For many dental practice owners, the decision of whether to buy or lease premises represents one of the most significant financial choices they will make beyond the initial practice acquisition.
Unlike the practice itself, which most owner-dentists aspire to purchase, the question of property ownership divides opinion sharply. Some view freehold ownership as the ultimate expression of security and wealth creation. Others see it as an unnecessary tie-up of capital that could be better deployed elsewhere.
The case for buying your premises
“The appeal of property ownership is often provocative” says mortgage advisor Andrw Brown. “When you own your premises, you build equity alongside practice goodwill. Over time, commercial property has historically appreciated, providing a second substantial asset that sits outside the practice valuation. This diversification is particularly valuable for dentists whose net worth is often heavily concentrated in their practice alone.”
Another attractive factor for many is that ownership also provides certainty. You are protected from rent increases, landlord disputes, and the ever-present risk that your lease will not be renewed at a critical point in your career. You have complete control over modifications, refurbishments, and the long-term development of the premises. For many practice owners, this control is worth the additional financial commitment.
There are also sophisticated tax-efficient structures available. Some dentists purchase premises through a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS), allowing the practice to pay rent to their own pension fund. This creates a tax-deductible expense for the practice while building pension wealth in a tangible, income-generating asset.
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The financial reality
Alongside its attractiveness property ownership comes with substantial costs. Commercial mortgages typically require deposits of 25 to 40% of the purchase price so for a property valued at £500,000, you would need between £125,000 and £200,000 upfront.
It’s also important to note that interest rates on commercial property are typically higher than residential mortgages, and the ongoing costs of maintenance, insurance, business rates, and repairs all fall to you as the owner.
For many, this capital commitment has an opportunity cost. Money used for property purchase cannot be invested in practice development, new equipment, marketing, or additional practices. For many dentists, particularly those early in their ownership journey or still servicing significant acquisition debt, tying up capital in property simply is not viable.
The case for leasing
In contrast, leasing offers flexibility and can preserve working capital. You can focus your financial resources on developing the practice, investing in technology, and building patient volume. If your circumstances change or you wish to relocate, you are not tied to a property that may take months or years to sell.
Lease negotiations also offer opportunities. A well-negotiated lease with a reasonable rent, adequate length, and appropriate break clauses can provide stability without the capital commitment of ownership. Many landlords are willing to contribute to fit-out costs or offer rent-free periods to secure good tenants.
Impact on practice valuation and exit
The property question becomes particularly important when you consider future intentions, for example practice sale or exit planning. Practices with secure, long-term leases (typically ten years or more remaining) are attractive to buyers and lenders. Short leases with fewer than five years remaining can significantly reduce practice value or even make a practice unsaleable, as most lenders will not finance a purchase without adequate lease security.
In contrast, being the freeholder of the property means you can sell the practice and property together, maximising value for buyers seeking security. Alternatively, you can sell the practice while retaining the property, creating a long-term income stream through rent. This can be particularly tax-efficient if the property is held in a pension structure.
However, freehold ownership can also complicate sales. Some buyers may not have sufficient capital to purchase both practice and property, limiting your buyer pool. Others may not want the property at all, preferring the flexibility of leasing. These factors need careful consideration well before you plan to exit.
How to make the decision
Ultimately, the choice depends on your personal circumstances, career stage, and risk tolerance. Younger practice owners with limited capital and growth ambitions may be better served by leasing. Established owners with strong cash flow and a desire for long-term wealth diversification may find property ownership compelling.
The key is to work with a professional advisor who can help you to model both scenarios over your anticipated ownership period, factor in all costs and opportunities, and seek integrated advice from your accountant, financial advisor, and solicitor. Property decisions made today will shape your financial position for decades to come.
To get started, contact our trusted mortgage experts today.
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Your home may be repossessed if you do not keep up repayments on your mortgage. Some buy to let mortgages are not regulated by the Financial Conduct Authority.
FAQs
Should I buy my practice premises at the same time as buying the practice?
Generally, purchasing both simultaneously overextends capital and adds complexity during your critical first years of ownership. We suggest you establish the practice, understand cash flow, and build stability first. Only consider a combined purchase if the property is integral to practice value and the vendor insists on selling together.
How does owning premises through my pension (SIPP or SSAS) work?
In this scenario your pension fund purchases the property and your practice pays commercial rent to it. This creates tax-deductible expenses for the practice while the pension receives income tax-free.
This does not constitute professional tax advice. If you are interested in this type of property acquisition, contact the Just4Dentists experts where professional advice can be provided tailored to your individual situation.
What lease length should I insist on when renting practice premises?
Aim for at least ten years, ideally fifteen to twenty. Lenders typically require a minimum five years remaining for practice sales, so shorter leases quickly become problematic. The ideal structure is a longer lease with break clauses every five years, and try to negotiate fixed or RPI-linked rent increases rather than open market reviews to avoid unpredictable rises.
Can I afford to buy premises if I am still paying off my practice acquisition loan?
Possibly, if your practice generates strong cash flow and lenders see combined debt repayments below 50 to 60% of net income. After three to five years of ownership with reduced acquisition debt, property finance may be feasible. However, consider whether deposit capital delivers better returns through practice development. Always seek professional advice and model all scenarios carefully before committing.
What happens to my practice lease if my landlord sells the building?
Properly registered leases are protected when property changes hands. New owners inherit existing terms and cannot arbitrarily change rent or evict you. Ensure leases over seven years are registered with the Land Registry and maintain meticulous payment records. If the property sells, instruct a solicitor immediately to protect your rights through the transition.
