Dec 16, 2020

Long vs Short Term Leases: Weighing the Pros and Cons

By Don Catalano

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Long vs Short Term Leases- Weighing the Pros and Cons
One of the essential decisions that you will need to make when you're negotiating a commercial real estate lease is the right lease term. Short and long-term leases offer their advantages and disadvantages.

 

Read on to learn more about the pros and cons of both, so that you can choose the right solution for your company.

 

Short-Term Leases

Pros 

  • Freedom to Growth. With a short-term lease, you'll be able to search for a larger space if your company grows quickly in the near future. This eliminates the need for you to pay for unused square footage to future-proof your company.

  • Challenges with Strategic Planning. If you have a short-term lease, you can't predict exactly where your company will be in the future. This can make it difficult to predict costs and could interfere with your ability to move.

Cons 

  • Higher Costs. Landlords are likely to charge a higher rental rate if you're not willing to go for a long-term lease. You'll also have less leverage to negotiate clauses and terms if you're unwilling to extend the lease length.

  • Peace of Mind for Start-Ups. While you want to begin your start-up in a positive frame of mind, the future of a brand new company is always uncertain. A short-term lease will not lock you into a space if your company doesn't have the success you expected.

 

Long-Term Leases

Pros 

  • An Edge at the Negotiating Table. Landlords are fond of retaining tenants for as long as possible so that they can avoid the hassles of having to negotiate new contracts. If you arrive at the table willing to commit to a long-term lease, the landlord is more likely to be flexible on costs and other terms to get you to sign on the dotted line.

  • Predictable Costs. A long-term lease makes budgeting easy, as you will know what your costs will be for a set number of years.

  • Adequate Security. With a long-term lease, you can be confident that even if the building is sold, you will not be forced to relocate quickly. This will allow you to maintain a continuous presence in one location, which can be beneficial for attracting clients.

Cons 

  • Anticipating Future Needs. If you're planning to enter a long-term lease, you will need to spend time carefully analyzing your future needs. After all, you want to ensure that you will have enough space to meet your company's needs throughout your lease. Trying to predict the future can be difficult and adds an extra layer of work to the search process.

  • Hassles if Your Needs Change. Having sublease and assignment rights in your lease can alleviate some of these concerns, but you'll still have the difficult task of finding a company to assume all or part of your space if your needs change.

Even if you carefully took the future into account, you may not correctly anticipate your needs. This could mean that you end up with tons of unused square footage, outgrow your office, or need to relocate to another geographic area entirely before your lease is due.

 

Here are a few other articles you might enjoy:

6 Ways to Increase Connectivity in the Office

The Beginner’s Guide to Commercial Real Estate Terms

5 Commercial Real Estate Trends Through the End of 2020

 

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Topics: short term lease, long-term lease

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Don Catalano

Don Catalano

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