Buying a business property is a long-term commitment so it is important to make sure that it is going to be a valuable asset (financially and practically) to your business. So, before buying business property, it is important to consider both its current and long-term suitability.
Three key things to consider when making this assessment are:
1. Freehold or Leasehold
Both have advantages and disadvantages and which one suits you best will depend on your circumstances and your future plans for your business. To help, here are some of the considerations for each: Freehold
- Initial Outlay: Higher initial cost as the purchase price is all payable at the outset
- Ongoing Outlay: Usually no regular payments other than insurance, tax or business rate payments
- Repair: You will be responsible for all repairs
- Security: You own the property outright but it is harder to liquidate the assets
- Control: Subject to planning permission you will be able to use and alter your property without anyone else’s consent
- Initial Outlay: Lower initial cost as you will pay only the rent for the first quarter (i.e. 3 months). You may also have to pay a rent deposit (usually 3 or 6 months’ rent)
- Ongoing Outlay: Quarterly payments of rent and service charge
- Repair: The level of repairs that you are responsible for will depend on what you can negotiate with the Landlord
- Security: You don’t own it but you can negotiate options to break the lease or assign it to give yourself flexibility
- Control: You will need to use the property in accordance with the lease and obtain consent for anything outside the lease. This is all usually taken care of at lease negotiation stage to ensure that the lease works for you.
Once you have decided whether Freehold or Leasehold is right for you and you have found your ideal property then consider:
2. Planning Use
You have to use your property in line with the Use Classes Order 1987. Different types of business occupation come within different Use Classes so at the initial stage when you are thinking about taking a property make sure that you know what planning use your business occupation falls into. That ensures that you only view appropriate properties. It is possible to change planning use and if your perfect property has the wrong planning use then don’t give up on it. One option is to use a conditional contract so that you agree to take the property but only if you obtain a planning permission changing the Authorised Use to your required use. Also consider what planning uses the properties around your potential property have? Is the area going to continue to be one where your business can thrive?
3. Ability to Grow/Change
A property is a commitment so it is important that it fits in with your business plan for the future. Does it provide scope for you to grow and/or change working procedures? If you decide to buy a freehold property can you take on a larger property than you need and sub-let floors which you can expand into later? If you go with leasehold then can you take one floor of a building with an option to take more as you grow? Alternatively is there a possibility that you may need less space in the future – not because you are down-sizing your business, but for example, because flexible working and hot-desking will become an option therefore requiring less office space? In which case is the property suitable for underletting parts to other businesses?
Freehold, Leasehold or Commerical Licence Comparison