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Introduction to property issues for businesses

Property is intrinsically linked to the operation and development of a business. It could start as an asset, but end up as a liability, so a buyer needs to consider the costs of ownership and the flexibility it affords. The best form of property ownership is acquiring outright ownership of the freehold of a property, a capital-appreciating asset which will potentially give you good security against which to raise finance. You will also have relative control in dealing with it as your business dictates.

A leasehold property is less than outright ownership because of the obligations to the landlord. Leases inevitably present additional cashflow implications and restrictions for the tenant. The term of years granted by the lease and the ability to make a statutory request for a new term, or the flexibility to terminate it early, are crucial in determining whether it is worth taking on. The longer the term of the lease, the more security a tenant will have, but check the frequency of rent reviews and whether the rent must be upward only. A buyer could find himself paying a higher than market rent in five years time. Can the lease be sold or sublet if not all the space is needed?

A buyer will need to consider the repair history and proposed repairs and the extent of alterations which he may need to make. Does the property need to be adapted to comply with the Disability Discrimination Act 1995?

The property may be subject to VAT which will be taken into account when calculating Stamp Duty Land Tax (SDLT) on the purchase price. If purchased as an asset of a business as a going concern no VAT will be payable where both the seller and buyer are registered for VAT. The lease rents may be subject to VAT. If a buyer has acquired a relatively new lease subject to a rent review within the first five years of the term, there may be an additional amount of SDLT payable by him at the first rent review. Whether buying freehold or leasehold, the same issues arise as to permitted use and permitted development. The freehold or leasehold title may restrict how the property can be used. Local planning policy may limit the extent and type of development proposed or there may be environmental issues surrounding the property for which occupiers both past and present remain liable, and for which a buyer will need indemnities and warranties. All good reasons why property professionals should be called in at an early stage to expose the ‘cracks’ and advise on the risks or best means of repair!

For further enquiries please contact Nick Horton (view full profile) on 01892 701313 or email nhorton@ts-p.co.uk.

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