When should the commercial lease end?
Wednesday, March 27, 2019
Choosing a commencement date for your commercial lease can be easy enough; however, stating a specific expiration date may be more difficult.
That’s fair enough, as it is impossible to forecast what the future will hold. Will you be successful at your chosen location? Will an anchor store in the commercial property move out and leave you needing to relocate? Will your own health affect your business operations and result in your selling your business?
The short answer is for you to choose your lease term’s expiration date based on what’s best for you and your business.
You may hear plenty of advice from a leasing agent at this time; however, don’t always jump to an agreement. Leasing agents, typically, receive healthy commission checks from the landlord for signed lease deals. The length of a tenant’s tenancy can be a factor in the amount of that check so you can see how the agent can be motivated.
We understand that lease language can also be confusing to a tenant trying to decide on a lease term expiration date. To clarify a couple of points, the lease term stated in the Offer to Lease or Formal Lease Agreement by the landlord or their agent is not, necessarily, the same lease term that you must agree to accepting.
The majority of commercial lease deals are five-year lease terms. Exceptions, however, have become increasingly commonplace. Examples of nonstandard lease terms include three-, seven-, and/or 10-year lease terms. Instead of total years, a commercial lease term can also be stated in months … here it will be important to factor in the start date and the expiration date of the lease term relative to what’s best for your business.
Commercial retail tenants will be most affected here as they are subject to the busy Christmas shopping season. If you are planning to open a retail store, negotiate with your landlord to start leasing in September or October (several months prior to December).
You can also negotiate to have the lease expire in January (or later). Therefore, instead of a five-year lease term, you would be negotiating for a 64-month (or a 56-month) term to take advantage of the holiday rush at both the beginning and the end of your chosen lease term.
Tenants can also opt for month-to-month leases. Commercial landlords, typically, prefer that a tenant’s initial lease term be locked in … this will better guarantee them of ongoing rental cash flow.
Commercial tenants entering into a lease renewal term may be more likely to achieve a month-to-month lease. Frequently, these tenants are struggling and will favor the flexibility offered by a month-to-month lease.
When you choose your lease term and lease term’s expiration date based on your needs rather than the landlord’s needs, you — and your business — can better benefit.
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