You’ve opted to lease your business location, which means every month you pay rent to a landlord. Several considerations led you to the decision to lease vs. own a building. We will leave the lease versus own conversation for another day.
Today, my goal is to discuss the dynamics that will cause your rent to increase — sometimes dramatically! Hopefully, the topics discussed here will prepare you for the call that your rent will soon balloon.
When a commercial real estate lease originates, the number of years — term, rent amount, rent increases, concessions — such as abated rent, building improvements and the like are spelled out in the document you and the landlord sign.
As the term of your commercial real estate lease can dictate increases in your rent, here’s a brief explanation about the length of leases.
Depending on the size of your space, lease terms range from month-to-month to 10-plus years. A smaller space – fewer than 5,000 square feet – normally means a shorter term – fewer than two years. Why, you may ask? Tenants that occupy small blocks of space are frequently startup companies without the benefit of years of financial history. In some cases, these businesses are a payment risk. Landlords counter this risk by limiting the lease term — the overall amount of rent to which a tenant is obligated. Additionally, growth trajectory is tough to quantify with a new enterprise. Therefore, these operators are reluctant to…