Cash-strapped Small Businesses Negotiate Shorter Leases
The average length of a small business lease has fallen by more than 12 months in the last two years, as business owners looked to retain their flexibility, research from the British Property Federation (BPF) has found.
A BPF study of 91,000 tenancies found that the average lease length for a small firm was 4.1 years in 2009-10, compared to 5.4 years in 2007-8. Shortening the length of business leases has been a trend since the early 1990s, when a typical lease length was between 20 and 25 years.
BPF spokesman, Patrick Clift, said that smaller firms are looking for greater flexibility because of the recession.
“The tendency now is towards more flexible lease terms and this has accelerated over the past couple of years due to the economic climate.”
“Having a shorter lease would allow them to move premises to a place they perceive will bring more footfall, or to find bigger accommodation if they want their business to grow, or to downsize to cut their overheads. Shorter leases also help them avoid rent reviews.”
However, Forum of Private Business spokesman, Phil McCabe, said that small firms should aim to negotiate longer leases, for stability.
“The BPF survey shows quite a significant reduction in average lease periods. It’s important for firms to have certainty in order to plan for the future, and that includes knowing where they will be based. It’s also helpful for obtaining finance to have a longer lease, as banks like to know that the business will still be there in the future.”
“It can be more flexible for a firm to have a shorter lease, but in reality it is usually landlords that dictate the terms. When negotiating leases, firms should make sure they are armed with a knowledge of property law, and if they know they want to pay a certain price in a certain area it is best to negotiate longer-term deals to enable them to plan ahead.”