Commercial space can be an excellent way for businesses to secure office or retail space. However, not all leases are created equal – some are for shorter terms than others.
A short-term commercial lease can be an excellent option for businesses in the early stages of development or those unsure of their long-term needs. In this blog post, we will discuss the pros and cons of short-term commercial leases so you can decide whether this type of lease is right for your business.
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What is a Short Term Commercial Lease?
A short-term commercial lease is a lease that has a specific termination date. This type of lease is used for commercial properties where the tenant does not expect to occupy the property for more than one year but less than three years.
Additionally, short-term commercial lease can be used as a temporary solution while waiting to move into a permanent location, or it can be used as a way to try out new locations before renting long-term leases for long-term tenants.
Commercial leases like these are often used by businesses in transition phases or needing temporary space while relocating. Sometimes, these types of leases do not require any security deposits; however, landlords may require that you subsidize some or all of the utilities (electricity and gas).
When it Might Be Good to Consider Short-Term Leases
If you desire more flexibility in adjusting the rent price, or plan on not living in the property for three to six months, then a short-term lease might be right for you.
Here are some other circumstances where it might make sense to go with a shorter lease:
You’re Not Sure How Long You’ll Need the Property
If you’re unsure how long you’ll need to lease the property, a short-term lease gives you the flexibility to extend or end the lease as needed. This can be helpful if your business is growing and you may need to move to a larger space in the future or if you’re downsizing and looking to save on costs.
You Want to Test the Market
If you’re considering selling your property, a short-term lease can help you test the market and see what rental price is achievable.
You Need to Make Some Updates
If you’re planning on making some updates or repairs to the property, a short-term lease can give you the time you need to get the work done. This can be especially helpful if you’re flipping a property and need to make some changes before putting it back on the market.
Advantages of a Short-Term Commercial Lease
Short-term commercial leases are not always the norm but have recently become the ideal option for many businesses.
There are several advantages to signing a short-term commercial lease, including:
Flexibility
One of the most important benefits of a short-term commercial lease is that it gives you the flexibility to move if your business needs to change. If you need to downsize or move to a new location, you can do so without worrying about breaking your lease.
Affordability
Short-term leases are often more affordable than long-term ones, making them a great option for businesses on a tight budget.
Less commitment
Shorter lease terms mean less of a commitment for your business. This can be helpful if you are unsure about your long-term plans or want to keep your options open.
Less hassle
Another advantage of a short-term commercial lease is that it can be less hassle to negotiate and sign. There is often less paperwork involved, and the process can be completed more quickly.
An “Easy-Out” Option
One of the most significant advantages of a short-term commercial lease is that it provides an “easy out” option for your business. If your needs change or you decide to move, you can do so without worrying about breaking your lease. This flexibility can be beneficial, especially for businesses that are in the early stages of development.
Perks of a Short Term Commercial Leases
Have you ever wondered what the perks are to a short term commercial lease? If your business is relocating and you need a place to store your business belongings, then give this article a read.
Reduce Vacancies
When a business is just starting, it may not want to commit to a long-term lease. This can help reduce vacancies for landlords.
Flexibility
As mentioned before, short-term leases offer flexibility for businesses. They can be helpful if you need to make changes or adjustments to your space.
Lower Cost
Signing a short-term commercial lease can be a great option for businesses in the early stages of development or those unsure of their long-term needs.
If you are considering a short-term commercial lease for your business, weigh the pros and cons to make an informed decision.
Commercial Leases vs. Apartment Leases
Although commercial and apartment leases are written contracts for the use of real estate and have some aspects, they are not the same. If you work in real estate, you should be aware of the five fundamental differences between a commercial lease and a residential rental arrangement.
Spaces that manufacture or sell items or services, such as a retail store, warehouse, office, parking garage, or restaurant, are defined as commercial leases. In contrast, an apartment lease is a contract for the use of a residential unit.
The second key difference between the two types of leases is the length of the lease agreement. A commercial lease will often be for years, such as three to five years or even longer. In contrast, most apartment leases are for one year.
Residential tenants are generally more secure from eviction and rent hikes than commercial lessees. Landlords must provide residential tenants with at least 30 days’ notice of rent increases, and they cannot arbitrarily evict people. In addition, the amount of security deposits for residential tenants is far more strictly controlled, as is the case with security deposits.
Another distinction is that commercial leases frequently include a provision allowing the landlord to terminate the lease if the tenant does not pay rent. This isn’t permitted in most residential contracts.
Finally, commercial leases often require the tenant to pay for repairs and maintenance, while this typically is the responsibility of the landlord in a residential lease.
Now that you understand some of the key differences between commercial and residential leases, you can more confidently work with clients in either or both areas.
Remember these critical differences the next time you are asked to draw up or sign a commercial or apartment lease. Knowing the critical distinctions between the two will help you protect your interests and avoid any potential legal problems down the road.
Advantages of Short-Term Leases
As a small business owner, you understand that making your dollar go as far as possible is key to success. When leasing office space, opting for a short-term lease can be one of the best decisions you make. Here are just a few of the benefits of choosing a short-term lease:
Flexibility
One of the biggest advantages of a short-term lease is its flexibility. If your business grows and you need to expand, you can do so without being locked into a long-term lease. Conversely, if your business is struggling and you need to downsize, a shorter lease term will allow you to do so with a minimal financial penalty.
Lower Construction Budget
If you are moving into a new space, opting for a short-term lease can give you time to save up for any necessary renovations or build-outs. This is especially helpful if your business is just getting off the ground and you don’t have a lot of extra money to put into construction.
Faster Moving Times
If you need to move quickly, a short-term lease is often the easiest way to do so. You can typically find furnished space available for a shorter term than an unfurnished one.
Disadvantages of Short-Term Leases
While there are certainly some advantages to choosing a short-term lease, it’s essential to be aware of the potential disadvantages. These include:
Instability Impermanence
Short-term leases do not provide stability and permanency that tenants need to feel comfortable in their homes. Tenants may feel they will be moving soon, so they don’t get involved with their house or make it a home. This can make them less likely to take care of the property.
Lack of Negotiating Power
Short-term leases are typically for one year, which means you don’t have as much negotiating power when extending your lease or signing another. If you are renting a home or an apartment, you may want to negotiate a longer lease so that you don’t have to move again in just a few months. This can be difficult if you’re renting from a landlord who doesn’t want to negotiate.
Paying at Market Costs
One of the disadvantages of short-term leases is paying at market costs. When you sign a long-term lease, you are locked in at a specific price for a certain period. If your property value increases, so does the rent you pay.
The Bottom Line
While a short-term lease may have some benefits, it’s essential to weigh the pros and cons of this type of lease agreement before signing anything. If you’re unsure about what’s best for your business, contact me for a free consultation. I can help you decide if a short-term lease is the right move for you or your company and guide you through the process to make the most informed decision possible.
