As a commercial finance broker I have occasionally been approached by a
potential client with the question, is it better to buy or rent my business
premises? Although the general answer is likely to be buy, (and as a broker who
sources commercial loans, I guess I would say that!) there are a number of
issues to consider and in some circumstances it is better to rent.
The points for consideration are:
- Available capital in order to buy, this needs to be 15% to 35% of the
purchase price. How available is this and would the funds be better used
within the business itself (for example for expansion/development)
- The value of the property can rise or fall this can lead to negative
equity or possibly a Capital Gains Tax liability on a subsequent sale.
- Mortgage repayments may be less than rental payments, but should interest
rates rise the situation could reverse or of course the landlord may seek a
significant increased rental payment.
- Renting (or licensing) a property may provide more flexibility since it is
generally easier to terminate a rental/license agreement (and relocate) than
it is to effect a sale. The likely future needs of the business therefore
require careful consideration.
- There is more freedom to do what you want (Planning Consent aside) with
the property if it is owned.
- If the property is owned there is the automatic responsibility to ensure
the overall safety of the unit including complying with Health and Safety
Regulations and Fire Precautions. (responsibility for some of these may be
required under the terms of a lease anyway)
- Maintenance of the building is the automatic responsibility of the owner,
although again some aspects may be covered by a rental agreement and possibly
covered by an additional service charge.
- There is capacity to negotiate the terms of a lease/license either direct
or via a property agent.
- An owned property can potentially produce income either by a sale or
letting part or all of the unit.
Clearly there is no right or wrong answer to the initial question as all of
the above aspects require careful consideration and both options should be fully
explored.
