Buying your premises

Buying your premises – Whether it is a freehold Premises or long-term leasehold Premises – it requires capital from existing funds or borrowed funds or a combination of the two.

There are many benefits to buying a commercial property, such as:

• Flexibility – you have control over the design of the premises and may even be able to extend them should the necessity arise;

• Revenue – you may be able to re-mortgage the premises to raise capital, sub-let part of them to another party or arrange a sale-and-lease back deal whereby you sell the deeds to a third party and rent the premises instead

• Tax breaks – you may be able to claim capital allowances to reflect the depreciation in value of items such as fixtures, fittings and plant;

• Investment – The value of your premises is likely to increase, particularly over the long-term;

• Reputation – you may find that credit is easier to come by since suppliers are prepared to lend you more and for longer when they see you’re in it for the long-term;

• Expenditure – In the long-run – i.e.: more than, say 10 years – it becomes cheaper to own your own premises rather than rent.

• There are, however, drawbacks. For a start, you are vulnerable to losing money should there be a downturn in the commercial property market when you want to sell or the local prices fall. It also complicates the process of relocating – you can’t just move at the drop of a hat. And there’s the hassle of organizing the upkeep of the building and that’s not to mention that it ties up a lot of your capital, money that could possible be better spent on stock for instance.

Renting your premises

Renting your premises has the dual benefits of being comparatively inexpensive at the outset while not necessarily requiring a long-term commitment. It is particularly useful for start-ups or growing businesses as it gives you more freedom to expand as the company increases in size or takes on more employees.

It is flexible in so far as you can attempt to negotiate on any aspect in the rental agreement that you object to and, as with buying premises, you should be clear what your specific requirements are and take the time to shop around and get an understanding of local market rates and terms. Decide on whether you want a short lease (say, one year) or long lease (10+ years). Do you want to have a get-out clause so that the contract can be terminated mid-term by either party? Other areas you will need to consider are:

Make sure that there are no hidden costs – service charge liability, landlord’s legal costs, rates, VAT, insurance, local authority charges and so on;

Is there a deposit required and, if so, when will it be repaid (and with or without interest)?

Are you allowed to sub-let or are there any restrictions on what you are allowed to use the premises for?

Determine who pays for maintenance and repairs – internally and externally;

Are there any likely matters arising that might obstruct the renewal of your contract?

Are you free to assign your lease to a third party without penalty?

Remember that every aspect of the contract is negotiable and the more difficulty your landlord has finding a suitable tenant, the stronger your bargaining position. Don’t be afraid to get your solicitor to explain each unclear part of the agreement to you or to ask your landlord to remove any clauses. Get everything in writing and never assume anything.

Serviced offices and internet cafes

The use of serviced offices and internet cafes for trading is on the rise as certain types of small businesses have come to the realization that they don’t actually need to have their own premises all day, every day. Using other peoples’ facilities on an hour-to-hour or day-to-day basis can have many benefits such as not having to pay for equipment, having no overheads and fast internet access.

The area of securing premises can become a complex process of negotiating and wading through complicated contracts. Never act without legal advice from an expert in the field of commercial property.