How to Determine the Length of Your Commercial Lease
If you want to rent space for your business, one of the things you have to decide on is the length of the lease to sign. Below are some of the factors that will help you decide the best lease term for your situation.
Expected Growth
Analyze your business carefully to determine how likely your business is to grow in the next few years. Consider your industry, the nature of the business, and the location, among other things, during this assessment. Don't tie yourself to a long lease if your business is likely to grow. Opt for a short lease term so that you can increase your square footage or even move to a better location if your business grows.
Age of Business
The early stages of a business are fraught with several uncertainties. If you have just started a business, you can't tell whether you will have revenue next year, whether you will attract the employees you want, or even whether you will still be in business come next year. With such uncertainties, don't sign a long lease, because you may lose money if you don't honor your lease agreement.
Required Customization
The level of customization your business requires also influences the type of lease you should sign. The more customization your business requires, the more you can afford to sign a longer lease. You can't move from lease to lease every few months or so if your business requires serious premises customization. Even your potential landlord might not allow you to change their property too much if they are not sure you will be there for a long time.
Potential Discounts and Concessions
Your landlord may offer you various discounts and concessions in exchange for a long lease. Evaluate the discount and concessions to determine whether they are worth the long lease. For example, a landlord may offer you a freeze on rent increases, free rent for a few months, or free tenant improvements, among other things. Sign the long lease if you need some concessions.
Location
Lastly, the location of your business may also determine the best lease term. For example, high-demand locations tend to come with long leases. Long leases tend to favor landlords, and if a landlord has a large tenant pool, they are likely to insist on a long lease.
As you can see, the length of a lease is not something you should decide on the spur of the moment. Sit down and analyze your business so that you don't sign a lease you will soon regret.
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