Thinking that it saves money and minimizes expenses, small to medium business owners have the tendency to opt for short-term leases. Though it may reduce risk for a new business, shorter terms could actually be less cost-effective in the long run. This is especially true if you’ve been around for a while and have a steady revenue stream. Longer engagements tend to reward tenants with more stable rates and more favorable terms.
There are a few key reasons why seasoned entrepreneurs often go for longer property leases. Here are three of the most important:
- Rent-Free Months
To convince a potential tenant to sign a lease, a landlord could offer a rent-free period at the beginning of the term. This is called rent abatement, and the details depend highly on how long you plan on staying. Though your landlord’s offer may also rely on the state of the market, the general rule of thumb is to ask for one free month for each year.
In addition, most landlords will offer the months as extras, instead of within the contracted period. This means that if you signed a 3-year lease with three months of free rent, the total period will be 3 years and 3 months. This could easily cover the extra financial cost of moving furniture and equipment into your office, utility bills or repair expenses.
- Lower Rent
Similar to saving money with buying supplies in bulk, you can also get lower rates by signing a lengthier lease. Landlords can achieve this in two ways: the first is by lowering your rate depending on the duration of the lease. The second is by decreasing the amount at which your rent increases, or even freeze it altogether.
Couple tapering rental rates with rent abatement and you could save a sizeable amount of money. To get a better idea of how much you could save, don’t hesitate to discuss it with your landlord or request a breakdown to help you decide what’s best.
- Ensured Stability
A longer term lease isn’t just preferred by landlords — they could also be good for your company’s stability. This is because property owners want to keep their revenue steady by minimizing vacancies and preferring tenants who agree to longer term lease.
If you happen to be on the tail end of your contract in a property that’s filled with other occupants, you could run the risk of losing your space to a more reliable customer. This could compel you to move your business to a new location, which is both expensive and time-consuming.
When you break it down, short term leases will always be best at minimizing risk. But once you’re confident in your business’ success, get the best value out of renting with longer terms.