Buying the corporate wrapper, not just the property: simple? – Maybe not!

Steve Eccleston, Managing Partner

A growing number of purchasers are opting to acquire property-holding companies — often structured as Special Purpose Vehicles (SPVs) — rather than buying the property directly. This strategy is typically driven by a desire to mitigate Stamp Duty Land Tax (SDLT) liabilities and, on occasion, to use historic tax losses within the target company.

While these benefits can be attractive, the approach carries inherent legal and financial risks that should not be overlooked. These risks include:

1. Hidden liabilities: The SPV may carry undisclosed debts, tax exposures, or contractual obligations, which will be acquired along with the property.
2. Tax: HMRC may challenge the structure if it appears to be primarily tax-motivated without commercial substance and some tax advantages may fall away if, for example, group relief has previously been claimed for SDLT, SDLT may be payable or the nature of the business changes which may prevent historic tax losses being used in the future.
3. Due diligence: When you buy a company that owns property (rather than buying the property directly), you’re not just acquiring the real estate, you’re also taking on all the company’s existing liabilities, obligations, and history. In UK law, if you buy a property directly, you’re generally only responsible for issue you discover (or should have discovered) about the property. But if you buy the company, you may be “fixed with knowledge” of matters affecting the company, even if they wouldn’t have affected a direct property purchase. For example, undisclosed debts, tax exposures or contractual obligations could become your responsibility. Therefore, extra due diligence is needed compared to standard property purchases.
4. Legal title: It is essential to confirm that the property has clear legal title and that the company’s corporate governance is in proper order.

Expert Advice Is Essential

Navigating these risks demands specialist legal and accounting advice which may well increase costs in the short term but will avoid major issues in the future.

Not all lawyers and accountants are equal, and many property lawyers will not appreciate the complexity of issues arising. At Kuits we have significant expertise in advising on SPV acquisitions, particularly in relation to Commercial Property transactions, conducting robust due diligence, and structuring transactions to minimise exposure while achieving commercial objectives. Our Corporate, Property and Tax teams work collaboratively internally and with clients and other advisors to achieve those objectives with the minimum of fuss and maximum expedition.

If you’re considering acquiring a property-holding company, speak to Chris Hardy in our property team, Helen Mather in our corporate team and Paul Bricknell in our tax team to help you ensure your investment is protected and compliant.