Commercial Lease short-term and long-term can vary based on perspective. However, a short-term lease generally refers to any term under three years. On the other hand, long-term leases typically range from five to ten years or more. Additionally, some real estate professionals classify terms between these as medium-term.
In this guide, we will explore the differences between short-term and long-term leases, discussing both their advantages and disadvantages. Choosing the right lease for your business depends on your needs and growth potential. This article will help you decide which lease duration suits your goals.
Advantages of Short-Term Leases
Less Commitment, Less Risk
For startups that cannot commit to long agreements, short-term leases are ideal. They reduce financial risk, allowing business owners to explore new opportunities with less pressure. Furthermore, these leases provide an opportunity for business experimentation without long-term consequences.
Flexibility for Growth
As businesses grow, they often need more space, staff, or services. Short-term leases, therefore, offer much-needed flexibility. This makes it easier to relocate to a larger or more efficient space if required. Additionally, if your business doesn’t succeed, a short-term lease allows for a quicker exit, reducing ongoing rent expenses.
Disadvantages of Short-Term Leases
Lack of Security
Landlords usually prefer long-term leases because they guarantee steady cash flow. Consequently, short-term leases can leave you vulnerable to eviction once your lease expires. If the landlord finds a long-term tenant or needs your space for expansion, you may have to relocate. As a result, if you’re serious about your business, a short-term lease may introduce unnecessary stress and uncertainty.
Higher Costs
Since landlords favor long-term leases, short-term agreements often come with higher rent. This is because landlords charge more to compensate for the lack of long-term security. Moreover, your rent may increase with each renewal, depending on the market conditions.
Moving Expenses and Business Instability
Relocating can be costly and disruptive to your business. Not only can moving result in the loss of established customers, but it also requires significant effort to set up a new location. Furthermore, short-term leases make it harder to negotiate lower rates or request improvements, as landlords prioritize long-term tenants.
Advantages of Long-Term Leases
Lower Costs and Stable Rent
Long-term leases usually offer lower rent because they provide landlords with financial stability. Tenants also avoid fluctuations in the rental market, ensuring a consistent rental amount throughout the lease term. As a result, long-term leases allow businesses to plan their finances more effectively.
Increased Negotiating Power
Because landlords value long-term tenants, these tenants often have more leverage in negotiations. Requests for expansion, renovations, or cost-sharing agreements are more likely to be granted. Additionally, landlords may offer extra perks, such as free parking or favorable renewal terms, to keep long-term tenants.
Business Stability
A long-term lease provides business owners with peace of mind. You don’t have to worry about eviction or relocation, even when the lease expires. This stability allows businesses to establish themselves in one location and grow steadily. Moreover, if the property is sold, the lease still protects your business until its term ends.
Disadvantages of Long-Term Leases
Commitment and Risk
While long-term leases provide security, they also come with risks. For example, if unforeseen changes occur, such as the need to relocate, breaking a long-term lease can be costly. Thus, long-term leases require careful consideration before signing.
Complex Negotiations
Negotiating a long-term lease can be more complex than short-term agreements. Both parties may need more time to reach an agreement. Therefore, it’s important to ensure the lease covers all potential needs, including space for future expansion.
Limited Expansion Options
If your business grows, you might need more space. Without provisions for expansion, you could find yourself needing to relocate before the lease ends. Hence, it’s essential to review your lease terms carefully.
Even after outlining all the information above, writing a letter of intent (LOI) can still seem daunting. That’s why the Leveraged CRE Team at Commercial Properties, Inc. is here to help locate commercial space for lease and assist in using a letter of intent to land such space. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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