Should Your New NZ Company Buy or Lease Commercial Property?

Buy vs Lease: The First Decision Most New Directors Get Wrong

You have registered your NZ company, found great premises, and the landlord is offering you first right of refusal to purchase. Should you buy? The answer depends on your industry, growth stage, and funding position -- and it has large tax implications either way.

Leasing: The Default for Most New Companies

A commercial lease gives you flexibility. You are not tying up capital in property when the business is still finding its feet. Lease payments are fully deductible as an operating expense, which reduces your company tax bill immediately. The risk is rent increases on renewal and the possibility of being displaced when a lease expires.

Key lease terms to negotiate: rent-free period (3-6 months is common for fit-outs), rights of renewal (secure at least two terms), make-good clauses (can be expensive on exit), and permitted use (must cover your actual activity).

Buying: When It Makes Sense

Buying commercial property in your company's name makes sense when you have stable revenue projections, the property is core to your operations, you have sufficient deposit (typically 35-40% LTV for commercial in NZ), and you plan to occupy for 10 or more years. The building becomes a company asset. Mortgage interest is deductible. Depreciation on fit-out is claimable.

Note: depreciation on commercial buildings was removed in 2010 in NZ. Fit-out and chattels (carpet, partitions, air conditioning) remain depreciable. Your accountant can help split these categories.

GST on Commercial Property

Commercial property transactions between GST-registered parties are typically zero-rated for GST. If the vendor is not GST-registered, you may pay GST on top of the purchase price. Always confirm GST status before exchanging. Your solicitor and accountant must be across this.

Holding Structure: Keep Property Separate from Trading

Most NZ advisors recommend holding commercial property in a separate property holding company or family trust rather than your trading entity. This ring-fences liability, simplifies future sale or refinancing, and separates your trading risk from your property asset. It is standard NZ structure.

Finance: What Lenders Want to See

Commercial property lending requires 35-40% deposit. Lenders want two or three years of financial accounts showing serviceability, a signed lease or occupancy forecast, and a registered valuation. Non-bank lenders may offer lower deposits at higher rates.

Who to Involve

• Commercial lawyer: lease review, sale and purchase agreement, due diligence
• Accountant: structure advice, GST treatment, depreciation schedule, cash flow modelling
• Mortgage broker: commercial finance structuring, LTV options, non-bank alternatives
• Valuer: registered valuation for the bank, market rent assessment

Getting the structure right at the start is far cheaper than restructuring later. If you have recently registered your NZ company and are considering a premises purchase, connect with a local accountant, lawyer, or mortgage broker through FreshFirms.

Summary

Most new NZ companies should lease in their first two or three years. Buying makes sense once revenue is stable, the business has equity, and the premises is genuinely strategic. When you do buy, separate the property from the trading company, confirm GST status with your solicitor, and budget for NZ$5,000-10,000 in transaction costs.