As a Tenant should I sign a long or short term lease ?
There are advantages and disadvantages in signing a long or short term lease. Leases that are created for in excess of five years are considered ‘long’ and give the tenant that the right of renewal at the end of the lease, providing that that they work within the confines of the Landlord and Tenant Act. The main advantage of a long lease is the security of tenure it provides, along with generally a fixed rent for a substantial period of the lease before a rent review takes place. The disadvantage is that should the business not be successful, the burden of a long lease may prove difficult to assign or sublet.
In the case of leases that are created for less than five years, there is no automatic right of renewal at the end of the term and a common lease for say four years and nine months, ensures that the landlord can take vacant possession at the end of the term. Although there is clearly more flexibility for a tenant (especially in the case of a start up business), there also tends to be more frequent rent reviews and less incentives can be negotiated with the landlord.
Increasingly in Irish commercial leases – and more satisfactory to both landlords and tenants – is a more European-based model, where break clauses are inserted throughout the term of the lease. This gives tenants the option of getting out of the lease early if the business is not deemed successful, but on the other hand an element of security if things are going well. On certain properties, landlords are able to attract better rent if these incentives are forthcoming.
