Leasing commercial property is often an excellent option for entrepreneurs and those operating expanding businesses. Unlike a purchase, which is a more or less permanent commitment and requires a large amount of capital, a lease offers flexibility and a low-cost entry for the endeavor. In many cases, the landlord may perform maintenance instead of the business being responsible for all facility repairs and upkeep.
Eventually, as the business grows, it may be possible to terminate or expand the lease into a bigger facility. If the business fails, then it is easier to deal with the termination of the lease than the liquidation of real property.
Numerous details are subject to negotiation in a commercial lease arrangement. Landlords may compromise on maintenance obligations, rent amounts, monthly fees for maintenance services and even specific terms included in the lease such as build-out or renovations required to make the leasehold suitable for the business. They may also agree to negotiate the duration of the lease.
Three to five years is standard
Residential leases are not the best point of comparison for commercial leases. Most people renting residential properties sign either 12-month leases or month-to-month leases. Such short-term arrangements are less common in the commercial real estate world.
Instead, commercial property owners usually expect business tenants to commit to the property for multiple years. Leases often last for between three and five years, sometimes even longer. The organization or even the owners personally may be responsible for continuing to pay rent if the lease is terminated before its term or the company ceases operations.
The current stability of the company, projections for its growth, and even the current economy can influence how long the lease should last. Those starting a new business, moving into a larger space, or expanding into new territories may want to push for a shorter lease duration. That way, if the company fails or the facilities don’t fully meet the company’s needs, they can move on relatively quickly.
On the other hand, if the company has already established a niche in the local market and the lease terms are competitive, signing a lease for five or even 10 years that locks in pricing could be in the company’s best interests. Business leaders trying to make decisions about the facilities that they require may need help evaluating their options and negotiating with landlords.
Choosing a reasonable duration for a commercial lease can help ensure that the rental arrangements meet a tenant’s needs. Business leaders preparing to sign a multi-year commercial real estate lease likely need assistance reviewing the document and integrating terms that protect the organization, not just the landlord. Seeking legal guidance is a wise way to begin.