Exercise Five

When you set up your own business， unless you work from home you will need somewhere to operate from， some premises for your offices or factory. For a new business， the only realistic options are buying or leasing （renting） existing property.

The main advantage of buying property is that you can use it how you like， provided you stay within the law. If you buy a property in good condition， and at the right price， it could eventually prove an excellent defense against inflation if you choose to sell it later. However， this cannot be counted upon， as property values may fall， and in general， the risk capital that you have is likely to give a much greater return if it is employed in the business rather than invested in the property.

Another downside of buying is the difficulty of raising the purchase money. Commercial lenders such as High Street banks tend to be very cautious with potential borrowers， particularly with new businesses， and will usually only give advances of up to around 70% of the purchase price. This shortfall means that a considerable amount of money will be required from other sources if a purchase is to go ahead. You will also have to be sure that your business can generate enough profit to pay the interest on the loan.

If you decide to rent， on the other hand， one advantage is that there is little capital outlay in acquiring occupation of the building. In many cases， it is just a question of fitting it out with equipment， furniture， etc – which you would have to do anyway with a purchased building.

If you rent a building， you and your landlord will sign a lease committing you to renting the premises for a specific period， usually between three and twenty years. When your lease expires， you have the right to stay， provided you and your landlord agree on the terms of a new lease. There are two exceptions to this rule， however. If you have been a bad tenant， there are means by which the landlord can get you out. More importantly， if the landlord wants to occupy his own premises for his own purposes， or wants to redevelop， then he normally has the right to do so， and you will have to leave. He will generally have to pay you compensation， the amount of which will be related to the value of the property and the length of time that you have been renting.

A lease also includes terms covering certain rights and obligations. It commits you to looking after the property and not making any alterations or changing its use without the landlord’s approval. It will normally also allow for regular rent reviews. There may be a clause in the lease permitting you to sell your outstanding lease to another party.

Do not consider renting a space larger that your business needs， with the intention of sub-letting the extra space to someone else， even if the rent you intend them to pay you may seem attractive. There are strong restrictions on sub-letting （you will need to check your lease to see if it is allowed）， and there is the added risk that you may not be able to find a sub-tenant. If you do not， you will still have to pay rent， rates， insurance and maintenance on the extra space until you are successful in doing so.