Should you Buy or Lease Your Next Commercial Space?

This month, we take a look at the decision-making factors to consider when deciding to buy or lease a commercial property.

When deciding between buying and leasing, many factors will end up influencing your decision. The key topics covered in this article are flexibility, upfront cost, maintenance fees, equity, availability of property and customisability.

Commitment and uncertainty of a lease

Leasing a property allows for increased flexibility in the location of your business. Not being tied down to a property and having the ability to end the lease can be a significant upside depending on your long term plans. However, this also comes with a level of uncertainty. Renewing the lease may come with increases in rent and there may be specific conditions to ending your lease. Further to this, leaving the property requires removing equipment and furniture and ensuring the property is in good condition.

Upfront cost

Purchasing a property requires significant upfront investment and commitment to your chosen location and building. Leasing reduces this investment at the cost of customisation and equity. There are also upfront costs associated with leasing, such as a security deposit and rent premium, but these are usually drastically less than required for purchase.

Equity, the ability to lease and changes to the market

One upside to purchasing a commercial property is that the property will likely increase in value, and you have the ability to lease out the building if you aren’t using it. Changes to property value are both a potential upside and downside to purchasing but can also effect renters. Increases in property value can come with increases in the rent, which is why ensuring a good rent review is key when renting a commercial property.

Customisation and Maintenance

Renting a property means that there are limits to what you can change about the building. Things like the structure, use, and exterior are often not under your control. Maintenance for the property is often paid for by the tenant, with structural, exterior and common areas paid through service fees. The exact details can vary from property to property and are important to understand when making your decision.

When making the decision to buy or lease consider this:

What location works best for you?

• Location can be the make or break for some businesses. Think about footfall (if important), transport links, parking, accessibility and price.

Can I afford the upfront cost to buy?

• The cost requirement for buying is a significant barrier and is likely to be a main deciding factor.

How long do I plan to stay?

• If you currently have short term plans for property, maybe leasing is a better fit for your business?

What is the local commercial property like?

• Local property prices might be particularly expensive in the area you are looking at which might further impact your decision whether to buy or lease. Additionally, other areas might be cheaper making buying less prohibitive.

What type of lease is available?

• The main things to consider are the term of lease, which can range from 1-25 years. Whether the landlord has opted out of the Landlord and Tenant Act 1954 has a large impact on your potential rights as a tenant, especially when concerning lease renewal.

If you require any advice on lease terms, rent reviews, valuation, or need professional advice then get in contact with us on [email protected] or 01179 200090.