What is the optimum term for a commercial lease from the tenant’s point of view?

A good question, but there is no “one-size fits all” answer on this one.  The tenant’s objectives play heavily into a decision on lease term.  Let’s talk about some of the trade-offs involved in the decision.

The advantage of a longer term lease (seven years or more) is that they are very desirable from the landlord’s point of view.  Thus, significant concessions can often be negotiated in exchange for a long-term lease.  These can include items such as an expensive workletter or free rent.  The disadvantage of a long-term lease is that you have mitigated one of the major advantages of leasing, and that is flexibility and an easy exit strategy.

The ideal solution for a tenant usually lies between the two extremes in a compromise of advantages.  The average lease term today for industrial and office real estate is five years.  As a tenant, give yourself some flexibility with options.  We recently negotiated a five-year lease transaction for a tenant that included a five-year option to renew, and an option to cancel the lease on six-months notice.  Now that is flexibility!  Options are a one-way street in the tenant’s favor.  Negotiate as best as you can, but ultimately accept any option that you can get!  Down the road, if conditions are favorable, you will exercise your option.  If not, you will be sitting down with the landlord to negotiate.  You have control over the option, not the landlord.