Running a commercial enterprise can be a trial by fire for many reasons. Nothing else compares in terms of the challenges business presents and the way it forces one to grow and evolve. There comes a point in the life of most businesses where a very important question must be asked – should my business continue leasing premises or is it time to purchase something more permanent?

Running a commercial enterprise can be a trial by fire for many reasons. Nothing else compares in terms of the challenges business presents and the way it forces one to grow and evolve. There comes a point in the life of most businesses where a very important question must be asked – should my business continue leasing premises or is it time to purchase something more permanent?

There are a number of advantages and disadvantages to consider which are covered in depth in the following points.

Financial Aspects

Is the business in a position to outlay the finances needed for such an investment?

Would the cost of servicing the loan be significantly different than continuing to lease?

Can the cash required for the loan deposit and repayments be better spent elsewhere in the business?

What are the financial advantages and disadvantages of purchasing?

Obviously the business profits must be healthy and expected to last well into the future when considering such a large investment.

businessman and buildings

Improvements

Building owners have more freedom to renovate and add value to the premises, increasing one’s own capital rather than that of the landlord. Planning for extensive renovations or adding new shop fittings may conflict with what the building owner has in mind and permission to significantly alter the building may be denied.

If you do improve or add value, it’s not unheard of for the lease price to be raised when negotiating the next agreement. Alternately, the owner may already have been thinking of selling the building and the improvements could be the nudge needed to put it on the market.

Securing the Future

Owning the premises can mean more stability and security. If the building is in a great location and the business continues to thrive, it may be the perfect time to secure the future of the operation and minimise the disruption and uncertainty that would ensue if the building were to be sold or the lease not renewed.

Having important business elements in the hands of others adds unpredictability and risk.Although there will be contracts and agreements in place, people’s needs and plans can change. Even if the building was suddenly sold and a new lease was offered, it would mean developing a relationship with the new owner who may not have the same flexibility or good will as the previous owner.

Stability

If a fixed interest option is available, the price of servicing the loan is a known constant, which helps immensely with future financial projections. When leasing, apart from current contracts and lease agreements, there really is no security. The building owner may die, remarry, retire or simply decide to liquidate assets to fund another venture or invest in commercial property Wimbledon.

Commitment

On the downside, purchasing commercial premises for a thriving business could mean being locked into a space that the business eventually outgrows. Leasing always allows the option to move locations when the agreement ends. If for some reason there is a downturn in business or one’s personal life changes dramatically, there is a risk of being obligated to pay for something that is no longer needed.

Maintenance and Repairs

When a landlord owns the building, getting repairs done is never a major concern because someone else is footing the bill, but when the building is owned by the business that benefit vanishes.

Is the building in good repair or is it in need of serious and expensive attention?

If the business has been operating from the premises for a few years, try and recall how often repairs have been done and make a rough calculation of the cost of these. If necessary, what will be the impact of absorbing these costs on top of a mortgage?

Tax Advantages and Depreciation

There may be certain tax breaks or advantages available to an owner that a tenant is not entitled to. Depreciation of the premises may be something that can be written off each year. Generally, as assets appreciate in value the cost of leasing becomes higher. Owning the premises is a great way to avoid paying profit into the pocket of the building owner.

Ultimately, the decision of whether to lease or buy a commercial property is complex and depends on many variables. Any decisions made should be well-considered and based on information gathered after consulting with various experts. Either way, it’s great to have access to a range of options and to be planning for the long-term.