So you’ve chosen the office space that meets your company’s needs. The next step is to negotiate the contract. One of the deal points that you will be negotiating is lease term. What is the right lease term length for your company?
- Do I anticipate any company changes that would affect our future office space needs? An office space that works for you today may not work for you 3 years from now. It’s important to have a handle on your growth needs for 1-5 years so you can best estimate the amount of space you need and the appropriate lease term.
- Will the landlord pitch in for tenant improvements or is it ready to move in? The more tenant improvements you ask for, the longer lease the landlord is going to ask for, unless you are willing to pay for the improvements yourself. If a shorter lease is necessary, be prepared to pay out of pocket. If your company has aggressive growth plans and you can lock in enough space to accommodate that growth, a longer lease term makes sense.
- Are office rental rates expected to increase in the next few years? Make sure you understand where the market is going. If rates are trending upward for the next 3-5 years, it would make sense to lock in a longer lease term now so you can lock in today’s rates.
- Is one particular location the best for your business? If the success of your company depends on a certain location, it makes sense to sign a longer lease. If not, you can be more flexible with the lease term.
- Will I get a better deal if I sign a longer lease term? Possibly. In a lot of cases you will receive more tenant improvement dollars the longer the lease term. Depending on the market, you may also be able to lock in a bit lower lease rate.
Lease term is only one aspect of an office lease negotiation, but it should not be taken lightly. You must have a good handle on the current and future growth needs of your company before committing to a lease term. Make sure that you take the time to negotiate a lease term that is in line with your company’s needs.