Should I buy or rent? Which location is best? How will I fund it? What do I need to ask about, apart from the cost?
If you’re thinking about buying or leasing commercial property in which to house your business, do you know the answers to all of these questions?
- How do I decide whether buying or renting is right for my business?
- What does my business need from its ‘envelope’?
- What are the chances of us moving on in a few years?
- What is the right entity to own the property or be the name on the lease – an individual, the company, a pension fund or a third party limited company?
- How do I reconcile a potential conflict with being both owner and occupier?
Answers to these questions will lie largely in your business plan. Here you will find considerations such as your headcount, as a guide to floorspace requirements. Your business plan will also describe your rate of growth which should help you decide how long a particular workspace is going to last before the business outgrows it. Buying a property is a long and costly process and not one to be undertaken every 3 -5 years. If your rate of growth indicates that sort of pattern the flexibility of leasing will be preferable to buying.
The decision to buy a property is going to be right for the Directors of a business that is stable and can grow without needing to grow its footprint. In other words, it won’t need to move in the foreseeable future. Under these circumstances, purchasing a property for the business could well be a wise move.
The requirements of a business from its premises vary widely and understanding those requirements in detail will enable you to get as close as possible to the right solution. Again, the business plan will help describe what the business does, who for and who it needs in the business and supplying the business; who comes to visit the business and who can work for the business without coming to the premises. All these things determine the right container for the business at present and as far into the future as its possible to predict. This is what I call, the business horizon. The furthest ahead you can look and accurately describe the business in terms of its property needs.
When buying a property tax liability is a major consideration – both tax on income and on capital appreciation. Tax allowances also come into the equation, but this is a specialist area and not for this article. So choosing the correct vehicle to achieve both flexibility and tax efficiency is the primary consideration. In most circumstances, putting the property into a pension of some kind will achieve the greatest tax efficiency. However, it has to be remembered that in these circumstances the pension trustees are the legal owners and you are the beneficiary of the pension. Other options include owning the property as an individual, jointly with others, or through a company. That company might be the trading company but it might also be a holding company and again tax and accounting considerations will help you make that decision.
Equally, when leasing premises the actual name that goes on the front of the lease can carry a significant burden. Essentially, all the liabilities, obligations, duties and costs contained in the lease fall upon the tenant. So who that tenant is, is important particularly if that tenant happens to be you. So putting a limited company as the tenant can distance the Directors from those liabilities but a landlord will not simply accept an empty company. It needs to be one with a trading record and with substance behind it.
Understanding that the agenda and motivations of a landlord and of a tenant are different and are potentially in conflict with one another is an important starting point when considering buying a property for your business. Under most circumstances, there will be a lease between “the landlord” and “the tenant” and ensuring the needs of both parties are adequately catering for in that lease is an almost impossible task because of the inherently differing agendas.
It’s imperative to start by working to understand your business and its direction; to define the right property for your company – one that will facilitate its performance and support its growth – and the best way of occupying it. Taking a methodical approach and giving yourself plenty of time as well as taking advice from experts not the least of which will be commercial property advice.
I provide you with a handrail to support you through the entire process – from conception to completion.
Please contact me today on 01962 773882 for a confidential and obligation-free discussion of your commercial property challenges and opportunities.