Real Estate Investor Magazine South Africa April 2016 | Page 33

LETTING

Long-Term vs.

Short Term

Which Lease Is Right for Your Business?
BY DREW HOOK

O

ne of the most common questions that come
up when leasing office space is whether it’s
better to sign a long-term or short-term
lease. This is especially important for small businesses
whose success, or failure, could be at least partially
dictated by this decision. While there’s no right
answer -- every company’s needs are different -- there
are certain advantages to each that, when carefully
analyzed with the help of a commercial broker, can
help steer businesses toward the best option.

Short-term leases are attractive for the
following reasons
•

Flexibility - Tenants that need to scale up or
down, or move to a new location altogether,
are easily able to do so with a short-term lease.
Conversely, long-term tenants would either need
to sublease or transfer their lease to another
tenant in order to relocate.

•

An “Easy Out” - It’s estimated that eight out of
10 businesses fail within 18 months of opening.
Unlike long-term leases, which leave tenants on
the hook for unpaid rent if they ever go out of
business, short-term leases allow entrepreneurs

Benefits of a long-term lease include
•

Stability - If you find your dream location, a longterm lease (typically five years or more) ensures
you’ll be able to stay there for an extended period
of time, even if your building is sold. Short-term
tenants (one to five years) risk being forced out
of their space unexpectedly, inconveniencing
customers and employees and jeopardizing the
future of their business.

•

Predictability - Tenants that sign a longterm lease know how much their rent will
increase from year to year, regardless of market
conditions. By comparison, companies that sign
a short-term agreement could see their real estate
costs soar each year, hampering growth.

•

Tenant Improvements/Concessions - Landlords
are often more willing to give tenant improvement
allowances and other concessions like free rent to
tenants that sign long-term leases. These aren’t
off the table for short-term tenants, but they may
be more difficult to negotiate.

www.reimag.co.za

Short-term tenants risk being
forced out of their space
unexpectedly, inconveniencing
customers and jeopardizing
the future of their business.
to cut their losses and move on if a business
venture fails to take off.
•

One alternative to a traditional short-term lease
is shared office space, which allows businesses of
all sizes to rent space on an annual or monthto-month basis. In addition to offering amenities
like conference rooms and cafeterias, as well
as a full support staff to assist with back-office
functions, these centers make it easy for tenants
to add space as their businesses grow or reduce
their footprint during down periods.
APRIL 2016 SA Real Estate Investor

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