Is a long-term commercial lease better than a short-term one?

On Behalf of | May 22, 2023 | Commercial Real Estate Leases | 0 comments

If your business needs some new space, you might be carefully weighing whether to buy or rent. According to Value Penguin, though, purchasing commercial property usually requires a down payment of between 10% and 40%. As such, your company simply might not have the capital to own commercial property right now.

If you intend to buy at some point in the future, signing a long-term commercial lease might seem counterintuitive. Still, both short-term and long-term leases have advantages and drawbacks. Before beginning your search, you should understand them.

Benefits of long-term leases

Commercial landlords tend to prefer long-term leases, as they do not have to look for new tenants as often. As a result, you might find a comparative steal when signing a long-term agreement. Moreover, a long-term lease can insulate you from rate hikes, potentially saving your company thousands of dollars.

Pitfalls of long-term leases

The most obvious drawback of a long-term lease is its time commitment. If you decide to buy commercial property or rent a different space before your long-term lease expires, you may be on the hook for the rest of the rent. Long-term leases also can be comparatively difficult to negotiate.

Benefits of short-term leases

A short-term lease gives your company more flexibility, as you can probably wait to relocate until the lease expires. If you want to stay, you have an opportunity to renegotiate more favorable lease terms every time yours comes up for renewal.

Pitfalls of short-term leases

Short-term leases tend to be more expensive, as rate hikes can come frequently. Likewise, because landlords prefer long-term leases, you might find fewer options on the market when looking for a short-term commercial rental.

As you can see, you must account for a great deal of information when leasing commercial real estate. Ultimately, doing your homework is the most effective way to make the right decision.