If you’re considering buying commercial property, it is recommended that you obtain specialist legal and professional advice as each commercial property is unique. The following is a non-exhaustive list of things to consider.
Property ownership structure in England and Wales
The type of ownership and the legal rights over a property can significantly affect its value. Property will usually be either Freehold or Leasehold.
Freehold
A freehold interest is an interest in land that is not limited by time. The owner of a freehold generally controls and owns all the property: the land itself, any buildings/structures on it, the subsoil below and the airspace above it. However, ownership may be restricted by the rights of others (for example a third party may have a right of access over the property).
Leasehold
With leasehold property, the interest is contractually time limited to the length of the lease. Generally, flats and much of central London property are held on a leasehold basis.
The lease is the principal document which sets out the details of the contractual relationship between the owner of a property (the Landlord or Freeholder) and the occupier (the Tenant). The content of the lease will vary depending on the property type and the relationship between the landlord and the tenant.
Lease lengths (known as the ”term” of the lease) for business leases can range from a couple of years to twenty five years plus.
Depending upon the nature of the property (usually residential) and the transaction, long leasehold interests (with a lease length of up to 999 years) may also be available. Such leases are normally granted on payment of a premium with only low or nominal rents payable (peppercorn).
Other types of property interest.
- licences – these are purely contractual arrangements and do not give the licence holder an exclusive right to the property.
- options and pre-emptions – these are rights to buy or rights of first refusal.
- easements – these are rights over another person’s property such as a right of way or rights to use pipes and cables.
Land Registry
Most property in England and Wales is registered on a public register at the Land Registry. It is referred to as Registered Land. Registration provides conclusive evidence as to the identity of the owner and the owner’s title to the property. The register also provides details of the extent of the land and the rights benefiting and affecting it.
If property is registered, there is a state guarantee of title that guarantees the accuracy of the public register. If a defect or error is found in a registered title, compensation is payable by the Land Registry in certain circumstances.
Structuring property investments
UK property can be held directly either personally, via a limited liability company, a traditional partnership, a limited liability partnership or a pension scheme.
It is important to consider the tax implications when deciding what structure is most appropriate. The tax consequences will depend upon a number of factors including your tax residence and domicile and the investment vehicle you choose. You should always seek tax advice based on your particular circumstances.
