This short video (5 minutes, 48 seconds) will help you identify whether you should rent or buy business property.
Renting commercial property
Finding the right premises for your business is crucial. A key decision is whether to buy or rent business property.
Is renting property right for my business?
There are a number of advantages of renting commercial property, for example, renting business property ties up less capital than buying business property which means you can invest more money in the business instead. It can also give you flexibility to relocate easily should you need to in order to meet business demands and take advantage of opportunities.
Choosing to rent business premises
The type of property you rent and the location you choose will depend on the type of business you are running. The amount of rent you can afford to pay will also be a deciding factor. Remember to take into account extra costs such as business rates, utility bills and building insurance.
This guide will help you decide whether renting business premises is a better option for you than buying commercial property. It highlights the practicalities of renting business property and other things you need to consider as a tenant such as commercial property rental agreements and alterations to rental properties.
Advantages of renting commercial property
Buying business property is a big commitment and it's important to consider carefully whether renting property may be a better option for your business.
Flexibility of renting business property
Renting business premises can provide more flexibility for your business as it grows. You are not locked into property ownership and you can usually agree with your landlord the length of the rental lease that you require, or have a break clause included in the lease. This will let you end the rental lease (usually on a specific date) if, for instance, you want to relocate. See business tenant's rights to end a tenancy.
Renting business property can also give you space for negotiation with the landlord. You or your agent can negotiate any aspect of the rental lease, either at the start or if you want to renew it after the rental lease ends.
Financial benefits of renting business property
From a financial perspective, renting property can make good business sense. Upfront costs for leasing premises are often relatively low, though you may pay a premium to purchase the lease. Sometimes you may also have to provide a refundable deposit. But generally renting ties up less capital than buying business property, freeing up cash that could be used elsewhere in the business. See renting business property: practicalities.
If you rent your business property you are not exposed to interest rate rises, although your rent may rise periodically as a result of rent reviews. Always check to see how rent is reviewed before you sign the rental lease. See business leases: paying rent and rent reviews.
There is also less potential for unexpected economic fluctuations such as a decrease in property value - unless you wish to sell the remaining term on your rental lease to someone else. Also, you will not have to pay Capital Gains Tax unless you decide to sell your rental lease for a premium.
Maintenance responsibility in rented business property
You may have less responsibility for the building if you rent rather than buy a business property, although this will depend on the terms of your rental lease. As a tenant you may have responsibility for repairs and maintenance inside the building but external maintenance is more likely to be the responsibility of the landlord, particularly in multi-occupancy premises. Be mindful that you may have to pay a service charge as part of your rental agreement. See commercial property: landlord and tenant responsibilities.
Find commercial property to rent
There are a number of ways to search for appropriate business property to rent.
How to find business property to rent
To begin your search for business property to rent you could consider:
- using our commercial property finder tool
- visiting a local estate agents in person
- searching estate agent websites
- touring your local area to see agents' letting boards outside business property for let
- property listings in local newspapers
- your local council - through their Economic Development Unit
- trade associations - if an existing member is retiring or selling up their business
Another good way to find suitable business property to rent is by appointing a commercial agent or commercial surveyor to search on your behalf. You can find a commercial surveyor near you.
Commercial agents and surveyors have expertise on the business property market in the area and can keep you up to date with any new commercial property that comes onto the market for rent. They will also send you detailed specifications of suitable property, which can be very useful, particularly if you are limited by time.
You must pay commission to a commercial agent for acting as an intermediary between you and the landlord or seller. You will need to fully brief the agent, manage the relationship well and maintain regular contact to ensure that they find you the most suitable property.
When employing an agent to act on your behalf, you should also draw up a contract, even if the relationship is informal. This will help to set out expectations and clarify your legal obligations to them from the start. See sell through a commercial agent.
Commercial property rental agreements
You can rent business property by leasing it. If you require premises for a short term, for example,, to complete an unusually large order, then consider a licence rather than a lease.
Leasing business premises
Leases typically have agreements of between three and 25 years and can offer long-term stability for your business.
You will probably be able to negotiate the length of your rental lease with your landlord and should certainly check before signing the contract. You should also seek legal advice - see choose a solicitor for your business.
Other than the rent itself, key areas of the contract that you should study include:
- lease length
- break clauses
- service charges
- dilapidations (an amount payable to the landlord at the end of the lease)
- responsibility for maintenance and repairs to the building and external areas
Rent is usually paid quarterly in advance. However, you may be able to pay monthly. This can form part of negotiations with your landlord. If your business is new, you may want to consider a short lease of three years or less. You may also want to ask for a break clause.
Service charges in rental properties
Check how much service charges are and which services they specifically cover, such as cleaning and heating. Establish what facilities you may be sharing with other tenants. Service charges are an additional cost to the rent and can be more expensive than if you organise them yourself.
You have the right to ask the landlord for a summary of how the service charge is calculated and for any paperwork supporting the summary eg receipts. Your landlord must provide this information as it is a criminal offence not to. See service charges in commercial property.
You have the right to remain in occupation of the premises and renew the lease once it expires, unless you and your landlord have agreed otherwise. However, there are specific cases when the landlord can refuse to grant a renewal. See business leases: renewing and ending.
Licensing business premises
A licence could be of benefit to a small business looking for a short-term property rental solution, of up to one year. Licences generally offer more flexibility and can usually be terminated at short notice on both sides. However, you would not have an automatic right to renew a licence and it is always advisable to seek professional advice, eg from a chartered surveyor or solicitor before pursuing.
Renting commercial property: practicalities
There are number of practical issues to consider when you rent business property.
Rental property contracts
Contracts when renting business premises can be complex, so consider professional help from a solicitor or chartered surveyor. While this can be expensive, mistakes can be much more costly to remedy.
Planning permission for rental properties
Before renting business premises, make sure you have planning permission to make any changes you need to the property. See alterations to rental properties. You should also investigate whether the building has asbestos.
Find out if there are any restrictions on delivery or loading times that may affect your business. There may be other restrictions or covenants in the lease or imposed by the local council - for example, rubbish disposal, parking, noise, lighting, litter. Find your local council in Northern Ireland.
The Department of Finance provide guidance on how to register land in Northern Ireland, and the associated fees.
Insurance for rental properties
The business lease will state whether you or the landlord need to arrange insurance for the property. If the landlord arranges this, you will pay the premiums as part of the service charges. Therefore, you may need to take out additional insurance to cover risks, such as loss or damage to contents, which are not covered in the building policy. See insurance: business property and assets.
Costs when renting commercial property
Your financial commitments when renting business property can include:
- a premium to purchase the lease
- rental costs
- service charges
- utility bills
- maintenance and repair bills
- a deposit - typically equivalent to three or six months' rent
- stamp duty, which is payable on all commercial leases
- business rates - estimate your rate bill
Normally, the landlord will request references to confirm you are able to pay your rent and meet your rates liability. You may find it helpful to have a guarantor for your rent and other liabilities under the lease.
Energy costs for rental properties
All landlords of commercial buildings must provide prospective tenants with an Energy Performance Certificate (EPC). An EPC indicates how energy efficient a building and its services are and can act as a gauge of likely energy costs. See Energy Performance Certificates for business properties.
Air conditioning and heating systems can have a significant effect on your overall energy bills. You can make substantial savings by keeping these well maintained and having them inspected often by a qualified engineer. See use heating and hot water systems efficiently.
Alterations to rental properties
There are a number of issues to consider before you alter business premises that you are renting.
Planning permission is not always required if you wish to make alterations to the property, for example, if you want to make changes to the inside of the building or minor alterations to the outside. Also, a specific application is not needed if you want to put up low walls or fences, although you should always check whether building regulations are required by contacting the building control section at your local council.
However, planning permission is generally required if you want to extend, convert or change the external nature of the premises. It is always a good idea to check with your local planning authority whether the development will require planning permission at the proposal stage. The majority of significant building work also has to conform to building regulations. Applying for planning permission.
Before you start any alteration work, you should check the details of the rental lease. You may need to get permission from the landlord. Unless the lease expressly prohibits improvements, the landlord may not unreasonably withhold consent to tenants' improvements. Also, you should clarify whether you will be required to reinstate the property to its original condition before the agreement expires.
Energy Performance Certificate
If you change the number of units that the property is divided into (for example dividing one shop unit into two or merging two into one), which include fixed services for heating, hot water, air conditioning or mechanical ventilation, an Energy Performance Certificate will be required when the work is completed. It is the responsibility of the person carrying out the building work to provide the certificate.
Before any alterations are made you should consider whether asbestos might be present within the property.
You should also check whether the works you are planning will alter your rateable value. The rateable value of business premises is based on their open market rental value. Changing your premises may affect this. See property changes and business rates.
Repairs to rental properties
You also need to be aware of liability for repairs. If you rent workspace in multi-occupancy premises, liability for external repairs and maintaining common areas is likely to fall with the landlord. Check the terms of the lease to find out who is responsible.
You should also check the rental agreement to see whether there is any repair work pending. You may decide to commission a survey and ensure that any such work is finished before the rental agreement is signed in order to avoid paying the bill.