Making a decision to buy or lease commercial premises can be difficult. Financial constraints of the business may sometimes take away choice at the outset. If finance is not an issue then there are reasonable arguments for both buying or leasing commercial property, either way the decision is very important for any business owner. Employing the services of a commercial property surveyor in the early stages can help as they will assist the business owner in the decision making process, here are a few tips.
Start with the Business?
A good starting point is the business itself. Is it a start-up, young or mature business? What is the business plan or strategy for the business? Is the business expected to expand at a slow or reasonable rate over time and what if the business exceeds expectations? A good idea for a business owner may be to imagine where the business will be in say 1, 3, 5 or maybe 10 years?
Leasing is usually more flexible, if the business is expected to expand quickly a shorter term lease may be the preferred option. This way as the space requirement increases the business will have the flexibility to move to larger premises without the hassle of having to sell the property, if owned because the term of the lease may coincide with expansion of the business over the period in increments of say 1, 3 or 5 years. Similarly in time when perhaps the business needs to contract in size due to difficult market conditions, leasing the property gives the business owner flexibility to do so, subject to lease terms.
On occasions, the particular design of a building may be an important business consideration therefore as design requirements of the business change then leasing the property also gives flexibility to the business. However, if commercial building is owned the business may have the option to extend or adapt the building if more space is required in the future.
Some businesses require a large amount of machinery, plant and equipment in the building which may have high installation costs. The business may want to write off these costs over a number of years so will not want to change premises at frequent intervals therefore buying a building may be more sensible than leasing, or if a lease is chosen then it will need to for a longer period.
Which makes more financial sense: owning or leasing?
Some businesses may have the opinion that the business capital is better employed in the business in order to yield higher returns for the business because it is put to work rather than being tied up in company property. This business may choose to lease property instead. On the hand a some businesses may see investment into the property in occupation as a way of obtaining capital appreciation over time and perhaps may purchase and lease back the property to the business or may it simply chose owner occupation.
The decision may depend partly on the way the property market is expected to move. If rents are expected to increase, as a tenant the business could face potential substantial increases in rent in the future when rent reviews occur under the terms of the lease, and as such it is the owner of building who will benefit from any future increase in rent and the capital value of the building as an asset.
Owning the property will allow the business to benefit of any capital appreciation as well as owning an asset, and if the building increases in value, then the business might be able to borrow against the increased value in the future and not have to worry about increases in occupation costs as there will be no rent reviews.
In addition to talking to a surveyor, the business owner should also discuss the issue with their accountant as there may be tax implications and considerations from the decision on whether to buy or lease.
How would I finance a purchase?
A commercial mortgage is the most common form of finance for the purchase of a commercial building. Such mortgages are obtainable from a variety of lenders, the business owner may wish to compare the terms on offer from different lenders or enlist the help of a specialist mortgage broker who will help with the process of acquisition. The terms of differing agreement types and the cost may well vary, depending on the options that you choose so weighing the all the financial costs is very important at the outset to ensure the right decision on whether buy or lease the commercial property is made by the business owner.
Get professional help from a specialist Commercial Property Chartered Surveyor and from the business’s Accountant at the beginning of the process because both will act on your behalf, will be able to guide you and provide professional advice to ensure you get the best premises, in the right location, at the right cost and on appropriate terms to suit the business’s needs.