Advanced Real Estate Tiffany F
/The commercial context
What is commercial property
Property not designed or used for residential purposes
3 main types : offices ( office buildings, business parks); retail ( shops, shopping centres,
retail warehouses, supermarkets) & industrial (factories, warehouses & distribution centres)
also leisure ( pubs, hotels, restaurants), sport, education, provision of utilities and
healthcare)
Who buys commercial property?
Occupiers
Investors
Developers
Methods of structuring a property joint venture
Contractua A contract which parties enter into that sets out terms of the agreement containing financial
l joint commitment and responsibilities.
venture Very flexible and cab be tailored
No need to transfer property if one party already owns the property
o Therefore, no SDLT
Joint venture contracts are ‘tax transparent’ so parties are taxed individually
o CGT and IT reliefs available to persons
Less likely that one party would be liable for the actions of another (subject to agreement
No separate legal personality
There will be unlimited liability in relation to any losses
Special A limited company set up for particular purpose.
purpose It can be a subsidiary of one company or jointly owned by several companies.
vehicle Shareholders have all usual rights of shareholders
companies o Can use preference shares.
In default arrangements will be governed by company law.
More suited to a development that is to be disposed of within a short period of its
completion rather than held as a long-term investment.
Popular potion where the joint venture only involves one property.
Separate legal personality
Shareholder have limited liability
On completion ownership can be transferred by selling shares in SPV rather than
transferring property itself.
o Normally, SDLT is paid using a separate rate of tax on each portion of purchase pri
but at 5% on that part which exceed £250,000.
o However, if you sell shares in a company, stamp duty is paid at a rate of 0.5%
Need to consider anti-avoidance laws and specialist advice should be taken
o However as this benefits the buyer, the purchase price will often be increased by
seller
‘Double taxation’
o SPV assessed for corporation tax on rental income and capital gains from property
held. ( SPV more suited to development that is to be disposed of within a short
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period of time
o Shareholder companies will pay corporation tax on the dividends issued by SPV
Administrative expense of annual accounts must be filed
Lack of privacy as to company’s structure and finances.
If owned by third party, property has to be transferred to SPV causing SDLT.
Traditional Joint venture partners enter into a partnership agreement
unlimited Agreement will regulate the way in which risk and profits are shared and responsibilities.
liability Property can only be held in names of up to four partners
partnershi o Beneficial interest vesting in all of partners in specified shares.
p Commonly used to acquire property and preferable to contractual relationship where a
long-term, complex project is contemplated.
Very flexible and can be tailored
Default position governed by Partnership Act 1890 if unexpected events occur.
Partnerships are ‘tax transparent’ so parties are taxed individually
o CGT and IT reliefs available to persons
No extra administrative cost filing annual accounts
Privacy of structure and finances
If property held by third party, SDLT on transfer to joint venture partnership
If property held by one partner, SDLT on transfer to joint venture partnership
Each partner has unlimited liability
Jointly and severally liable
Each partner has authority to bind the partnership and co-partners.
o Requires large amount of trust
Administrative burden filing accounts.
Limited Hybrid of limited company and traditional partnership
liability Flexible and can be tailored
partnershi Separate legal personality
p Limited liability
Tax transparency
Agreement is private
Administrative burden filing accounts.
Methods of property finance 2.1
Share capital When buyer is a company, may consider issuing further shares to raise additional capital to invest
property
May not be popular with SH’s as could result in reduced dividends, which affects voting power &
capital rights
Forward Institutional investors e.g pension, life insurance funds have substantial £ at their disposal for
funding investment.
As an alternative to purchase property that has already been let, investors may take part in developme
of sustainable development by :
institutional investor finances development from outset, acquiring land, paying construction.
Developers paid fee for its work & once development is completed and let, is paid a profit sha
Developer may accept lower profit as less risk to developer than if he developed property usin
& own £
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Equity an investor and developer form a joint venture company to acquire development site an
funding undertake development. Investor takes preference shares ( assured priority return on
investment)
investor participates in profits & losses of development
Sale & Owner-occupier sells freehold interest to another and immediately leases it back off of them at marke
leaseback rent
Raises capital to invest further / develop site
Purchaser receives rental income
Debt finance Borrowing from banks or alternative credit providers.
Attraction of borrowing for UK tax resident corporate borrowers is that they may be entitled to
tax relief on any loan interest paid
Searches & enquiries
focuses on particular concerns of a buyer of a development site at the pre-contract
stage
Searches Why?
Local Search Usual form of application for search and enquiries should be submitted to local authority + th
and enquiries fee. Plan should also be attached.
May need to search wider area than just land purchased as local searches don’t reveal matter
affecting neighbouring properties
Commercial transactions : must consider raising optional enquiries in CON29O + usual CON29
enquiries
After reviewing CON29 replies, pay attention to information relating to planning matters
affecting the property & access to site over adopted highways
Planning Developers want to know whether planning permission exists (all or part of site) or if there have been
matters any unsuccessful applications for permission important consideration for buyer if so.
Developer must know what type of land use is indicated by LPA.
Drainage vital for developer to establish how foul & surface water currently drains away from property to
public sewers so he can estimate whether current drainage system will cope with the foul/surface
drainage from the developed site OR whether new drains need to be constructed.
Vacant land – unlikely to be drains serving it & will need to know location of closest public sewer
where the connection of newly constructed drains may be made
Commercial DW enquiry
Highways Developer wants to know:
that immediate access to site can be obtained from public highway.
What pavements and verges are between the title boundary of the property and the
public road, as If such land is in private ownership and is not publically adopted, may
become a ransom strip if access if needed over it
Will want to confirm that there are no new proposed highways in vicinity of site whic
would adversely affect development
Railways Can raise enquiries about possible implications of having underground rail in close proximity to the
property through the National Land Information service or by post to relevant authority.
Underground railway search – reveals location, ownership of track & sometimes access rights
possible to see whether property is affected by proposed new railway e.g HS2
replies to Con29 indicate whether property is subject to a compulsory purchase order and whethe
its within 200m of centre line of a proposed railway
Utilities Development may be impeded/ more expensive if there’s electricity , gas, telecommunications etc in,
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under or over property.
Contaminate Danger buyer of land will be liable to pay excessive clean up costs
d land
Commons Need to raise CON29O optional enquiry 22 – relates to registration of the property in the commons
Registration register maintained by the county council
Right of way If property affected by rights of way – should search LA’s map and register of applications to modify t
and access definitive map to obtain details of all footpaths, bridleways, width & conditions of use
land
Enquiries of Standard enquiries of the seller are raised on one of the standard printed forms of enquiries.
seller Additional enquiries may be raised as buyers solicitor considers appropriate. E.g wants to discover
further info about planning status of site, suitability of land for building purposes, past contamination
etc
Flood Government Floor Re Scheme – which ensures flood cover is available for residential properties DOES
searches NOT apply to commercial properties.
Commercial properties are subject to premiums based on their individual risk of flooding
Property without standard buildings insurance, including flood cover ( unlikely to be mortgageable &
difficult to sell)
Many solicitors acting on commercial property will routinely order flood report from commercial
provider, usually provides EA floodplain data, the EA risk of flooding from rivers & sea map and data o
surface water flooding etc
Survey & Even if vacant land, developer client should always be advised to commission a survey of the land
inspection also can commission a ground stability search fro the British Geological Survey or Coal authority
Inspection of property should always be conducted before exchange to :
Assist in establishing ownership of or responsibility for boundary walls, hedges and fences
Discover the existence of public or private rights of way which may be evidenced by worn
footpaths, stiles or breaks in the hedge grows
Spot the presence of overhead electricity powerlines which would prevent or impede
development. If there are power lines, land is likely to be subject to a written wayleave
agreement between landowner and electricity company gibing Company right to maintain its
supply across the land. Copy of agreement should be requested from the seller
Discover the rights of persons in occupation of the land.
Ensure that adjoining landowners do not enjoy the benefit of easements of light or air which
would impede the buyer’s proposed development
Investigation Title is deduced and investigated at pre-contract stage of transaction
of title
Developer client will be concerned to ensure the property enjoys the benefits of all necessary
easements and rights of access & drainage.
Will also want to be satisfied that there are no covenants restricting the proposed developme
or use of the land; or if there are, they will be released, removed or modified or that
appropriate insurance will be available, & that any easements which will burden the property
will not prevent or restrict the proposed development or use
index map search advisable even if property is believed to be registered land, especially where mo
than one registered title is involved or there is a chance that mines and minerals may be registered
under a different title number.
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