Pros & Cons to Signing a Long-Term Commercial Lease

November 16, 2020 Don Catalano Don Catalano

When signing your commercial lease, there are chances that your landlord demands and your business needs may not align. Hence, you have to negotiate several terms in your lease agreement. One of the most important aspects of your commercial lease is the length of your lease term; this is very crucial to the success of your business operations in the new office building. In this article, we are going to discuss the pros and cons to signing a long term commercial lease.

 

Pros to Signing a Long-Term Commercial Lease

 

1. Rent Abatement 

Rent abatement means free rent. When you sign a long term lease, you may be able to negotiate a rent abatement which allows you to occupy an office space and not have to pay rent for a negotiated period of time. This can help you offset moving expenses, or any tenant improvements. But beware, most "free rent" can be added to the end of your term, so read your lease carefully.

 

2. Tenant Improvement Allowance

The longer your lease, the more tenant improvement (TI) allowance you will be able to negotiate. This is because a long term commercial lease allows the landlord to have sufficient time to recoup their initial investment.

 

3. Enhanced Negotiation Power

Most landlords typically prefer long-term leases, and if you're willing to commit to one, you have more leverage to bargain for an improved deal. For instance, you can negotiate for office perks that not only benefit your employees but your customers too.

 

4. Stability

When you sign a long term commercial lease, you can plan for the future. A long term lease means you won't have to worry about relocating anytime soon except the office becomes unfit for your business.

 

5. Expansion

A long term commercial lease enables stability which in turn allows you to plan expansion. Some expansion options you can negotiate includes: right of first refusal (ROFR) or must takes.

 

Cons to Signing a Long-Term Commercial Lease

 

1. Complex and Lengthy Negotiations

The complex nature of long-term leases can make for a slower negotiation process. This is especially frustrating when trying to figure a deal that satisfies everyone.

 

2. Lack of Flexibility

When you sign a long term commercial lease, you lack the flexibility to move into a different market or to expand into a new location.

 

3. Greater Risk

Signing a long term commercial lease means you will be paying rent for a long time. This can be a huge burden for a small business especially if there is an unforeseen run of low revenue.

 

4. Increased Maintenance and Repairs Costs

With time, the cost of maintaining and repairing the office building can quickly escalate, especially if the property isn’t properly managed during the term of the lease.

 

5. Complacency In Market Research

Signing a long term commercial lease can lead to laziness in finding a more suitable environment for your business. This can lead to missing out on promising locations and business opportunities.

 

Signing a long term commercial lease should be based on your business needs, company projections as well as the landlord's history. Therefore, it is important to work with a tenant rep who will help you through the process of deciding the appropriate commercial lease term. A tenant rep is a specialist in choosing office space and negotiating lease terms, and has your best interests in mind. Reach out to iOptimize Realty® today and see how we can help!

 

Here are a few other articles we think you'll enjoy:

Office Space & The New Normal

The New Normal - Office Design Post COVID-19

Ways to Restructure CRE Leases in the COVID-19 Era

 

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