Real Estate

Our focus is always the wider commercial context of real estate for our clients in the day-to-day operation of their business

We support a wide range of clients across different sectors, throughout the UK. Our client focus is primarily business occupiers and equity investors, and we also act for investor landlords and undertake lease management work which gives us an in-depth understanding from both sides of the landlord/tenant relationship.

We provide day to day support to colleagues in our Legal Counsel Service and Transaction Services teams ranging from investigations on freehold or leasehold title to other property due diligence, either on an ongoing basis or at the time of a transaction. Our focus is always the wider commercial context of real estate for our clients in the day-to-day operation of their business.

We also work closely with other law firms providing real estate services support, either as a standalone transaction or as part of a larger cross-border or portfolio deal.

Specific areas of advice

Whether landlord or tenant, we are able to assist in negotiating lease terms which will reflect  the needs of our client and the respective strengths and weaknesses of the parties.

Our national exposure provides insight to market trends throughout the country.

Pensions & Real Estate

Pension schemes invest in commercial property to deliver investment performance objectives and achieve diversification

Whether a pension scheme is looking to invest in this class of investment or in specific commercial properties, Vialex can help.

The Vialex real estate team has vast experience of acquisition, and disposal and leasing of commercial property. The real estate & financial services team at Vialex, ensure that the specific governance issues, process, procedures, and controls are observed.

Capital appreciation and rental income in a tax-free environment is attractive. No one wants to discuss the impact of unauthorised payment charges, or HMRC registration, nor The Pension Regulator (TPR) oversight and FCA authorisation stress situations.

Pre-acquisition checks for pension scheme property investments

There are various pre acquisition checks for pension scheme property investments that restrict some schemes’ options. These focus on areas such as:

Pre-acquisition checks

  • Property transactions with connected parties;
  • Occupational pension scheme investments in employer-related property;
  • SIPP and SSAS investments in residential property (so heavily taxed it is not worth doing); and
  • Pension scheme trustees and product providers governance restrictions on the investment options available, especially for overseas investments where specialist knowledge may be needed, and other regulatory requirements may apply.

Vialex gives tactical and strategic advice and attends to the mechanics of dealing in commercial property or real estate, anywhere in the UK, through our network of law firms.

Real Estate ownership - what’s different for the pension investor?

Let’s look at the advantages, disadvantages, and costs first.

Advantages of holding real estate in a pension scheme

Advantages

  • Initial cost saving as contributions to a pension scheme generally attract tax relief and capital in the pension scheme grows tax free.
  • Rent received by a pension scheme is free from income tax.  
  • Improvement in company cashflow – the borrowing or funds that would be required for the company to buy property can be used for other business purposes.
  • Rent paid by the company is an allowable expense for corporation tax purposes.
  • As the property would be owned by a pension scheme, separate from the business, there is no enforced sale of a property by creditors if the business goes into liquidation/becomes bankrupt.
  • No capital gains tax is payable if a property is subsequently sold.
  • Cash injection for the business when pension scheme buys property from the company.
  • No inheritance tax liability – a property is the asset of a pension scheme and therefore, on the death of a pension investor, there would not normally be an inheritance tax liability (although there are exceptions).
  • A property can be held indefinitely in a pension scheme, provided there is enough liquidity to pay any pension income requirements.
  • The pension scheme is responsible for the maintenance of a property (usually only until a tenant is in place).
  • Joint property purchase is possible, for example two or more SIPPs or other pension schemes could jointly own property.

Disadvantages of holding real estate in a pension scheme

Disadvantages

  • It could be difficult to pay pension benefits on death or retirement if the property cannot be easily sold and there is no other pension scheme liquid investment.
  • The company must pay rent at the market rate.
  • Pension scheme investment governance – potential lack of diversification depending on the size of the scheme and the value of the property.
  • The property cannot be used as a security for the sponsoring company’s business, should the company need to borrow, as it is owned by the pension scheme.
  • Borrowing could be more restricted under the pension scheme as the maximum the scheme can borrow is 50% of the net scheme assets.
  • If the sponsoring company stops paying rent, replacement with a new tenant may be fraught with additional conflicts of interests between the business and the pension scheme governance.

Costs of holding real estate in a pension scheme

Some or all of the following costs may be incurred if a pension scheme invests directly in property:

Acquisition costs

  • Surveyors’ fees
  • Solicitors’ fees
  • Searches
  • Stamp duty land tax – unless the value of the property is within the nil per cent band
  • VAT – if the property is less than three years old or has been opted into the tax by the vendor
  • Scheme provider chargesMortgage/borrowing arrangement fees

Annual costs whilst the property is in the pension scheme

  • Property management charges
  • Scheme provider charges for this asset class
  • Mortgage repayment
  • Insurance
  • Lease maintenance – rent reviews, enforcing tenant obligations, change of tenants

These costs should all be paid by the pension scheme to avoid additional tax charges. It is therefore important that there is sufficient cash over and above the purchase price held within the pension scheme to at least meet these.

Specific areas of advice

The pension scheme governance dealing in commercial property involves additional work over and above the normal process and procedures of buying, selling and managing a real estate investment property.

Good pension governance has to be observed to avoid unauthorised payments. Property managers need to be appointed and the trustee/scheme administrator decision making process observed.

If there is more than one investor or one scheme then investor agreements are a must, (as well as a robust title deed setting out owners’ rights and obligations) and these should be well thought through to minimise the probability of issues at a later date.

The right person must give the investment instructions. The pension investor may believe they are running their own pension arrangement. Vialex will check the position and make sure the correct governance is applied.

Vialex role: As solicitor, we may be introduced to the opportunity by the pension investor, but it is the pension scheme administrator or trustee that will be purchasing the property (or will hold joint title with the pension investor or others) on behalf of the pension arrangement. In this situation it is likely that we would have two clients and we will manage any conflicts of interests appropriately.

The pension administrator or trustee will instruct Vialex. They at least will be our client and all ongoing instructions to the solicitor must come from them, even if originating with the pension investor.

We are required to conduct the usual due diligence involved in purchasing property, including local and title searches and fully report to the client on the title to the property and on any leases in place or to be granted.

This sometimes requires more investigations to be made. The decision to proceed with the purchase will be the pension scheme trustee or administrator, dependent on their risk tolerance and the outcome of the due diligence.

The person responsible for decisions on pension investments has to be satisfied the investment is worthwhile for the pension scheme, the investment strategy in place, and there are resources in place to administer this “real” asset.
The governance decisions will ensure that the risks associated with the investment are within appetite, letting prospects are realistic and any tenant has strong finances appropriate to rental terms of the lease, and is appropriate to the age profile of pension investors where the pension is for a discrete number of pension investors.

The pension arrangement is primarily interested in the pension investors investment for retirement. This can create tension between the short and the long term needs of business owners when they are themselves the pension investor, or at arm’s length to employees.
Vialex will advise on the appropriate decision-making process, evidence on which to make decisions, who should make the particular decision, and any safeguards the decision maker may want to require of the pension investor.

There may be tactical reasons to consider borrowing, whether or not there is sufficient liquidity in the pension arrangement. There are restrictions on borrowing. Pension investments go up and down.

All this is in addition to the normal terms and conditions of commercial lending, and security to lenders to buy real estate.

Vialex is alive to the needs of pension arrangements and restricting liability to the value of the pension arrangement.

Within a pension arrangement, the lease itself should set out key restrictions on the tenant that will determine the lease should the tenant do anything to jeopardise the tax efficiency of the real estate investment.

If anyone owning or letting the property is connected to the pension scheme, then the lease or sale documentation has obviously to be at arm’s length and onerous terms enforced as ‘an arm’s length transaction.’ That is, each party must be acting in their own self-interest and not subject to any pressure or duress from the other. This might mean for example instructing a valuer when in other circumstances purchase price or rent reviews might be done “on the nod.”

The lease itself should set out key restrictions on the tenant that will determine the lease should the tenant do anything to jeopardise the tax efficiency of the real estate investment.

Vialex can assist with all of this.

One always expects a property manager to enforce the lease terms. If the property manager is the pension investor, they must ensure that the lease is enforced as it stands, payments (rent, insurance, repairs, charges) are received when due, and nothing done (or omitted to be done) in terms of the lease.

It might be that the property manager will work out how best to deal with gaps between tenants.

Vialex can advise the pension trustee or administrator on the terms it ought to have in place and the property manager on conducting their job as they are supposed to do.

Those undertaking property development outside a pension arrangement can decide to not take advice from professionals; but the persons responsible for running the pension arrangement must ensure that they are acting, and can evidence that they have acted, in the best interests of the pension investor.

This will mean the costs of development may be more than first anticipated.

Vialex can make sure that the contracts and relationships are managed appropriately to the needs of the pension arrangement, and position of the property manager.

What we did for...

It was important to us that our legal advisers were aligned to our business values, and we were impressed by the approach Vialex took to support our business by offering a ‘virtual’ in-house legal team who look after our day-to-day legal needs.

George Tait - Director and Company Secretary

We have worked with Vialex since 2012, following our buyout from a major UK foods group, when our fast evolving business required a different approach to meet our legal services needs in a cost effective way. At the time it was something of a leap of faith for Quorn Foods but we have been delighted with the service from Vialex, and the appetite they have shown to support us in any way they can.

David Artindale - Head of Procurement
We use the Vialex Legal Counsel Service as our day-to-day support for all our contracts and legal issues. They act as an extension of our own team and work with us to help us achieve our commercial goals. The subscription means we can get the advice we need when we need it for a fixed cost.

Arceeb Moughal - Director of Commercial

The Vialex Legal Counsel Service does what it says on the tin. We get a quality legal support service that responds to our needs, very often working to short timescales. The Vialex team has been particularly instrumental in assisting with our international contractual arrangements as we expand our reach into a number of new overseas markets.

Richard Miles - Chief Financial Officer
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