Advice and Opinion

To buy or to lease your commercial property?

Pros to buying your commercial property

Pre-supposing you are buying by means of a bond and not paying cash for this large investment, your monthly bond repayments will only alter if there is a change to the prime lending rate. By contrast, if you are renting space in someone else’s commercial property, your business will be subject to the annual rental increases, or an adjustment to current market related rentals when the lease needs to be renewed. “Also, after the bond has been paid off, your business will have acquired a major asset,” says Breytenbach, “and you will now have a great asset which has the potential to be sold at a profit.”

Another benefit is that you will also have the stability of a physical location which is important if customers come to your place of business. This security will preclude the hassle of moving, including the cost, the upheaval and the expense of having to amend your stationery, advertising and so on. Moving a business can be a major headache and is to be avoided unless absolutely necessary.

“You will also have greater control and freedom over the physical premises,” says Breytenbach, “and you may make alterations and additions as you choose, not having to first gain permission from a reluctant or even unwilling landlord. You may, over time, see the need for an extension to the building and if you have the space to do it, you can go ahead with the submission of plans for such extensions, without having to first consult with the owner of the property.”

Pros to leasing a commercial property

“By leasing your commercial property you have greater flexibility than when locked into paying off a bond,” says Breytenbach. “You are not confined to one location when your business needs to adapt or when it suddenly grows beyond any expectations you may have had at the time you moved into your current premises.”

Another plus when leasing is you may need to put a deposit down for the monthly rental and services related to the lease. This deposit will, however, be a lot less than what may be needed to secure finance to purchase a similar property and the difference could be better utilised in developing or expanding your business. The difference could, for example, be used in the development of a new product range, opening a second location, employing more staff or embarking on an aggressive advertising campaign. One could also use the extra finance to improve your cashflow position, thereby ensuring your business won’t be put under the same pressures as when purchasing the premises.

When leasing a premises, it is generally the landlord or property owner who is responsible for the external maintenance of the premises. Finding and paying contractors to paint, service faulty air conditioners, repair leaking roofs or deal with blocked drains are all time consuming exercises and better left to the landlord or property owner. You can then concentrate on running your business, knowing the premises will be maintained without any more input than a phone-call to the property owner or his agent.

The final decision

Your location is of paramount importance, from the smooth running of your business, to the accessibility for customers, convenience for delivery and proximity to transport for your staff. At the end of the day you must weigh up the needs, finances and preferences of your business against your choice to buy or lease your premises. The decision is specific to your operation and the lifecycle your business finds itself in. It is essential that the end decision is an educated choice and not just an impulsive one.