27 June, 2019
When deciding to buy a commercial property through a pension scheme arrangement, it is important to bear in mind that there are additional issues and complexities involved through the course of the transaction. Some of the key issues relevant to pension scheme purchases which should be considered at the outset are as follows:
As with any property purchase, there are additional costs to consider including fees for professional services such as a valuer and asbestos surveyor, the scheme administrator's fees, legal costs and SDLT that may be payable. If there are likely to be insufficient funds in the pension scheme to account for all of the costs involved, it is possible to make up any potential shortfall by funding the purchase by other means, such as by transferring benefits from another pension arrangement or borrowing from third parties such as a bank. Whatever route is used, action should be taken to ensure the funding is in place as soon as possible to avoid unwanted delays further down the line preventing completion of the purchase. Most mainstream lenders will be willing to lender to pension schemes although they will invariably have detailed requirements to be complied with beforehand.
A connected party can be the pension scheme member, their spouse or relative, a relative of their spouse, a business partner or a company connected with the member or spouse. If there are any such connected parties involved in the transaction, for example being the seller of the property or a tenant to whom the property is to be leased, the purchase (and any lease arrangements) will need to be on a fully commercial basis at arm's length. In particular, a formal valuation will be required from an independent surveyor to confirm the market value of the property and the market rent, as applicable.
It is possible for the property to be purchased jointly with the member, the member's business or an independent third party. This can particularly cause complications if any (or all) of the parties are obtaining bank funding towards their share of the purchase, in which case their needs to be an agreement between the bank and the pension scheme trustees to ensure that the bank cannot use the pension fund monies to repay the other parties' debts.
The pension scheme administrator needs to ensure that all statutory and regulatory obligations have been complied with before the purchase can be completed. This includes requiring confirmation that an asbestos management plan is in place if there is a potential of asbestos being present at the property, and that a valid Energy Performance Certificate is in place if required. Usually the relevant documents should be provided by the seller but if these are not available for any reason, action will need to be taken prior to completion to ensure these issues are resolved in good time.
As Forbes, we specialise in property transactions involving pension schemes and are on-hand to provide advice and assistance throughout.
For more information contact Mohassan Mehmood in our Commercial Property department via email or phone on 0333 207 1161. Alternatively send any question through to Forbes Solicitors via our online Contact Form.