If you are planning to lease a business space, one of the questions you will need to answer is whether to sign a long-term or short-term lease. These three questions should help you settle the debate:
Expected Fluctuations in Rental Prices in the Neighborhood
A long lease is suitable if you expect rental prices to go up in the future; it allows you to lock your rate in favorably. The reverse is true if you suspect prices to go down in the near future. If the market is volatile and prices tend to fluctuate a lot, then you have to choose which case is more frightening for you: being locked in an expensive lease when rates go down or having to sign a new lease at a higher rate.
Whether the Business Is Location-Specific
The location is a vital factor in determining busies profitability, but some businesses are more location-dependent than others. If your business is dependent on your location, then you should probably sign a long lease. For example, a restaurant is a location-dependent business; moving a restaurant even two blocks away may make it less profitable. In that case, if you find a good location for a restaurant, then signing a long lease is advisable. On the other hand, if your business doesn't depend too much on its location, you can just sign a short lease and secure the opportunity to move if things don't go well.
How Long the Business Has Been In Operation
This factor is important because it determines how likely you are to downsize or upgrade your business space. If you aren't likely to upgrade anytime soon, then locking a good rate on a long-term lease is advisable. However, opt for a short lease if you aren't sure of your business' performance, which is likely to be the case if it hasn't been in operation for a long time.
For example, a law firm that has been in operation for the last two decades, using the same square footage, can profit from a long-term lease since it isn't likely to change its requirements soon. However, a technology startup that is just getting off the ground can do best with a short-term lease since its space requirements can fluctuate a lot during the first few years.
Whether you are signing a long-term or short-term lease, ensure that the lease contract doesn't favor the landlord at your expense. The best way to do this is to involve a real estate lawyer from a place like Garcia, Kinsey, Scott & Villarreal, P.L.C. in the lease process.
Share13 January 2017
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