The United Kingdom and the rest of the World continues to deal with the COVID-19 pandemic, with different countries using various techniques to not only take control but keep their economies as stable as possible. Whilst the UK Government has passed emergency legislation on a number of measures including the Business Interruption Loan Scheme, many businesses are either struggling to access this through their lender or have their reservations about using it.

One of the main issues for companies is maintaining their cash flow whilst the economy is virtually remaining on hold for the foreseeable future with no certain timeframe for things getting back to normality. If you or your company has cash tied up in its assets such as property, then there are a number of ways that you can release this cash to help get you through this intense and uncertain time.

Selling property

Whilst most of the residential conveyancing market is on hold due to the issues of moving families during the lockdown period and lenders appearing to withdraw most of their higher percentage mortgages, many investment companies will still be looking to increase their portfolio with more buy-to-let properties. These companies commonly have interest only mortgages which require a much greater percentage of the purchase price to be deposited by the company before the mortgage offer is granted. There is still a market available for these types of purchasers.

Alternatively, if you have enough equity in your property and the buyer does not have enough disposable cash to be a cash buyer, you could sell the property at the market value and take the percentage of cash available from the buyer with the remainder being protected by way of a legal charge over the property for a negotiated period. This would then give the buyer time to seek a mortgage or bridging loan whilst allowing the sale to proceed and improve your cash flow at the same time.

Re-financing or additional security

Whilst many institutional lenders are restricting their availability of products, a number of finance companies are still offering mortgages or bridging loans. Whilst these are likely to be more short term and have higher interest rates, they may allow you to release the cash tied up in your property allowing you to get through this period of economic uncertainty. You may then be able to access a better product and remortgage once the economy has settled. If you have enough equity in the property, a finance company may be willing to take a second legal charge over the property subject to your primary lender giving consent to the same.

Sale of freehold with leaseback

If you own the freehold of a commercial property then you can potentially release any cash available from the equity in the property by selling the freehold reversion to an investor. There are still a number of investment companies with monies readily available such as a pension investment schemes. The freehold can then be sold with a simultaneous lease back of the premises to your company. This allows the company to receive the monies from the sale of the freehold yet still have the occupational benefit of the property. Terms of the leaseback would need to be negotiated with the buyer and further advice should be taken on this to ensure that you are adequately protected.

These options will vary depending on your circumstances and so will the implications of the same. You should take advice from your Accountant or Financial Advisor before proceeding to ensure that you do not have any unwanted tax consequences and that it benefits your business as a whole.

If you need any advice or assistance in relation to these transactions then Franklins are here to help. Please contact Reece Chapman, Solicitor in our Bespoke and Commercial Property team on 01908 660966 / 01604 828282 or by email at reece.chapman@franklins-sols.co.uk.

The need for new housing continues to be prevalent, as shown in many of the recent election manifestos. Existing houses and commercial properties are regularly being converted by developers into residential flats.

It is easy to see why properties are developed in this way, however, getting the structure right for your business is less so. There are a few ways that flat schemes can be set up and it is important to know how at the outset as this will likely dictate your business model and cash flow into your company. Whether you are an experienced developer or a first timer this note can assist you with your decision.

The structure of lease schemes can include the following:-

1. Retention of the freehold reversion and management by the Landlord

You may elect to proceed down this route if want to keep control of the building during the Lease term. Keeping hold of the freehold reversion can provide a steady stream of income through the payments of ground rents by tenants. These ground rents can only be of limited value as a number of mortgage lenders only accept these where the annual payment is no more than 0.1% of the premium paid for the grant of the Lease. Limitations are also in place for the increase of these ground rents during the Lease term.

Additional value can also include premiums being payable by tenants where they need to extend the term of their Lease. A balance will need to be struck to keep hold of this additional value but not to the detriment of the marketability of the flats by granting an attractive term. For example, if a lease is granted for 125 years (with some mortgage lenders requiring at least this amount for a new lease), the Lease is unlikely to need extending for at least another 40 years.

Keeping hold of the freehold will include the management and up-keep of the building which can include administration of the service charges, insurance and maintenance of any common parts to name a few. You will therefore need to decide whether your business has the infrastructure in place to deal with this administration.

The freehold of the building can still be sold at a later date, however, this may be dictated by the Landlord and Tenant Act 1987 depending on the nature of the building and whether the qualifications are met. This is outside the scope of this note and further information can be provided upon request.

2. Retention of the freehold reversion with the management of the building being delegated to a third party management company

Proceeding in this manner can provide you with the benefits of the above scheme without the accompanying administrative burden. The costs of outsourcing a managing agent to deal with this on your behalf can be costly, however, this may work better for your business model and future requirements.

3. Setting up of a management company to be owned by the flat owners with the freehold reversion being transferred to such company from the Landlord upon completion of the last flat sale.

This scheme requires a management company to be incorporated (usually limited by guarantee) whereby the Lease includes provisions for the freehold of the building to be transferred to the Management Company after completion of the sale for the last flat. A designated owner of each flat is then appointed as a director of the Management Company and the developer director then resigns, leaving the control with the flat owners.

Whilst this scheme does not provide as much revenue over time for the developer, it does allow them to relinquish all control of the development once the premiums for the leases have been paid. No further involvement with administration of the development will be required and the developer can simply move on to their next project. It also improves the marketability of the flats to potential buyers as they will have a say in the management decisions for the building.

If you would like to discuss a Bespoke or Commercial Property issue or require additional information about lease schemes and the wide range of work that we undertake, please contact Reece Chapman, Solicitor on 01908 660966 or via email at reece.chapman@franklins-sols.co.uk. Further information on the services we offer can also be found on our Commercial Property page.

Whether you are looking to buy an office, a shop or a warehouse, choosing the right commercial property is critical to the success of your business or investment potential. There are certain legal aspects associated with purchasing commercial property and you need to understand them if you are in the market.

Acquiring a freehold premise can be highly beneficial to a business. It can offer greater freedom as you have the option to own and occupy, let the premises to a third party (or Group Company) or a mixture of both by only letting out part of the premises. This can then either provide a foothold for the business to trade from or a steady stream of income for your investment return.

Legal Aspects

• Planning Permission: Planning permission will need to be in place or attainable from the Local Authority for the desired use of the premises. You will need to ensure that this is correct for your business requirements or appealing to the market depending on your plans for the premises. Planning permission will also need to be explored if you propose to extend or alter the premises.

• Survey: Whilst the importance of a survey is widely known for business tenants, this should also be noted when purchasing the freehold of a commercial property. If the premises are in a dilapidated state and you are proposing to let to a tenant, it may put off potential tenants in the market place due to covenants likely to be imposed in the Lease. A standard tenant covenant is to keep the premises “in repair” which can also include an obligation “to put” the premises into repair. If a Tenant is advised on this point and the premises are in a bad state of repair, they may not proceed with the Lease and you may be limiting the marketability of the premises by not having a survey carried out beforehand.

• Occupational Tenants: If you are purchasing a commercial property with an occupational tenant already in place, you will need to check the Landlord’s obligations under the existing Lease as these will need to be abided by to avoid a potential breach of covenant claim from the Tenant.

• TOGCs and VAT: Having an occupational tenant already in place can have its benefits in terms of the application of VAT. Ordinarily, if the Seller is VAT registered and they have exercised their option to tax on the premises, VAT would be payable on the purchase price. However, where there is an occupational tenant in these circumstances, you may be able to claim that the purchase is a transfer of a business as a going concern (TOGC). This can be claimed where you also opt to tax the premises and certain conditions are met. These conditions are outside the scope of this note however advice should be taken from a specialist tax advisor before proceeding in this manner.

If you would like to discuss a Bespoke or Commercial Property issue or require additional information about the wide range of work that we undertake, please contact Reece Chapman, Solicitor on 01908 660966 or via email at reece.chapman@franklins-sols.co.uk,. Further information on the services we offer can also be found on our Commercial Property page.