We are veterans of examining office space leases here at SBDC TV. This isn’t said to show off or for other nefarious reasons but only to stress the importance of researching the process long before signing a contract (lease). In the last 10 years, office space use, ergonomic design as well as basic business models with commercial properties has changed a lot. There was a time when ‘fat cat’ real estate investors totally dominated the market and could lock entrepreneurs into long term leases but that has changed. As with all industries, time(s) and best practices change and we now live in an age where lower economies of scale have driven down the cost of doing business and commercial rentals are no exception to this trend.

In this post, we’ll examine, briefly, the following lease types;

1. Long term 2. Month-to-month 3. Virtual leasing

Of course, we aren’t going to give a long, technical and boring explanation of each, only some pros and cons to help you make the decision best for your business. First; long term leases have been around, well, forever and this is the lease type most entrepreneurs and small businesses are familiar with. Terms can be locked in for anywhere from one to three years (or more) and unless the landlord violates some portion of their responsibility, entrepreneurs and small businesses have few legal remedies to challenge them. However, as a tenant, you have certain rights and it is your responsibility to make sure landlords honor legal obligations because, believe us, they will surely do so with you!

This lease type is rarely a great option for brand new organizations with no income in place. Remember; your goal is a financially healthy company while the landlord’s only concern is stable occupancy. These two differing views, in a perfect world, would line up but this doesn’t always occur.

Here are a few pros and cons;

Pros 1. Provides that which is most important for establishing company culture — consistency 2. Allows an immediate footprint in the neighborhood, business park, strip mall or other for your company’s brand messaging 3. Lease terms and in particular, rental cost, can’t be changed for the term 4. Unless there is some form of extenuating circumstances, the landlord can’t evict 5. Usually, any repairs and sometimes housekeeping, is the responsibility of the landlord

Cons 1. Your organization will be locked into a legally binding agreement for quite a long time with few remedies for legal relief 2. If income isn’t in place, company direction will be driven by the need to satisfy this ongoing debt 3. Company valuation will suffer. If possible, consider purchasing a lower cost property as opposed to renting. As with home purchases, equity builds wealth while renting strips it away 4. If the property is sold, new ownership may not be legally required to honor the lease 5. Possible restriction on business types according to zoning laws. In order to make your business grow, new profit centers must be added. Depending on local zoning laws, when the time comes to grow, you may be prevented from doing so

Next and our favorite lease type offering much more flexibility, is a month-to-month arrangement. Over the last twelve or so years, this model has become wildly popular with small business owners for many reasons. Chief among the benefits is not being locked into a long term lease. Nevertheless; it would behoove entrepreneurs, regardless of funding or income position, to seriously consider this option.

Here are a few pros and cons;

Pros 1. Offers the ability to not get locked into unsustainable rent payments 2. Space leases are flexible enough to grow as your revenue does 3. Typically has lower price point entry 4. Provides housekeeping, maintenance services and other misc. needs without added cost. The one area which this may exclude is parking and technology needs 5. Includes utility costs as a part of rental agreement. This may or may not include phone and business Internet

Cons 1. With Executive Suites, you’ll share space with other companies and potentially, competitors. This doesn’t mean you’ll work from the ‘same desk’ rather, all common areas are available to all tenants 2. Lack of company information security. Often, especially when mail sorting occurs by landlords, mix ups happens and sensitive information can end up in the hands of other tenants 3. Lack of privacy. In our early days, we rented an Executive Suite and to our left was a ‘therapeutic’ massage company and in the back, a mental health therapist. Between the massage music and ‘personal conversations’ overheard, it was quite difficult to concentrate 4. Challenges with adding space. With Executive Suites, the time may arrive when adding office space becomes necessary but you may not be able to 5. Limitations on physical and sometimes, equipment upgrades. Read the lease carefully because our experience has been you must request certain permissions to add special equipment or even to tack pictures to the wall

Last, Virtual offices, even as this is written, is the most rapidly expanding commercial leasing type in the industry. There are many reasons for this but mostly results from the growth of the ‘work at home’ entrepreneur. Let’s face it, most companies, even those enjoying the illustrative designation of Fortune 500, began in someone’s home or garage. The American economy then as well as now, owes its’ success to the at home worker! However, just because one works from the comfort of their own home never means they won’t have to meet with others and that is where Virtual Offices add value. With hourly, daily, weekly as well as monthly leasing plans available, this model offers the most flexibility of the three mentioned.

Here are a few pros and cons;

Pros 1. Offers unlimited flexibility for both new entrepreneurs as well as at home workers 2. Low cost entry point 3. No long term agreements 4. Presents professional image 5. Provides required technology to meet most business functions

Cons 1. Most employ a ‘nickel and dime’ business model which forces payment for even the most minute services such as answering a call, a few sheets of copy paper etc 2. It will be very obvious to those you’ll meet with the space isn’t yours. With very few amenities which makes some offices feel a bit more like home, virtual office space is just about as ‘no frills’ as one could imagine 3. Low cost entry points can suddenly become quite expensive if you aren’t paying attention to added services provided by the landlord 4. In order to rent space, you must call ahead and schedule times. Getting stuck in traffic may result in a loss of required space 5. Destroys what matters most when brand building — consistency!

Whether an established company or starting your own business, make sure your long term goals match the lease type.