Just incorporated – Now can’t sell for 6 months?

by Readers Question

9:58 AM, 13th August 2018
About a month ago

Just incorporated – Now can’t sell for 6 months?

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Just incorporated – Now can’t sell for 6 months?

So, you have just incorporated your properties. Now you want to sell one of them. A buyer has been found, then, at the last minute, the buyer has been refused a mortgage.

A seemly arbitrary and little known rule common to all mortgage lenders is if a property that is to be mortgaged has not been owned by a property company in excess of 6 months, no mortgage will be offered.

Understandably. a recent change in ownership of a property is a matter that is referable to a mortgage lender because a lender will want to check that there are no issues of fraud or over valuation surrounding the property.

One would have hoped that by proving an excellent and lengthy provenance of continuous ownership, HMRC sanction to incorporate, appropriate share valuations registered at Companies House and the testimony of a chartered accountant that the valuations are correct would have been sufficient. Apparently not.

This rule has caught out the buyer’s brokers and the agents, solicitors on both sides. No matter which lender the seller’s brokers approached, the answer was always the same.

Peter



Comments

Mark Alexander

10:28 AM, 13th August 2018
About a month ago

Hi Peter

Thank you for raising the commonly touted misconceptions.

First, please understand that no such "rule" exists. The legend comes from rules inserted into the CML conveyancing handbook for lenders and conveyancers. The guidance was issued to help to prevent practices whereby property valuations might be massaged for the purposes of enabling larger loans to be advanced than a lender would knowingly agree to. If the incorporation has been properly structured and is completely transparent the matters you have raised should not cause a problem if your solicitor is completely open and honest with the purchasers representatives and the other side are equally open and honest with the mortgage lender of the purchaser.

Second, if the landlord who has incorporated has utilised our often recommended BICT strategy, then the legal ownership would not have changed. Only beneficial ownership will have been conveyed as part of the business sale agreement. Accordingly, the legal owners of the property will be acting personally as trustees of the company, so they will be the ones signing the TR1 forms in their personal capacity, NOT as Directors of the company. Minutes of the company will need to reflect this. The net proceeds will simply need to be transferred to the beneficial owner (i.e. the company) on completion of the transaction.

I trust this clarifies the position to your satisfaction and please feel free to share this response with your conveyancing solicitors. If they still have any concerns, I will be happy to liaise with them directly. If you are an existing consultancy client of mine there will be no charge for this service. If not my charges will be £200 an hour plus VAT.


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