Should I Rent or Buy Business Premises?
Nov 23, 2020 | 2 min read
Businesses typically rent their premises although there is no reason why you cannot own your own shop, office or warehouse.
The rent paid is an allowable expense for tax purposes, which is an attraction, whereby if you have purchased a property with a bank loan the capital aspect of the repayments are not tax deductible, which can take the shine off the pleasure of being in charge of your own destiny.
One of the main reasons for renting is that it gives you the flexibility to move, subject of course to your lease terms and conditions, and avoids the need to raise capital or tie up funds in bricks and mortar that could be otherwise used in your business.
The critical aspect of renting, which is widely under-appreciated, is the importance of the lease that determines the relationship between you and your landlord. Often the problems arise because the landlord has not drafted it properly, probably trying it themselves from an online document instead of paying a solicitor. That does not mean you cannot avail yourself of the services of a solicitor and it is highly recommended, as property law and leases can be fiendishly complex, leaving you with potentially crippling obligations if you are not careful.
Ultimately to decision to buy or rent will rest upon personal feeling but in the case of an industrial premises or a warehouse these are typically on industrial estates that are entirely let from a property investment company of pension fund and it can be hard to find units that are for sale.
The disadvantage of buying is that if an area loses its shine, such as a local high street, you could face the double whammy of facing falling footfall and owning a bad asset, which leaves you trapped and possibly doomed, especially if passing trade is important. If you were renting and your lease had a break clause approaching you would have the comfort of being able to look elsewhere which will give you greater bargaining power over the landlord as the break clause date looms, possibly tempting you to stay and ride out the storm.