The pros and cons of short and long term commercial property leases
Published on
05/12/2011 15:54:13
Businesses looking to rent commercial property for the first
time will share concerns about choosing the right lease for their
new premises.
The dilemma between choosing a long term and short term lease is
very common and those who make the wrong decision often face
awkward implications.
Although 25-year leases are very much a thing of the past it is
still possible for businesses to go to the wall after a matter of
months and still have many years of a lease left on a commercial
property.
Short term leases are increasingly common in modern day business,
but there remain pros and cons of both long term and short term
commercial property leases.
Long term leases
Pros:
A long term commercial lease is ideal for businesses that are
stable and are looking for premises to grow into for the
foreseeable future, enhancing their business presence.
Some long term commercial property agreements now include break
options at natural phases, giving firms a get-out clause for a set
fee, as well as continued stability if they choose to remain in the
property.
Cons:
Small and medium-sized enterprises (SMEs) with significant growth
potential may not wish to be tied down to a long term lease that
restricts their ability to move into bigger office space to let without paying a
penalty fee.
The longer the commercial property lease the more stamp duty is
potentially payable by tenants. It is therefore advisable to
consult with a legal advisor to calculate the likely stamp duty
payable on any terms proposed.
Short term leases
Pros:
Short term commercial leases are ideal for SMEs looking to grow in
their early years. It gives them the flexibility to search for
bigger premises within a few years, whilst staying in existing
premises at a relatively low financial risk.
Businesses with minimal start-up capital will also be attracted to
short term leases due to the reduced stamp duty, which is
calculated as a percentage of the total rent payable over the lease
period i.e. significantly cheaper than a long term lease.
Cons:
The main drawback of a short term commercial lease is that tenants
may not be able to renew their lease if they wish to stay
longer.
Renting multiple premises on short term commercial leases may work
out more expensive than having a long term lease that allows you
time to establish your business in one location.
Renting commercial property is not something that any business
should take lightly. If your business is expanding quicker than
expected or you require some additional workspace in the interim,
why not view our short term
let commercial properties for a low commitment property
solution.