Commercial Property –Rent Or Buy?
It’s a question many business owners have asked themselves; an important fork in the road. Either option comes with its own benefits and disadvantages. Glenn Duker, lawyer and commercial leasing specialist, runs through some of the pros and cons that will help you decide which one is right for you.
Leasing – Pros
Leasing a commercial property gives tenants greater flexibility that can be especially handy should the business expand. Business owners that are tied to a mortgage may not be able to move to larger premises to accommodate an intake of staff; however, a lease arrangement affords a little more wiggle room.
Business owners also have a greater capability to respond to changes in circumstances if they lease commercial property rather than own it. As their funds aren’t tied up into a mortgage, they have more autonomy and flexibility in terms of how they use their money if something comes up suddenly, or plans change.
Leasing – Cons
The obvious disadvantage of leasing is that the landlord can enforce rent increases; not only annual increases in line with the CPI (and perhaps also to reflect rises in interest rates) but also when it’s time to renegotiate the lease contract. Of course, there are laws they must abide by, and a commercial lease expert like solicitor Glenn Duker can run you through the ins and outs of these. However, increases can still affect business profits and future plans.
As a lessee, your premises are also at the mercy of the owner, who might decide to sell and leave you with the unexpected hassle and expense of relocating. This could also affect your customer base who might not wish to ‘move’ with you if the convenience of the location is what really works for them.
Buying – Pros
The previous “con” is a key reason why some businesses choose to own – because this gives them total control over the space. If they want, they can tear everything out and remodel to suit their business needs, without the need to consult with a landlord. Also, ownership means you can sell your property when and if you wish to.
Not least, however, is the fact that ownership of your commercial premises allows you to make longer term plans for the business with a greater level of security behind you. This allows you to make plans and decisions you might not be able to if you were leasing and subject to greater uncertainty.
Buying – Cons
However, there’s a concomitant lack of flexibility that comes with buying a property. Earlier we said that it’s important to find premises that offer room for possible expansion while not leaving you too out of pocket. If you’re locked in to a business mortgage for a property that can’t sustain your business’ level of growth, you might find it harder to relocate than if you had leased. Conversely, if you find you need to downsize staff and resources, a too-big premises can end up being a costly albatross around your neck.
There are also ongoing costs to consider, ones that you can otherwise pass off to a landlord such as council rates and other maintenance costs.
Glenn Duker is an experienced solicitor in Melbourne who specialises in commercial and industrial lease agreements. If you need specific legal advice on drafting or assessing lease documents, be sure to get in touch and make an appointment.
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