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How to guide on buying property vs leasing property

The cost of buying or leasing property can often be a charity’s largest outgoing. What should you consider when deciding whether to buy or lease a property?

1

Are you young or old?

Start with your charity itself. Is it mature or is it a young charity? Do you expect to remain roughly at its present size? Or do you expect that it will expand in the years ahead?

Try to build a picture of where you expect the charity to be in five years' time. Leasing is generally more flexible than buying, at least in the case of a short lease. If your business is currently small but you expect it to grow, leasing might be the preferred option.

2

What are your priorities?

Think the process through logically. These are a few things to consider before making your decision.

Decide on location. If you get this wrong there is no way of correcting your mistake except by moving again!

Consider your strategy, the number of people you will be employing, the processes used in the business and the equipment you need (if any).

Consider also your ongoing plans. Should you ensure at the outset that there is space for expansion or will you rely on a move to larger premises at a later date if your charity expands?

Think about the quality of the workspace environment and how this may impact on the staff and their productivity.

3

Prepare a specification of the premises you want and need

Detail your requirements and make sure you calculate the floor area you need.

Don’t forget car parking and other facilities that you may need.

And remember your utilities requirements - what power supplies will your processes require, what telecommunications facilities, for example?

4

How much can you afford?

In addition to rent or mortgage repayments you will need to allow for general rates, water rates, service charge for maintenance and cleaning of common areas, and insurance of the building.

5

Survey the property before you buy or lease

A lease will normally require you to maintain the property in good repair. In all cases you need clear evidence of the condition of the building when you took it on and a survey will provide this. Document the condition of the building as a safeguard for later.

You need to tell your chartered surveyor the purposes of the survey and its scope. A chartered surveyor would not report in detail on items such as the heating or electrical equipment in the premises. If you want these items covered, you must tell them, and they can arrange to bring in the appropriate experts.

6

What's involved when leasing?

A lease is a legally binding contract that sets out the terms and conditions of the tenancy agreement between landlord and tenant. It therefore defines the rights and obligations of both parties. It is also enforceable - you cannot simply walk away from a lease. Certain aspects of the relationship between landlords and tenants are also defined by law. A first draft of the lease will usually be drawn up by the landlord's solicitor as a basis for discussion between the parties.

With an existing lease you will be bound by the conditions that it already contains and you have to decide before signing whether you can live with these or not.

7

What's involved when buying?

A mortgage is the most common form of finance for the purchase of a building. You may compare the terms on offer yourself or enlist the help of a specialist mortgage broker.

The terms and the cost will vary quite a lot, depending on the options that you choose. The mortgage is unlikely to cover the full cost of buying a building, unless you have some additional security you could offer.A typical mortgage would be for 70% or 75% of the value of the property, so you will need some money of your own to put in. Your charity may be asked for personal guarantees of the debt and may be required to take out some form of mortgage protection insurance to repay the loan.

In costing out mortgages, remember the additional costs as well as the interest payments and capital repayments you will have to make. There will be valuation and legal costs at the outset and if you go via a broker there will be his or her fee to consider.

The lender may charge an up-front fee for setting up the loan and there is the cost of any required insurance.

There may also be penalties for early repayment: look carefully at these before you make the decision.

Further information

Charity Property Help contributed to this how-to guide - they are a pro-bono service for voluntary organisations, offering support and guidance on all property matters, from The Royal Institution of Chartered Surveyors (RICS)Charity Property Help are one of NCVO's Preferred Suppliers. 

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Page last edited Jul 05, 2017 History

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