For small businesses up and down the country, the costs of maintaining their premises are some of the biggest day-to-day expenses they face. Owning (or at least paying for) real estate is a big burden on any business’s bottom line, and can make it difficult to invest further in profitable business activities, so anything a business can do to make more space on its balance sheet for buying and selling is worth doing. It is possible to use contra dealing to minimise the costs of a business’s premises.
In many ways a contra deal for property is similar to a contra deal for any other asset, but it relies on businesses working together to succeed. The bottom line is that the bank which owns a property won’t be interested in contra dealing with you; they deal in cold hard cash, and no other alternative will be acceptable. Instead, a contra deal will need to work in a similar way to a sub-letting agreement; the business which is paying the mortgage will own the property, but will rent out part of the premises to another company under a contra deal agreement.
What Can Constitute a Property Contra Deal?
A contra deal can in theory be of any size, though it’s especially useful for smaller businesses. For example, a craftsman might be able to rent premises behind a furniture store in exchange for supplying some stock for them to sell – this provides a win/win for both partners, which is the foundation of any successful contra deal. Another example might be a farmer who’s allowed to use one field in exchange for taking care of a neighbour’s, or a mechanic who works from a taxi depot in exchange for maintaining their vehicles.
A contra deal for property is likely to be an ongoing arrangement, so it’s especially important that both parties are content with the terms of the agreement.
Accounting for a Property Contra Deal
As with any other contra deal it’s vital that businesses account properly for their bargaining. This should be represented in each company’s balance sheet as if money was changing hands – for instance, the value of the real estate being let ought to be deducted from the lessee business, and the mortgage-paying business should list this as an income. In short, it should be accounted for as if the deal were being transacted with cash, instead of as a contra deal.