Leasing Strategy for Startups: How Long, How Big and How Flexible

Term: commit for no longer than the plan you believe

Start from the forecast, not from what the landlord prefers. If you can see headcount clearly for two years, a two-year or three-year term fits. If the lease would outlast your runway plus the next raise, it is too long for the company you are now.

The range is wider than most founders expect. A single year is achievable when the floor is private, and deals of two or three years are common. What you give up is price: a landlord spreads its spending on a space across the lease, so a brief one carries a higher rent per square foot, a smaller allowance and fewer free months.

Size: lease for the headcount 12 to 18 months out

Take the hiring plan your board approved, not the stretch case, and read off the headcount a year to eighteen months ahead. Multiply by about 175 rentable square feet a head.

A team of 25 fills about 4,375 square feet on move-in day, and planning for 30 puts the target near 5,250. To avoid paying for empty desks, take a tighter floor with a right to add space later.

Flexibility: which rights are worth paying for

Every right in a lease is traded against rent, term or concessions. Decide which ones the plan needs before the letter of intent, when they are cheapest to win.

• Sublease and assignment rights, so the space can be handed on if you outgrow it or the company is acquired.
• An expansion option, or first offer on the neighboring space, so growth does not force a move.
• A termination option, which ends the lease early on a set date for a fee.

Lease options defines each one. A longer lease carrying these rights can behave like a short one and still keep the free rent and allowance a short deal gives up.

Security: what the company posts and what a founder signs

A young company is asked for two kinds of security. The first is cash or a letter of credit, often several months of rent. The amount is negotiable, and so is a timetable for getting part of it back once the rent has been paid on time for a while.

The second is personal. Under a good guy guarantee, a principal stands behind the rent until the company gives proper notice, leaves and returns the keys, paid up to that date. Notice periods and surrender conditions are drafted differently in every lease, so your attorney should confirm them before anyone signs.

When a furnished floor on a short term beats a custom buildout

If the plan has a real decision point inside two years, such as a raise, a launch or a test of whether New York works, a furnished or pre-built floor taken for a short term is usually the better strategy. You are in two to four weeks after signing, not the 10 to 16 weeks a custom build typically needs, and there is no construction budget to find.

The cost is a higher rent per square foot and a space taken largely as found. Put the decision date in the calendar on the day you sign. Building a startup HQ on a short lease covers the trade in full. The block below holds floors that suit about 25 people.