The Pros and Cons of Owning Freehold Commercial Property

All successful businesses have to start somewhere and, often, those beginnings are humble. Amazon, Facebook, and Dell all famously started in a single room (or garage) but have grown into huge multinational corporations in a relatively short time. As an ambitious business owner, you may not be on the cusp of world domination – yet – but your enterprise may have outgrown its current premises and will be held back unless it has the room in which to expand.

Many SMEs rent their business premises on commercial leasing agreements which get renewed every 3-5 years. However, for more established businesses, commercial property is available to purchase on a freehold or leasehold basis.

If you purchase a freehold property, you own it outright, including the land; in contrast, owners of long leasehold property own their physical premises, but only legally possess the land it stands on for a fixed lease term of 30-99 years, depending on the contract.

Freeholder commercial property is in demand so it’s worth considering the pros and cons to help make an informed decision as to whether it’s the best option for you.

The Benefits Of Freehold Commercial Property

Owning freehold property gives you maximum flexibility, which can be important when you’re trying to nurture your business through lean times or expand its reach to gain new customers:

• Sole ownership: with no time limitations on your ownership of the land and property, your business will benefit from long-term security. As a freeholder you are the outright, exclusive owner for as long as you wish to remain in the property.
• Rising property prices: over time, it is likely the value of the property will increase, so you can expect to make a profit on your investment when you finally decide to sell up. The longer your business operates from the premises, the greater the profit is likely to be. This is invaluable if you need to invest in your business’s growth or wish to secure a nest-egg for your retirement.
• Freedom to grow: as a freeholder, you can decide how you wish to alter or extend your commercial property, subject to local planning laws. You may, for instance, be able to purchase an adjacent plot to expand your holding – something that might not be possible on a leasehold property. This can be a cheaper option than moving to a larger premises if your business continues to grow, and you won’t need to obtain the permission of the freeholder to make major structural alterations in the same way a leaseholder would need to.

The Cons Of Owning Freehold Property

But what are the downsides of owning freehold commercial property?

• Capital investment: purchasing freehold property is not a cheap option, especially as most commercial properties are leasehold. You may need to input a large deposit or have significant capital available if you are buying without a mortgage – money that could be invested into other areas of your business as it expands.
• Repairs and maintenance: as a freeholder, you are responsible for all repairs and maintenance, from a leaking tap to an entire reroofing. You may need to budget for ongoing maintenance each month to reduce the risk of a large invoice landing on your doorstep unexpectedly, which can drain cash from your business. Leaseholders face maintenance and building upkeep expenses, too, but matters affecting the land itself (such as utilities) may fall partially under the remit of the freeholder who ‘bestows’ the lease – check your individual leasehold contract for clarification.

Contact Us For Up-to-date Legal Advice

To find out more about our services for commercial property purchases, please contact our knowledgeable and friendly commercial property team today on 01283 531366.

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