Office Space Lawyers

Every business must assess its need for office space. Even if its operations are not primarily conducted in an office, it needs office space for administrative functions. So every business, whether it is only in the planning stages or is already operating, wants to give careful thought to its need for commercial office space in which to operate.

One option is to buy office space. Some of the advantages to buying office space are reflected in the income of a business. A few of the possible advantages of buying commercial space are as follows:

• Additional Rental Income: If a person purchases office space, they can purchase more space than they need and rent out the excess space. This generates additional income for the business;
• Fixed Costs: One of the main advantages to buying office space, or a home for that matter, is that it fixes a person’s cost for space. The landlord can never raise the rent. Of course, property taxes can increase over time. But for the most part, if a person owns space outright, its cost is fixed.
  • Even if a person uses a purchase money mortgage, the mortgage can never go up as long as one does not use a variable rate mortgage to buy. By buying outright or getting a long-term commercial mortgage, a person can know every month what they have to pay for their space;
• Retirement Financing: Of course, property generally appreciates over time. So, when a person or business is ready to sell, the profit they realize can serve as funding for a person’s retirement. If a business is an owner, the business realizes a return on its investment;
• Tax Deductions: The commercial property owner can deduct the interest paid on their mortgage. They may be able to deduct the property tax paid and possibly other related costs of owning property from their business income for tax purposes. This can reduce their tax liability;
• Investment Returns: As noted above, buying property is an investment. If it is held long enough, it can increase in value. In addition, over time, the owner pays down the mortgage, which increases their property equity and the return on investment to the owner when it is sold. Tax deductions may add to the return on investment.

What Are the Disadvantages of Buying Office Space?

• Initial Costs: Initial costs must be paid upon the purchase of the property, such as the cost of appraising the property, non-regular maintenance required, and, of course, the down payment or the purchase price. However, these expenses are one-time only if the person has the money to fund their payment. The money paid as a down payment becomes equity in the property and is returned when the property is sold;
• Minimal Flexibility: The biggest disadvantage is that a business’s location becomes fixed by purchasing a property. A person may want to expand their business, and adding space in one fixed location may not be possible.
  • Of course, selling and moving on is always an option, as a person can sell a commercial property anytime. However, as noted above, the initial costs are such that a person may not want to sell. Just like additional space can bring an owner additional income, lack of space can hinder a person’s income base, forcing them to sell and find new space that accommodates growth.

What Are the Advantages to Leasing Office Space?

Depending on a person’s circumstances, leasing can have its advantages as follows:

• Make Available Working Assets: Money that might be devoted to a down payment for the purchase of property is not available to fund other moves that may have priority in the life of a business at the time of the purchase;
• Prime Property: If a person operates a business that depends on location and appearance for success, finding the optimal location might be more easily achieved if a person leases space rather than buying it. It might simply be easier to find the right space to lease than to buy;
• Time Savings: A lease might leave a person more time to focus on the operation of the business. Searching for the right property to buy and then arranging the purchase might consume valuable time that would be better spent on other aspects of a business’s operations;
• Rental Space: If a person buys a space larger than what they need at the purchase, they can always realize additional income by renting out the excess space. The fact is that this can be done through leasing as well. A person can always lease more space than they need and sublet any excess space. In this way, they can be prepared for growth. They can also increase their stability by having space to accommodate expansion in the future.

What Are the Disadvantages to Leasing Office Space?

• No Building Equity: On one hand, a person would not have to manage a property, e.g., maintain it, insure it, or possibly repair and renovate it. On the other hand, in the long run, one misses out on the investment potential of property ownership. Money paid to a landlord to lease property is never returned. If it is invested in ownership, it is returned when the property is sold;
• Unpredictable Expenses: Leases expire, and no rent control usually applies to commercial leased property. When a lease expires, the landlord would likely seek to increase the rent. Of course, everything depends on real estate market conditions. Nothing is guaranteed. There has been a shift to more working from home, and commercial rents may be on the decline. However, there is always a risk that a person’s commercial lease cost will rise rather than fall;
• Unpredictable Life of a Lease: The fact is that even though a lease has a lease term, leases can usually be terminated early. And a landlord does not have to renew a lease that has reached the end of its term. These facts introduce uncertainty into leasing. A person cannot guarantee how long any space will remain available to them.
  • And for most businesses, this type of uncertainty is not helpful. A business may incur several expenses in fixing a location. It has to be advertised. It takes time for customers and clients to learn of a business’s location. All types of printed material may feature a business’s address. Frequent change could be expensive, and a business owner probably wants to avoid it. There could be a lack of needed stability with a lease.

Do I Need a Lawyer’s Help for My Commercial Lease or Purchase Problem?

Deciding to purchase or lease commercial property can have big implications for a business. Certainly, it can help to consult a business lawyer for advice on which choice makes more sense for a business at any particular stage of its development. Before signing a commercial property lease, a person should consult a commercial leasing lawyer. Your lawyer would be able to help negotiate the terms of the lease and draft or review drafts of the lease to ensure that its terms fully protect your rights and interests.

Of course, the same is true regarding the purchase of a commercial property. Before a person commits to a costly investment in the purchase of real property, they want to consult an experienced real estate lawyer to ensure that the terms of the purchase and any loan agreements that may be part of the transaction are as fully favorable to you and your interests as possible.