By Jeff Grandfield and Dale Willerton – The Lease Coach
Choosing an appropriate lease term may be unheard-of to you; perhaps this is because a five or 10-year lease term has become the norm in commercial real estate leasing. It rarely occurs to even seasoned tenants that there should be – and actually are – alternatives.
A long-term Lease Agreement has both advantages and disadvantages for both a tenant and a landlord. For example, the more money you are investing into leasehold improvements, the longer your lease term should be. This will give you the security of knowing that you will be more likely to recoup your investment costs before your lease runs out. Longer lease terms are also desirable if the tenant allowance is large; this allows a longer amortization period for the landlord to recoup his/her investments resulting in lower or nominally-added rent for the tenant.
What we oppose most is the artificial five or 10-year lease term. Veterinarian tenants are often presented with this option and blindly sign without question. We often explain that such commercial lease terms do not have to come in just these fixed lengths … you may be able to negotiate a lease in months, rather than years. This will give you more flexibility if you want to close, relocate, or sell.
If you have signed a five- or 10-year Lease Agreement within a property with a retail component and that agreement ends just prior to Christmas, your landlord has the advantage because commercial space is in demand. However, with a 56-month or a 64-month month lease term, your Lease Agreement would be expiring when the space is less in demand, if at all. You now hold more of the negotiating cards!
If locating next to a major anchor store (such as a grocery store), ask how much of that anchor tenant’s lease term remains. If the anchor has 37 months left on their term, then you may want not to exceed 37 months yourself in case the anchor does not renew. Alternatively, you could sign a longer lease term with the right to terminate – should the anchor store move.
When it comes to selling your practice and/or retiring, you must take into account how easy or likely it will be to sell. If you plan to retire in the near future, or are taking things year by year and are concerned about finding a buyer for your practice, you need to think twice about signing a long term renewal. In cases like this, it may make more sense to negotiate multiple short-term renewal options or even a right to terminate in the event of retirement to provide you with more flexibility.
For a copy of our free CD, Leasing Dos & Don’ts for Commercial Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.