The Length of the Term in an Office Lease

The length of the lease has a significant impact on the rental rate. Landlords typically like longer term leases and are more willing to make concessions for such leases. With a long lease, the landlord enjoys the financial security of a regular rental stream over a number of years. Additionally, the landlord can avoid the hassle and expense of re-leasing the space.

From the tenant's side, a long term lease holds both benefits and risks. The benefit is having available premises at a predictable cost for the long term. The risk is that the company may outgrow the space, may need less space as its business contracts, or is locked into paying what turns out to be above-market rent if demand for rentals subsequently declines. Read Understanding Lease-Renewal Options for additional information.

If you can get it, the best of all worlds is a shorter term lease with renewal options. You are usually much better off getting a 2-year lease with four 2-year renewal options rather than getting stuck in a 10-year lease. In a good market, however, a landlord may not agree to a term of less than five (or maybe three) years. Click here for a sample Option to Renew a Real Estate Lease.