Finding suitable business premises is a major decision. A business will have to decide on location, and on whether to buy or rent their property. There are many factors to consider, and pros and cons to weigh up.
The advantage of buying is that businesses are free to do what they want (within reason and subject to planning regulations) with their property. They will be able to move whenever they wish, as they will not be tied in to a rental agreement. They have an option to let the property at a future date and secure income from it, and they may profit from the property when they sell it. They may also have greater flexibility over the management and repair of the property.
The disadvantages are that they will be tying up a large amount of capital in the purchase of the property, which could have been invested in the business. While they will not be tied into a rental agreement, they may find it difficult to sell the property quickly should they decide to move. They will also be dependent on market conditions in terms of selling their property, and could find themselves in negative equity. They will be solely responsible for the upkeep and maintenance of the property, with no input from a landlord. They will have a duty to keep the premises safe, although this may also be the case with rented premises.
Many businesses, moreover, will not have sufficient capital to buy premises outright. Commercial mortgages are often agreed over a shorter term than residential mortgages, which may mean repayments are higher than rental costs. There is the risk that the business will not be able to keep up with mortgage repayments should their profits fall.
When choosing a property, businesses should bear in mind its rateable value. Rates are calculated on the basis of the open market rental value of the property. The Valuation Office Agency is responsible for these valuations, and revises them every five years.
Businesses wishing to alter their property will have to comply with planning permission and building regulations. They will also need to make sure their property is accessible to people with disabilities, and is compliant with the requirements of the Disability Discrimination Act.
Altering a property could affect its rateable value, so this is another consideration to factor in.
Businesses may be able to claim tax relief in the form of capital allowances on the cost of renovating or converting their premises. Businesses in areas that have been designated as disadvantaged can claim the ‘business premises renovation allowance’, which gives 100 per cent capital allowances on the costs of renovating or converting business properties that have been vacant for more than one year.
When buying a property, it is a good idea to use a solicitor who specialises in commercial property law and is therefore in a good position to help you understand exactly what’s in the contract of sale. They will be able to negotiate the best terms for the contract, ensure the seller has a good title and carry out the appropriate searches.
As well as the costs related to buying a business property, such as surveyor and solicitor fees and stamp duty land tax, there are ongoing costs to consider.
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