Buy or lease commercial property? An operator’s questions from Own the Dirt

Should you buy or lease commercial property? I would begin with what the business needs from its premises and how long those needs are likely to remain suitable.

Ownership is a theme I want to explore through Own the Dirt. It deserves a careful conversation about responsibility, control and the future you are building. A building can create opportunities and obligations that affect the operation for years. The title of a book cannot decide whether a particular property is right for your business.

Define the operating need first

Write down what the premises must allow you to do. Consider location, access, layout, permitted use, room to adapt and the practical needs of the people using the building.

Separate essential requirements from preferences. A property can be appealing while still being difficult to operate from. Have suitability, condition and any relevant approvals examined by the appropriate professionals.

Ask what could change. Would a different service, staffing model or customer base require a different space? How confident are you about the period for which the current needs will hold?

Compare complete responsibilities

For each option, ask your advisers to explain the upfront cash requirement, ongoing obligations and the circumstances that could change them. Examine the actual lease or proposed purchase terms rather than relying on a general assumption about who pays for what.

Who is responsible for maintenance? What alterations are possible? What happens when the business wants to leave, expand or transfer? What costs or restrictions need to be understood before committing?

These questions create a useful comparison without assuming one route always produces the better financial outcome.

Protect the business’s ability to operate

Look at the resources the operating business would need after the property decision. Staff, equipment, reserves and day-to-day commitments still need attention.

Have a qualified financial adviser model suitable scenarios using current terms and your actual circumstances. Ask what happens if trading develops more slowly, an unexpected repair arises or the planned period in the building changes.

I would want the assumptions visible. If a decision only appears workable when everything goes to plan, that needs further examination.

Consider the future handover

Think about how the property arrangement would fit a future sale or succession. The operating business and the property may create different responsibilities and decisions. Your legal and tax advisers should explain the implications of any proposed structure.

Avoid promising yourself that ownership will automatically make a future transaction easier. The answer depends on the business, the property, the terms and the future buyer or successor.

Leave the conversation with better questions

Prepare a short comparison of the operating fit, obligations, flexibility and unresolved issues for each option. Put a name next to each question that needs professional verification.

That is the kind of practical ownership conversation I want Own the Dirt to encourage. Follow the book updates as I develop the ideas, and take any property commitment through advice specific to your situation.