If it’s your first premises or you are relocating, the first step is to think about buying vs leasing.
Buying offers more stability. Leasing is more flexible.
Deciding which option is best for you is about understanding where your business is headed. Here are some tips to help.
If you’re just starting out or are self-employed, you may want to explore other workplace options, eg shared working spaces or working from home.
If your business is established, you may consider buying or leasing premises — and the different opportunities and stumbling blocks of each. In either case, discuss how to get the best terms. Know what you’re agreeing to before signing any contracts.
Most small businesses don’t own their premises outright. However, there are certain situations when you might consider purchasing your workspace.
Buying may suit businesses that:
Buying commercial property can be complicated. You should consult with a property advisor, lawyer or commercial real estate agent if you are thinking about purchasing property — especially if you don’t have in-depth experience in this area.
Most small businesses lease their building or workspace.
Leasing suits businesses that are:
Downsides can include:
Many of these cons can be limited by negotiating a favourable lease.
This could mean short-term leases in a shared or co-working space.
To protect yourself from issues, it’s important to seek help from professionals who specialise in commercial property — particularly if you haven’t leased or bought a work premises before.
Local commercial real estate agents will:
Their fees are usually paid by the landlord or current owners of the property.
Commercial property lawyers will advise you on the details of lease terms and conditions or sales agreement. It’s their job to make sure you get the best deal for your needs.
You may also get help from:
Before you start looking, do some business planning to define your needs and specifications.
Questions to ask:
It’s good to find six to 10 possible options and narrow them down from there. You will get a decent understanding of the market and what’s available.
You have a responsibility to provide a safe workplace for your staff and visitors.
Here are things to consider before you sign a lease agreement. Remember, a deed of lease is a document that sets out both a landlord and a tenant’s rights and obligations. They can be long and packed with legal jargon. It’s important to get professional help if you don’t have in-depth experience with commercial leases. Nothing is set in stone — negotiating good terms is worth the upfront work.
Some common lease terms you may negotiate with the landlord include:
This may mean asking the landlord for a rent-free period, more favourable terms and conditions or assistance with fit-out costs.
Be sure the lease is clear on what maintenance and repairs the landlord and the tenant will be responsible for. You will also want to check who needs to pay for any fit-outs, renovations or changes made to the premises. Often landlords will agree to pay for some of the fit-out as a signup bonus or incentive. The longer you sign your lease for, the more they are likely to commit to an incentive.
Most landlords will want security. Commonly, this comes in the form of a bank bond or personal guarantee.
Bank bonds are a financial agreement a tenant has with their bank. Like an overdraft, it provides security to the landlord should you default on payments. To get a bank bond, you pay a fee to the bank for its risk — it’s not a cash payment held by the bank.
A personal guarantee is an agreement that the guarantor, usually the business owner, will be personally responsible for any debt the business cannot pay.
The higher the risk, the more security a landlord may require. This means landlords may ask for more security if you are leasing for the first time or don’t have a strong leasing history.
Make sure the lease is clear on what happens if the building is damaged or destroyed — or if access is limited due to a disaster, eg earthquake or fire.
Ask for a structural report. Get an expert to review it. If a building falls below a certain percentage, the lease may state the landlord needs to carry out strengthening work by a certain date.
Leases contain clauses that cover these scenarios. It’s best to consider and negotiate these terms prior to signing a lease agreement.
You might also want to discuss: