The Advantages and Disadvantages of Leasing a Headquarters Building
Leasing is a mode of obtaining something from another person for a specific period of time under a lease agreement. The lessee is the party who obtains the leased item, while the lessor is the party who provides the leased item. The leased item can be anything from property to equipment to a building. The length of the lease varies depending on the type of item that is being leased. For example, a car lease is typically shorter than a building lease.
2. Advantages of leasing
There are several advantages to leasing, particularly when it comes to leasing a headquarters building. These advantages include tax benefits, credit worthiness, and employment history.
2. 1 Tax benefits
One of the major advantages of leasing is that it offers tax benefits. When a company leases a headquarters building, it can deduct the payments made on the lease as an operating expense. This deduction can lower the company’s taxable income and, as a result, its tax liability. In addition, the company may be able to take advantage of certain tax incentives that are available for businesses that lease their headquarters buildings.
2. 2 Credit worthiness
Another advantage of leasing is that it can improve a company’s credit worthiness. This is because when a company leases a headquarters building, it is effectively making an investment in its business. This investment can be used by the company to secure financing for other purposes, such as expansion or acquisitions. In addition, the fact that the company is making regular lease payments can show lenders that it is capable of meeting its financial obligations.
2. 3 Employment history
A third advantage of leasing is that it can provide a company with a good employment history. This is because when a company leases a headquarters building, it typically does so for a long term (e.g., 10 years or more). As such, the company’s lease payments will appear on its financial statements as long-term liabilities. This can give potential lenders and investors confidence in the company’s ability to meet its long-term obligations and can make them more likely to do business with the company.
3. Disadvantages of leasing
There are also some disadvantages to leasing, particularly when it comes to headquarters buildings. These disadvantages include inflation and monetary policy risk.
3. 1 Inflation
One of the major disadvantages of leasing is that it exposes the lessee to inflation risk. This risk arises because the rent payments on a lease are typically fixed over the term of the lease. As such, if there is an increase in inflation during the term of the lease, then the real value of those rent payments will decline. This could make it difficult for the lessee to afford the rent payments and could eventually lead to default on the lease agreement.
3. 2 Monetary policy
Another disadvantage ofleasing is that it exposes the lessee to monetary policy risk. This risk arises because changes in interest rates can affect both the cost of financing a lease and he value of any outstanding lease payments. For example, if interest rates rise during the term of a lease, then the cost of financing the lease will increase. In addition, if the lease is denominated in a foreign currency, then changes in the exchange rate can also affect the cost of financing the lease.
Leasing can be a good option for companies that are looking to obtain a headquarters building. However, there are both advantages and disadvantages to leasing that should be considered before making a decision.