Most landlords prefer to negotiate long-term leases over short-term ones, and it’s easy to understand why. By locking tenants into longer terms, landlords are assured that they’ll have more of their units occupied at any given time, ensuring steady cash flow in the form of rental income and cutting down on the costs of having to acquire new tenants.
As a commercial tenant, a long-term lease can be a risk. Business needs can change dramatically over the life of a 3 to 15-year lease.
This makes it important that you make certain that you take steps to mitigate the risk of your space no longer being the right fit for your company. Introducing some of these clauses to a commercial lease can make your agreement more flexible and offer you some protection from the unforeseen.
At the end of your lease, it’s possible that you’ll decide it’s better for your business to relocate elsewhere, but you don’t want to have to be forced to find new space if it turns out that the unit you’re occupying is still a good fit. Renewal options and extension options can ensure that you’re guaranteed the opportunity to remain in the current space once the lease expires.
If you outgrow your space before the lease is up or must relocate to a new area to meet the demands of an unexpected project, a sublease will allow you to rent out your space to another tenant until your lease is up. Because you can’t anticipate what the future might hold, subleases are truly a vital addition to any long-term leasing agreement.
With a termination clause, you have the ability at certain points during the life of the lease to end your agreement and move to a new location. Normally, the clause will require you to provide a certain amount of notice before the point of your departure to give the landlord enough time to secure a new tenant. It is commonplace for a fee to be assessed when you take advantage of the termination clause.
Contraction clauses are similar to termination clauses in that they give you the ability to modify your lease at set points during the life of the agreement; however, instead of allowing you to fully relocate, contraction makes it possible to reduce your square footage with advanced notice.
Expansion clauses are the opposite of contraction clauses, as they provide your company with the right to take more space within a building. This can be structured in a number of ways. In some cases, you must make the request at certain points during the life of the agreement, while in others, the clause requires landlords to first offer a space or a rental agreement for any new space that is made available to your company first.
An exclusivity clause prevents your landlord from allowing a competitor to move into the same building as you. The clause must clearly define what types of companies are considered true competitors.
If you chose a particular office building specifically to be in the same building as a large company with which you work, you may be able to have a co-tenancy clause added to your lease. This enables you to move out of your space if the named company relocates. This type of clause is more common in retail when businesses move into shopping centers or malls based on the draw of a particular anchor tenant.
Keep in mind that in some cases, landlords may charge higher rents in exchange for making the concessions outlined above. Be prepared to negotiate or better yet, consider having a tenant rep broker on your side to help fight for your interests as you discuss the details of your long-term commercial lease.
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