Entrepreneurship and Small Business (ESB) Certification Practice Exam

In a business context, what can be a disadvantage of leasing office space?

1. Uncertain length of the lease term

2. Increased operational costs over time

3. Maintenance responsibilities

4. Immediate ownership of the property

The correct answer is: Increased operational costs over time

Leasing office space can indeed come with increased operational costs over time, making that the correct choice. While leasing initially seems more affordable compared to purchasing, lease agreements can include provisions for rent increases at specific intervals, which can lead to escalating costs. Additionally, as leases are often renewed, there may be further increases based on market rates, inflation, or the owner’s discretion. This added financial burden can impact a company's long-term budget and profitability. In contrast, other options present different aspects that do not align as closely with the disadvantages associated with leasing. Uncertain length of the lease term may introduce flexibility, but it primarily concerns commitment rather than direct operational costs. Maintenance responsibilities typically fall to the property owner in a lease, so this does not pose a financial disadvantage to the lessee. Immediate ownership of the property is actually a benefit of purchasing rather than leasing, as leasing does not confer ownership rights to the lessee. Hence, understanding these nuances is crucial to evaluating the potential drawbacks of leasing office space effectively.