month tenant, then the landlords will often charge a premium, particularly in a strong market.
Tenant Improvement Allowance
The longer your lease term, the more TI allowance you can negotiate. The long-term lease gives the property owner more time to recoup their investment as they give you the tenant improvement allowance in the first year. If you go for a short-term lease, however, you may not get an allowance and you’ll have to cover the entire cost.
Two or three years can pass by very quickly. A long-term lease means more stability for your business and the landlord alike. If you sign a 3 to 5-year contract, then you’re protected for that period and can’t be forced to relocate until the lease expires or negotiate a renewal option. However, if you’re a month to month tenant and the property is full, then you’re at risk when the property manager starts to look for longer-term tenants to replace you. If another company is willing to sign a long-term lease, do not be surprised if you’re forced to sign a longer lease or are forced to relocate.
Moving is Expensive
Having a long-term lease in place helps you avoid wasting time, money and energy moving around every other year. The bigger your company gets, the more time-consuming and expensive it becomes to relocate. It is easy to move a little boat, but for a tanker, you are going to need more time and money. It is easy for a startup to bounce around for the first few years, particularly if it has less than 10 employees. However, beyond that, things become more complicated.
These are the benefits of signing a long term lease. However, it is important to assess your company needs before committing.