Commercial Property: Buying or Leasing

The process of buying or leasing a property is not easy. It is important to make the right decision, as this could impact the future development of the business. Here are some points to consider.

Starting point

•           Consider your type of business

•           Do you require office space, retail or warehouse space?

•           What are your expectations in the years ahead?

•           Visualise where you expect the business to be in five years’ time.

Leasing is more flexible than buying the property and it might be a better option if you expect your business to grow quickly. You can take a lease of a property based on your space and location requirements and you do not need to worry about selling the property if it becomes too small due to an expansion of the business. A short-term lease is ideal to start with and preferably with some tenant’s rights to terminate, often referred to as ‘Break Clauses’.

On the other side, if you decide to buy a property, you may have the opportunity to extend or adapt the building to the needs of your business without the complication of having to obtain landlord’s approval.

Think about freedom

Think about freedom of actions as a tenant and as an owner of the property. Do you want to make your own decisions or are you happy to obtain the landlord’s approval for any changes that you want to make (which could cause delays and extra costs)? When leasing, you will be involved in negotiating the terms for the lease, rent reviews, renewing the lease and arguing dilapidation claims (if you move out).

There might be some similar restrictions when buying the property, for example, the need of planning permission when the occasion arises or the need to maintain and insure the building.

Financial point

Many large businesses think that their capital will earn higher returns in the business itself than if it is invested in the business’s property. They would rather lease their buildings than own them. This decision depends on the way that you expect the property market to move. If you expect rents to increase rapidly, as a tenant you could face financial difficulties due to rent increase and rent reviews.

If you own your property, you will get the benefit of any capital appreciation together with owning an asset. The advantage is that you will not need to worry about rent increases and rental market.

Whatever decision you make (buying or leasing), you would need to decide how to finance the acquisition. There are many commercial mortgages available for the purchase or taking a lease of a property by a business, but you must be aware about the additional costs (lender’s fees, lender’s valuation costs and legal fees) as well as capital repayments and interest payments.

It is important to understand the tax implications whether you lease or buy a property and you should take specialist tax advice.

The decision is yours. If you require assistance or need information about business properties (leasing/purchasing/selling), please do not hesitate to contact Helen Washington of Pickford Solicitors on 0121 726 5986 or by email to: helen@pickfordsolicitors.com.