Sam Kidd's thoughts on business

Commercial Property, I know I have had a rant on here before about leases for commercial property and because of this I have found people coming to the site that are searching for info on leasing of commercial property. I was also talking to a few people about this as well and I forgot what it was like when you’re first looking for a property to rent to start a shop or business. So I thought I would put down just a few basic things that might help people out.

I remember when we were first looking for a shop to rent for AREA51 and going into all the property places to ask about commercial property or retail units.The first time I met with a property auctioneer they asked me was I looking to buy a lease or just looking to rent. I was think to myself, well aren’t they the same thing. Well they are and they aren’t.  The easiest way to explain buying a lease is before you can pay rent you must buy the right to pay rent. I know this sounds crazy when you’re first starting out into the retail world that you must pay to rent.

So the basic story is, lets say you have found a shop you like. This shop has the sign lease for sale. You ask the auctioneer how much it is. They say it 90k; you then cough up a lung and need a seat. So what’s going on here, well the shop you are looking at is owned by a landlord. He owes the building. Then he decides he wants to rent the building or part of it for retail. Now to protect that persons business they get a lease, which is the right to rent and run a business. Now the landlord can’t just say get out of my building I want it back now. So the person has their business protected, but if they want to close up shop they can sell on this lease to someone else so they can run a business there. So if you wanted this shop for yourself you will have to pay 90k cash to the person who’s business is closing down. The other down side to this is it is just like buying a house. In the way that it goes to the highest bidder, so there may be a bidding war ahead for a retail property.

Ouch I hear you say. I know this is a pain, especially if you are a start-up business. The only good thing is you now own a bit of an asset. If you then decide in a few years time you need a bigger shop or that shop didn’t work out for you, well then you get to sell the lease. You may make more or less, it all depends on demand and other factors with the shop.
Even though I feel the lease is an asset the banks don’t look at them this way. Not a huge shock there really. I wrote a bit here about trying to get a loan using the lease as equity before. Bloody banks!!

This is a really basic look at retail leases but it may help you get a better idea of how it works. If you have any question just email me or write it into the comments.