Understanding Typical Commercial Lease Terms

Choosing the right commercial lease terms isn’t an easy task for a growing company. Warehouse tenants want the peace of mind and concessions that often come with signing long-term leases, but they also want the flexibility of being able to move if the business outgrows the current warehouse space. As a result, business owners need to consider both current and future needs when negotiating lease terms.

But what are the typical commercial lease terms to expect at the start of a negotiation? And what factors should a tenant consider when it comes to the length of the lease? This guide will help tenants understand typical commercial lease terms in order to negotiate a lease that works well for their company.

Bensenville Industrial Park

Typical Commercial Lease Terms

It is in the interest of any warehouse landlord or property manager to secure tenants for as long as possible. After all, an empty warehouse doesn’t generate income. It is for this reason that commercial lease terms typically range from three to five years or longer.

If improvements for a tenant need to be made to the space and the landlord is paying for them, the terms tend to be longer based on the cost of the improvements. This way, the landlord has time to recoup the financial investment. Longer lease terms can also benefit the tenant through reduced rent or rights of first refusal.

Factors To Consider in Commercial Lease Terms

There are several considerations for a tenant when negotiating lease terms:

Age of the business

Is the business new, or does it have years of operation under its belt? This is important because if the business is a startup that isn’t yet stable or producing consistent income, then a longer lease is risky for both the landlord and the tenant.

Location

Some warehouse locations offer great convenience and access to resources, whereas others are located in less ideal locations. There’s higher demand for warehouses in enviable locations, so these tend to be leased for longer periods.

Concessions

Tenants who get the most concessions from their landlords are usually those who sign longer leases. Such concessions can include anything from free rent to rights of first refusal or improvement allowances.

Rent

Landlords don’t want to worry about finding tenants. So if a tenant is willing to agree to longer commercial lease terms, a landlord is usually more willing to reduce the rent. Conversely, if a tenant only needs space for a short length of time, there will likely be a higher monthly rent for the convenience.

Finding the Right Balance

A successful commercial lease is an agreement in which the landlord and the tenant are both satisfied with the terms. For the tenant, the goal should be to negotiate a term less than the required amount of time. Tenants should also try to include options to renew and/or expand the lease, so it can cover a longer period if necessary. An example would be a five-year lease with a three- to five-year option to renew.

In the end, it’s all about finding the right balance. If the business is new or you’re unsure of its future, aim for shorter business lease terms. But if the business is stable and makes consistent sales, signing a longer-term lease will save money. It can also provide peace of mind by knowing you won’t have to look for another space in the foreseeable future. 

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