To Lease or Not to Lease? - Pros and Cons of Leasing
Posted on 5th March 2020 at 14:22
To buy or not to buy, that is the question our commercial property team get asked often. It can be a difficult decision to make for business owners whether it’s worth committing sometime large sums of cashflow to buying a property, instead of the possibly safer route of leasing a property.
Here are some of the Pros and cons of both.
Pros of buying a freehold Property:
• No more rent review as the property is yours. In most cases the mortgage repayments can be the same or similar to rent.
• The asset is more likely than not to increase in value over time.
• You can alter the property with having to get permission from the Landlord as that is you!
• You can rent out space to other businesses if you find that you don’t need as much space as you thought.
• Ownership often gives you long-term stability and an asset that you can sell on or pass on to your next of kin.
Cons of buying a freehold Property:
• If you do not maintain your property this will probably affect the value of the asset in the future if you choose to sell.
• Buying a property normally requires a hefty deposit of about 25% to 40% which can often be a drain on your cashflow so early on.
• Owning the property means you are responsible for all management and maintenance. These can often be expensive and a further drain on cashflow.
• If you have too much or too little space, there is less flexibility to change as selling can be time-consuming and costly.
• There is less scope to move premises if there are any unforeseen changes in circumstances.
• Interest rates are not usually as static as rents under a lease. Rent reviews still provide set costs, but an increase in interest rates may affect cashflow and the need for further financial security.
• There is far less commercial property for sale than there is to rent.
Pros of renting a Property:
• When you rent you have more over your monthly outgoings and added security in terms of finances, as well as reduced upfront costs and fixed rates on rent.
• Some maintenance of the property may be the Landlord’s responsibility which may reduce some of the financial strain.
• If you want to move your business, you have greater freedom to do so, quickly. Short term leases offer you flexibility so you can adapt to any changes, such as business expansion or downsizing.
• There is more potential for negotiation with a rental property. You may also be able to negotiate a rent free period at the start, which may ease financial pressure on a business start up or balance out dilapidation and moving costs from previous premises.
• The choice of rental properties is usually vast compared to buying.
Cons of renting a Property:
• There are more restrictions on the changes you can make to the property, and you will need the Landlord’s permission which often costs money.
• Some leases have more than one rent review which may make them more costly. Some leases always have rent deposits meaning a large outlay at the start.
• You will be expected to pay for utility costs and internal maintenance, as well as repair work.
• You will not have anything to show after years of paying rent.
• When you vacate the property you may be responsible for returning the property to its original state, which can sometimes be very costly.
Tagged as: Commercial Property
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