Is a lease an asset? Opinions differ regarding this question. Some professionals focus on the cost of renting space and see it as a liability. That’s not an unreasonable position, given the organization incurs a monthly expense. But there are many benefits of leasing office space that can turn it into an asset for the organization.
What is an Operating Lease?
An operating lease is a type of off-balance-sheet financing that allows one party to use an asset without assuming ownership. These types of contracts are widely used to lease equipment and office space without negatively impacting a company’s debt-to-income ratio or creditworthiness.
An operating lease typically adheres to requirements under generally accepted accounting principles. For the binding contract to be considered an operating lease, it must avoid conditions that demonstrate an ownership trigger. For example, a transfer of ownership at the end of the lease or bargain buyout clause would change its status.
Benefits of Leasing a Business Space
One of the primary reasons startup businesses secure office spaces with an operating lease involves cost. An operating lease typically minimizes expenditures compared to alternatives such as purchasing a building or entering a lease-to-own arrangement.
Minimizing office or workspace expenses frees up cash that decision-makers can put to good use in other areas. Expansion, hiring talent, new equipment, and marketing rank among the strategic ways business leaders can leverage revenue and grow the operation. The following are other key benefits.
- Flexibility: An operating lease often creates opportunities to expand square footage or extend terms.
- Stability: Operating leases typically involve fixed monthly costs. This simplifies budgeting monthly and long-term expenses.
- Taxes: Revenue used on an operating lease is usually viewed as a standard tax deduction.
It’s important to consider the benefits of an operating lease through the lens of its alternative. Purchasing a property tasks owners with maintenance, repairs, and general oversight. Managing these items distracts industry leaders from furthering their goals.
How an Office Space is an Asset
All the benefits of saving on taxes, and having flexibility and stability are sound reasons why an operating lease serves as an asset. Beyond those perks, companies can transform a space into an efficient, profit-driving workplace. Industry leaders can also create an interior design that reflects their style, and values, and inspires clients to come aboard.
Is a lease and asset? When you select the right space in a good location, a lease proves an invaluable asset.
Get an Operating Lease that Serves as an Asset with Summit Properties
Summit Properties helps business professionals find and secure operating leases that position companies for success. Our experienced team of professionals can work with you to find an office space that will serve your organization and its needs. If you are considering leasing commercial space, contact us today at (519) 914-2766 or email us at nadine@summitproperties.ca to get started!