Lease Terms

In leasing "Term" is the name for the length of time the lease will be in effect. So what is a common lease term? How long should you sign your lease for? Leases can be for any length of time, and like everything else in leasing, it is all negotiable. Commonly landlords will ask for 3, 5, or 7 years - some may offer a 1 year option or even month-to-month, though most landlords prefer longer terms if possible.

There are many things to consider when setting the term for your lease, some brief examples are listed below. This can be a very complex and important subject in determining how your lease will affect your business, so contact your tenant representative for more information on your specific needs and negotiating to make sure they are met.

Rental Rates

From the landlord's perspective longer leases ensure that the space will producing income (or at least covering its costs) and that the landlord will not have to worry about paying expenses for an empty space for a longer period of time. This peace of mind is worth a lot to some landlords and they may be more negotiable on rental rate for tenants willing to sign longer term leases.

From the tenant's perspective longer term leases do bring in some minor added expenses such as annual increases or operating expense increases, but they also allow the tenant to lock in a lower base rate for the term of their lease. For example, if you lease for 1 year at a time then you must renegotiate with the landlord every year and your new rate will be based off of the market which may have taken a big jump. Whereas if you lease for longer your rate is locked in for the term of your lease despite what the market conditions may do. (See lease costs page for further explanation on leasing expenses)

Tenant Improvements

Do you need a great deal of changes made in order for the space to work for you? Landlords are often willing to improve the space for a tenant in exchange for either a higher rental rate or a longer lease term. Some Landlords are willing to do fairly substantial improvements if you plan to stay for a longer period of time.

Growth

Is your business growing rapidly enough that you will need more space in the near future? You may want to consider a shorter lease term or other alternatives. For example, it is sometimes possible to get an option to add an adjoining space to yours when it becomes available in the future, or take more space than you need at a lower rate up front that will increase down the line.

Extensions

It is possible to set up a plan for what happens when your original lease term expires within the lease itself. Leases can be written with options for the tenant to extend their same lease for a certain number of years. This could allow a tenant to sign the original lease for a term they know will work and then at the end of that time have the option to move elsewhere or renew at the same locked in rate depending on market conditions.

Buyouts

Some landlords will allow a clause in the lease allowing a tenant to "buy out" of the lease for a predetermined amount. For example a 5 year lease where the tenant is allowed to cancel after 3 years with the payment of some number of months worth of rent and any fees for improvements or leasing commissions that have not yet been covered by the rent. Buyouts can be helpful for tenants with unpredictable circumstances but they also can cause the landlord to be less negotiable on the rental rates.


Disclaimer: This information is for general reference only, and is based on the laws for the state of Arizona. For specifics or further analysis in calculating your monthly rent contact your tenant representative.