Limited Co. proxy agreement?

by Readers Question

A month ago

Limited Co. proxy agreement?

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Limited Co. proxy agreement?

We have 5 properties (a mix of family let and HMOs) which we currently own and manage in a general partnership. All the properties are unencumbered (no mortgages) and we wish to incorporate our business via s.162. So far, so clear.

The next hurdle is to either go down the BICT route necessitating two or more legal instruments per property or transfer the properties to the limited co. at the Land Registry.

Either way, there will be existing AST agreements in force where the contracted parties are still the tenants and ourselves (the general partnership).

The question is: can the limited co. (now the new owners of the properties) enter into an agency style arrangement with ourselves (the old general partnership) so that we effectively become a proxy for the limited co. using a cross between a classic agency agreement and a lettings agency agreement?

The aim is that from the tenant’s point of view, nothing changes; the AST agreement stays the same, the rent payments to the bank remains the same and so on.

If we become, in law, a lettings agent rather than a proxy, I believe we might be bound by the same legal framework as regular letting agencies. Would we need to become ARLA registered?

This might be a complication too far.

Peter



Comments

Mark Alexander

A month ago

Hi Peter

There are a number of issues to consider and here isn't necessarily the right place. Please book a tax consultation via the link below.

https://www.property118.com/book-a-consultation/

Questions/issues which immediately spring to mind, in no particular order, are:-

1) Are you entitled to claim incorporation relief under TCGA92/S162? This will depend on whether your meet HMRC's conditions for being treated as a "business" - see https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65715

2) If you are deemed to be a business then I am less concerned about whether you would qualify for Partnership SDLT relief on the basis that whether or not you are registed as a Partnership with HMRC is irrelevant to a great degree. See https://www.legislation.gov.uk/ukpga/Vict/53-54/39/section/1

3) Turning to your more specific question in regards to use of the BICT structure. Yes BICT includes an Agency Agreement which deals with the AST related issues you have raised. The rents would need to be paid into the company but as the legal owners of the property (even having disposed of 100% of the beneficial interest) the AST's would remain in your names and you could collect the rent on behalf of the company so long as it is recorded as belonging to the company.

4) It may well be the case that the BICT structure is better for you in other ways too, e.g. cheaper in terms of legal fees.

5) Presumably you are considering incorporation for CGT and/or IHT planning purposes? Have you also considered optimal ways to withdraw profits from the company without incurring personal taxation. I think you will find the case study linked below particularly interesting in this regard.

https://www.property118.com/5-3-million-tax-planning-success/

6) If you are considering the formation of a management company to simply transfer income streams without transferring the assets of the business into it, then whether or not you need to register with a Redress Scheme is the least of your worries (you wouldn't unless the company manages another persons properties by the way and you ARLA membership is optional for all agents regardless of their status). The issue is that under schedule 25 of The Finance Act 2009 any tax advantage of such a scheme would be negated - see http://www.legislation.gov.uk/ukpga/2009/10/schedule/25

7) What I do not understand from your questions relating to BICT is "The next hurdle is to either go down the BICT route necessitating two or more legal instruments" - please explain further. What two legal instruments are you referring to?

All the best

Mark

PJB

A month ago

Hello Mark,

1 & 2) in 2015/6, HMRC accepted that we were a partnership and a business. We received favourable HMRC non-statutory clearances for s.162 and SDLT exemptions in 2016.
3 & 4) I can understand how BICT works for our purposes in keeping our names on the existing AST agreements. My question moves more to a future time where, for example, the limited co. has acquired its own properties so now, there is a mix of BICT and non-BICT properties in its portfolio. Is the [Property118] agency agreement flexible enough to not only allow the company to appoint the legal owners of the properties as its agents to make payments on behalf of the company for the BICT properties, but also, appoint a third party (us) to grant tenancies, collect rent and so on in the third parties name with or without a covenant for non-BICT properties?
5) Yes, CGT & IHT planning a the major motivation. The case study is interesting and may be an alternative to relying surviving seven years for potentially exempt transfers to do their work. This is a matter, I think, for a future consultation rather than a discussion in this thread.
6) No, no, no. My intent is to keep things simple. Currently, we are the only entities our tenants have to deal with. The proxy question is to explore if an agreement or contract can be drawn up so that, post incorporation, out tenants continue to deal only with us while we handle all the ‘beneficial interest’ issues required by the company.
7) The legal instruments are those contained in “The-BICT-Structure-Explained” document:
1. A business sale agreement by Deed
2. A second Deed which transfers the beneficial interest of ‘the whole business” to the company
3. A covenanted agency agreement.

Mark Alexander

A month ago

Reply to the comment left by PJB at 19/04/2018 - 18:53
I know the BICT suite of documents can be tailored to clients individual requirements within reason but the questions you are asking now would need to be raised directly with Counsel once he has been instructed.

PJB

A month ago

I believe a standard sale and leaseback arrangement would suffice.

Mark Alexander

A month ago

Reply to the comment left by PJB at 20/04/2018 - 09:28
Now that’s thought provoking for many reasons.

First: what would it achieve from an income tax perspective?

Second: would such an arrangement fall foul of FCA SARB regulations given that the property isn’t owner occupied?

I could go on but I’m pushed for time. Plenty for people to contemplate/discuss based on these two questions alone though!

PJB

A month ago

First: The lease creates another possible revenue stream outside the limited co.
Second: Sale & Rent Back (SARB) legislation is intended to protect (vulnerable) owner/occupiers whereas sale & leaseback is usually an arrangement used in both the commercial & residential sectors. It allows the seller to raise capital or, in our case, shares in the limited co. I would have thought that the FCA SARB regulations would not apply to leaseback agreements. I will check and report back.

PJB

4 weeks ago

All indications show that a leaseback arrangement will work as intended. Keep an eye, though, on lease length (Land Registry) and the value of the cumulative rent and lease premium (Stamp Duty).
If sections 24 - 28 of the Landlord and Tenant Act 1954 (exclusion of security of tenure) are to be excluded, the landlord should give notice to the prospective tenant before the lease is signed.

Mark Alexander

4 weeks ago

Reply to the comment left by PJB at 23/04/2018 - 11:21
The lease template etc. are all available to purchase for £97 via the link below. The templates are drafted by The Law Department, a Landlord Action Partner. Property118 receives a commission for templates purchased but we do not accept liability for their use. We do not advise on the use of the template or its suitability for your business model.

https://www.property118.com/guaranteed-rent-to-rent-lease-contract-template-download/41817/

Freda Blogs

4 weeks ago

Sections 24 - 28 of the Landlord and Tenant Act 1954 (exclusion of security of tenure) is for business premises.

You mention a mix of family let and HMOs; I don't think L&T'54 Act applies....

PJB

4 weeks ago

Reply to the comment left by Freda Blogs at 23/04/2018 - 13:06
I am inclined to agree. Since both the landlord and the tenant are likely to be very closely connected, there is little concern.


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