You shouldn’t be sleeping at night if you have a month-to-month lease

You shouldn’t be sleeping at night if you have a month-to-month lease

Just before and during the 2007-2009 recession, month-to-month leases were very common. During that period, so many businesses experienced financial hardships that the tenants didn’t want to sign long term leases.  At the same time,  tenants whose leases were expiring  often asked the landlord to let them rent on a month to month basis in case their business scaled back or even failed, and their space needs diminished.

Then, and now, I would maintain that a month-to-month lease with a 90-day cancellation option would be a thousand times better than a month-to-month rental agreement. Most people wouldn’t listen to my argument for this policy and didn’t employ it.

A few months ago, I got a frantic call from someone whose landlord had just leased his space out from under him and given him a 30-day notice to vacate. To further complicate the scenario, his key staff was on vacation for one week that month, and all of them were at a conference the last week of the 30-day period.

We immediately looked at five locations that were move-in ready or where the landlord had space they could move into while their chosen space was being readied and improved.  We toured, sent our RFPs, completed financial summaries, and got down to negotiating details on three locations in less than 10 days.

I had only called the brokers or landlords who I knew were up to the challenge of working quickly in part because many can’t and there are negative consequences of consolidating a three- to six-month process (or more) down to 30 days. For example, there are less options when you need space “as is”. Furthermore, the longer you have to negotiate forces the prospective landlords to negotiate lower costs. Finally, and perhaps most importantly, the desperate tenant may face the discriminate impression from potential landlords that you were evicted for nonpayment of rent.

If you aren’t sure about the future growth of your business, ask for a month-to-month lease with an agreement that a notice of cancellation can occur at any time with either party giving notice 90 days from termination. This is the only way for you to have a fighting chance of finding the right new space and getting the best deal possible on it.

About the Author

Lynn Drake’s status is well known in the industry: She’s the commercial realtor focused on maintaining “true north” for her corporate clients. It’s a reputation built on 35 years of commercial real estate experience. Lynn became a commercial realtor in 2001 after 15 years in corporate real estate. Thus far in her career, Lynn has successfully completed over 1,500 real estate transactions ranging from small business tenant leases to the sale and purchase of industrial complexes.