Purchasing the building where you run your business can be a wise investment for the future. Business owners will see a commercial property purchase of their own property as being an easier way to invest in commercial property.
A “food based” business is, more often than not, location specific. Unlike owning an office building you cannot easily relocate a business which depends upon its location for its customers.
Even if you do not have the financial resources to buy your building now, adding just one clause into your lease gives you options for the future. You can include a “first right of refusal” in your lease. This provides that if the landlord wants to sell the building they need to give you the first option to purchase the building, and that they cannot then sell to anyone else on more favourable terms than offered to you. You can also ask for this clause to be added to the lease at the same time as you agree on a rent review or are proposing to renew the lease.
When you do decide to purchase there are some matters you need to consider carefully compared to buying a commercial property from an unrelated party. They include:
• Being very clear as to how the purchase price you offer relates to the current rental. The value of commercial property interrelates to the current rental. If the rental is above market rental then the purchase price increases. Similarly, if your property is rented below market rent this may impact on the purchase price. Don’t just take your rental and calculate the purchase price, find out what a market rental is and work back to a market purchase price;
• Be clear as to what you own, and what the Landlord owns in the sale and purchase agreement i.e. if you purchased and installed the heat pumps, you do not want to pay again for what you already own;
• Get advice on the purchase as if you were purchasing from someone unrelated to you. Just because you run your business from the property does not mean that you know everything about the property. For example, you should find out if the building has sufficient carparking for your particular use of the property. Perhaps there has been a lack of carparking to meet Council’s requirements for the entire time you were a tenant, but you only find out about the problem after you buy the building.
Buying the building where your business operates from gives you a greater control over your destiny. A Bank will often lend more for a purchase by an owner occupier than they would for investment property.
The key message of this article is twofold. First, ask the landlord to give you a right to buy the building in the lease. Second, make the same enquiries as you would for any other investment.
This post was published in the FMCG Business magazine.