All businesses need some kind of working space, be it an office or an industrial premises. It may be okay to start off working from your home in order to keep costs low, but as the business develops, you are likely to need more room in order to grow the business. At this point you will have a choice to consider. Should you buy premises or is it better to lease instead?
How Does Leasing Commercial Premises Work?
If you lease a business premises, you are required to pay rent to a landlord. The cost of renting will vary according to the type of property and its location: in general, the closer to the centre of the business district the property is, the higher the rent is likely to be. Premises will be available on short term or long-term leases. You will also need to pay a bond up front before taking possession of the property.
The Pros of Leasing a Commercial Property
Flexibility – Leasing a building is always going to be beneficial in terms of flexibility. If you purchase a commercial property and you subsequently decide to move to larger or smaller premises, you will have to wait until the first property has been sold, which could take a while. When leasing, all you need to do is give notice on the lease.
Lower costs – There are fewer costs associated with leasing as opposed to buying because the landlord will in many cases be responsible for some of the maintenance of the building.
Keep in with the in crowd – Buildings and addresses sometimes fall out of favour, and in a service oriented niche, this can be catastrophic for business. If your business needs to be in the right area for attracting the right clientele, consider leasing a property instead of buying to allow you to move to a more prestigious address should the need arise.
The Cons of Leasing a Commercial Property
High cost of installing plant and equipment – Some businesses require a lot of heavy plant and machinery. The cost of installation will probably be high and therefore you probably won’t want to move to new premises every few years. In this instance, buying a property is probably a better idea.
Escalating rents – Although your rent may be fixed for a specified amount of time, as indicated in the lease agreement, this is not to say that the rent will remain the same forever. Be aware that your landlord could put the rent up at some point, which would increase your costs.
Dead money – Rent is an expense and you won’t have anything to show for it at the end of the lease.
The landlord must approve alterations and improvements – If you need to make any alterations to the building, you will have to ask the landlord for permission before you can carry out the work.
There are lots of good reasons to lease rather than buy commercial property, but before you look at office or warehouse space for lease, take advice from your bank manager or accountant to be certain it’s the right decision for your business.