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Lease lengths: How long is too long?

When you’re securing commercial property for your company, one of the key factors you need to bear in mind is how long you are going to sign on the lease. As with most things in life, there are expert opinions about what you should do but the ultimate decision comes down to you. So it pays to be fully informed before signing on the dotted line.

Here are a few things that you should know before you make your decision.
 

Landlords like long leases

Perhaps this is not surprising but remember that a landlord will probably have a loan. For every month the property is vacant, it’s another month they have to fund the loan from some other source. As well as this, financers are often keen to ensure that properties have secure leases as a condition of finance approval. This became increasingly evident after the global financial crisis. Stable tenancies also affect overall rental values, which in turn affects the resale value of the building. 

Based on this, most landlords will insist on a minimum rental period of three years, with five to seven years being the commonly asked for commitment in the first instance. It’s rare to find leases for less than three years and some landlords may even ask for a commitment more than ten years for a new development.

Length of lease affects business

The length of your lease can have a substantial affect on your business, especially as office space is usually the second largest financial outlay of any company, after salary. If you anticipate a significant growth in the size and scale of operations (something which we appreciate is hard to do accurately) then try and go for shorter leases. If you are a mature company and don’t anticipate your circumstances changing too much, then longer leases offer stability, and better rates.

You need to try and envisage where the company will be in five or ten years when the lease expires. Will the current premises suit your operational needs? Will it still be suitable in terms of style and company branding? Is the location suitable? The list of potential variables goes on so you need to do your homework.

There’s no right answer

Unfortunately, there is no one right answer. If there were, leasing commercial office space wouldn’t be the potential minefield that it can be and plenty of companies would be in much better shape. The key to finding the best solution for you is to seek independent advice from someone who knows the market inside out.

 

 

 

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