Signing a commercial lease is a significant commitment for most businesses.  Whether negotiating or renewing a commercial lease,  it can be difficult to determine the best lease term for your business. Many companies settle for a “standard” 5-year term, which may be appropriate. But there are factors to consider that could make a shorter or longer term more advantageous for your particular business. The information in this discussion may be useful helping you arrive at an appropriate lease term. However, if you’re still not sure, the best approach might be to consult with commercial leasing attorneys to advise you.

How to determine the appropriate leasing term for your business

One of the first considerations when determining the best commercial lease term is your type of business. This will determine the extent of any tenant improvements necessary to prepare the premises for commerce. For instance, medical and dental practices generally require extensive plumbing upgrades, necessitating a significant financial tenant investment.

Even after factoring in any landlord investment, the cost of tenant improvements can be a large outlay for business owners who need to develop a facility suitable for their operation.  A 10-year lease term, rather than a 5-year lease term, allows you to recoup the tenant improvement investment over a longer term, allowing for greater profitability over the length of the leasing period.  Adding one or two 5-year options at fair market rent provides you the flexibility to remain at the location at the end of the initial term. This is always advisable from the tenant’s point of view.

Going hand-in-hand with the type of business is the specific location of the property.  A longer lease should be considered when you are able to secure a location that provides a high expectation of business success. This is particularly so with a new business or location-sensitive businesses that involve greater statistical risk, such as restaurants or other kinds of food service, or a medical facility in an area where none currently exists. A shorter lease term with one or two option periods will work well for such businesses.

Finally, the ability to negotiate the term of your lease will be influenced by the commercial real estate leasing market in your area, which includes the vacancy rates, availability of space in your desired area, and current market rents.

It’s always a good decision to seek consultation from professionals. For further assistance, contact the experienced real estate attorneys at Poniatowski Leding Parikh Law Corporation.

It’s always a good decision to seek consultation from professionals. For further assistance, contact the experienced real estate attorneys at Poniatowski Leding Parikh Law Corporation.

To be sure about establishing the right leasing term for your Bay Area business, contact the real estate attorneys at Poniatowski Leding Parikh Law Corporation. Call one of our offices below or use our online contact form. With almost 50 years of combined experience in real estate and business law, you can be confident of receiving highly responsive and skilled representation.

CASTRO VALLEY, CA
T: (510) 881-8700

OAKLAND, CA
T: (510) 671-0887

PLEASANTON, CA
T: (925) 400-8087