Companies who want to lease industrial spaces must consider the long term and short term effect to their business. Usually, companies look for industrial space for rent to serve as warehouse to their goods and other products. Some rent industrial spaces to serve as manufacturing plants and production area. Neverheless, these should be considered prior to renting. A long-term lease is bounded by an agreement that will last from five to 20 years. Short term lease agreement can last five years or even less. Consumers should be fully aware about their advantages and disadvantages before making any decision.
Advantages of Long-Term Leases
• Fewer Price Increase for Long-Term Leases. Lessees should not worry about paying fabulous amounts of money for frequent rent increase. Long-term clients enjoy the same rate as they had when they first entered into contract. However, this does mean that long-term leases are cheaper. Lessees do not have to worry about price increases as compared to short-term leasing. Most clients who want to lease an industrial space are also given discounts depending on the planned duration of stay and use.
• Better Relationship Built through Long-Term Leases. Long-term leases are necessary to build better relationships between building owner and clients. Those businesses that are frequently moving from one place to another do not build a good relationship with the owner and the community itself. Further, long-term leases are able to establish their name and brand within the area where they are set. This will also give them access to the location where they are set.
• Saved Time Looking for Industrial Spaces. Long-term agreements will help business owners save a lot of time looking for a place to transfer upon near the end of their contracts.
Disadvantages of Long-Term Leases
• Less Flexibility. Long-term leases lock clients to an agreement that can not be ended right away. Some business owners see this as a problem whenever an economic downturn takes place. This will result in moving to a cheaper location. However, they will have to pay fines in-case this happens. Some industrial spaces allow a breakout clause in their contracts. This will also allow clients to terminate their contract engagement provided that the landlord sees a reasonable excuse. Neverheless, this is still very rare to find.
Another difficulty deal with long-term lease is that expansion can be held back. This is because a business can not expand right away and add more workers if the space they have are limited. They will have to pay certain fines to terminate their existing contract in the event that they are to transfer to a larger location. They will also be reprimanded to change any structure within the leased building to cater to their growing needs. Tenants that will lease additional space will also need additional money to pay for it. Instead of gaining, they will spend even more. That is why experts advise business owners to research what type of business will be successful in the location where the leased industrial space is located. This is essential prior to signing any deal. This will also allow them to determine if they need long-term or short-term industrial space for their business.
• More Expensive Costs. Leasing industrial spaces proves to be more expensive than the cost to own a building. However, business owners who have scarcity of cash to fund building construction will be owed to leasing. The expenses incurred during the leasing period will include property rent, fees for services, occupancy costs and maintenance and business rates. Tenants do not also have the right to claim the industrial spaces as their own even when they use it as their own. This is a great disadvantage if they happen to be paying a 20-year contract.
Advantages of Short-Term Leases
Easy To Move Out. Business owners can have an easier time to move out and look for new industrial spaces in the event that they want to expand their business venture. A thriving business can always have their contracts renewed or move out to a larger area. On the other hand, if these businesses do not succeed, tenants can easily move out and relocate to a better business area.
Disadvantage of Short-Term Leases
• Frequent Rent Increase. Landlords can have the rents increased once a year or even once every six months. This is a big disadvantage to tenants especially when they are only starting their venture in the business industry.
• High Turnover. Shorter lease contracts can result in higher turnover rates. This is because tenants can be less concerned to the spaces they are renting. They can also relocate to other places or buildings as they wish. This can affect the growth of a budding business or cause it to ever fall.
• Vacancies Affect Business. Buildings that are unoccupied can result in break-ins and vandalism. Short-term renters that want to make use of an unoccupied building will have to wait longer until it gets fixed. Otherwise, they will have to fix it themselves and ask for reimbursements from the monthly rents they have to pay.
• Lost Income. Short-term leases can allow renters to stay five years or less. This can cause a lot of hassle especially when the duration is about or already finished. They will also need to find a location prior to the deadline. This can affect the income that the business may generate. Owners may also lose a lot of money for application fees and waste time looking for the right building to lease. Other fees such as taxes and mortgage are still paid even when they are already looking for a new place to transfer. This results to short-term leases being not the most cost-effective solutions for a budding business.
There are few laws that must be considered prior to signing a deal for industrial space for rent. This will include the authority of landlords to charge as much as they want for security deposit. Further, there are no stipulated laws to protect the tenants' privacy. Therefore, business owners must be aware of this prior to signing and engaging to a leasing contract. Business owners should also understand that there are no standard forms when it comes to commercial leasing. Landlords can even draft a customized solution that can be offered to prospective tenants.
Each of these clauses drafted by landlords is different. That is why these need to be examined by tenants to determine how these will affect the business. Industrial spaces can also be negotiated a lot easier compared to residential areas. Business owners can always negotiate for the best price before signing a deal. Business leases can be negotiated more easily than residential leases.