Transfer of freehold from company into sole name?

by Readers Question

10:43 AM, 10th May 2017
About 2 years ago

Transfer of freehold from company into sole name?

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Transfer of freehold from company into sole name?

I currently hold freehold interest in my companies name. I wish to close down the company due to total inactivity. The freehold produces no ground rent nor deals with maintenance or insurance.

I don’t want to sell the freehold interest because of its considerable worth – the related leaseholds are very short and located in greater London. My thoughts are to transfer it into my sole name.
The below is an excerpt by my current solicitor –

“……as the freehold will be changing hands, you have to give the right of first refusal to the tenants. As the leases on this freehold are particularly short, I presume the freehold is worth a substantial amount of money. This would need to be reflected in the Section 5 Notices as you would not be able to transfer the property into your sole name for any sum less than that set out in the Section 5 Notice. If you were to put a fairly nominal consideration in the Section 5 Notices you run the risk that the tenants will accept the offer and you will then be compelled to sell the same to them. If the lessees do not accept the Section 5 notices, and you transfer the freehold into your sole name, this may have a Capital Gains and Income Tax implications together with stamp duty.”

Is anyone able to confirm all of the above excerpt to be correct? Especially the part about not being able to transfer the property into my sole name for any sum less than that set out in the section 5 notice.

Many thanks

Marinus



Comments

Neil Patterson

10:51 AM, 10th May 2017
About 2 years ago

Dear Marinus

This is what I found under the Leasehold Advisory Service >> http://www.lease-advice.org/article/high-court-rules-that-exception-to-right-of-first-refusal-applies-and-defeats-purchase-notice/

"On 7 October 2016 judgment was handed down by the High Court in Artist Court Collective Limited v Khan[2016] EWHC 2453 (Ch.), an appeal from a decision of the Central London County Court.

In this summary we touch on one of the subjects arising from the judgment, namely whether a transfer of a freehold interest in favour of a sole beneficiary under a trust, leading to the termination of the trust and the discharge of the trustee, is caught by the right of first refusal requirements of Part I of the Landlord and Tenant Act 1987 (the 1987 Act).

Watch out for an article discussing the legal issues arising from this case on our website soon.

The Law:

By Part I of the 1987 Act qualifying tenants of flats, which includes leaseholders, in a building have a right of first refusal when the freehold interest is sold, termed as a ‘disposal’ in the 1987 Act. This entitles them to buy their landlord’s interest in the building (typically the freehold) when he or she proposes to transfer it to a third party purchaser.

Essentially, with some exceptions, the landlord cannot sell without first serving a notice on the ‘qualifying tenants’ offering to sell to them on the same terms (including the price) as the intended transfer.

There are serious consequences for failing to comply with this Act:

Unless they have a reasonable excuse the landlord would be committing a criminal offence; and
The qualifying tenants are entitled to reverse the transfer and have the freehold interest transferred to them on the same terms including at the same price.

Background facts:

This case involved a building comprising leasehold flats and commercial units. In 2011 the landlord, Mr Khan, transferred his freehold interest to a recently created company controlled by him for the sum of £225,000. No offer notices were served on the qualifying tenants, who were in ignorance of the transfer until the middle of the following year when a fish and chip shop opened in one of the commercial units, which led to the residential leaseholders taking advice on their legal position.

Upon discovering the transfer the majority of the leaseholders formed a company and served a purchase notice seeking the transfer of the freehold interest to their company at the same price.

Mr Khan tried to resolve the position by transferring the freehold interest back into his personal name for nothing. When the matter was pursued in the County Court the leaseholders alleged that this transfer broke the provisions of the 1987 Act. The judge in County Court agreed and ruled that the leaseholders’ company could acquire the freehold for nothing.

The Appeal:

Mr Khan appealed to the High Court who found in his favour and decided, among other issues, that the transfer of the freehold back to him fitted one of the exceptions in the 1987 Act to the requirement to follow its provisions.

Under section 4(2)(g) of the 1987 Act, a disposal is exempt from the right of first refusal requirements if it consists of the transfer of an estate or interest held on trust for any person where the disposal is made in connection with the appointment of a new trustee or in connection with the discharge of any trustee.

On the facts, the company was holding the freehold on trust for Mr Khan and therefore the disposal of the freehold by the company as trustee to him as the sole beneficiary brought the trust to an end. The High Court found that the transfer of the freehold back to Mr Khan was in connection with the discharge of a trustee, so offer notices did not have to be served on the qualifying tenants, nor did they have a right to serve a purchase notice on him if the transfer went ahead without such notices being served."

Puzzler

22:23 PM, 10th May 2017
About 2 years ago

How come there is no responsibility associated with this freehold? Who performs these tasks and who should perform them according to the lease? What units exist on it?

Man on Stilts

11:12 AM, 11th May 2017
About 2 years ago

Reply to the comment left by "Puzzler " at "10/05/2017 - 22:23":

Thanks for the feedback Neil, appreciated.

Puzzler - according to the leases, the leaseholder insures their own building and performs their own maintenance. There is nominal ground rent to pay which I am waiving going forward as it makes no sense to spend monies on operating a company for the sake of collecting 60GBP per year in ground rent.
What do you mean exactly by, 'what units exist on it'?

Colin McNulty

9:42 AM, 15th May 2017
About 2 years ago

Marinus, IANAL but I believe your solicitor is exactly right. The tenants have a Right of First Refusal when their freehold is sold / transferred from one owner to another (transferring from a company you own to you is a transfer).

Basically you have to come up with a price for the sale of the freehold to yourself, and offer the freehold to your tenants at that price. You are then not allowed to dispose of the freehold for 12 months IIRC at anything less than that price. See here for more details

http://www.lease-advice.org/advice-guide/right-of-first-refusal/

And yes there are stamp duty, capital gains tax etc implications too. It would seem it's better to leave things the way they are.

Man on Stilts

12:06 PM, 15th May 2017
About 2 years ago

Reply to the comment left by "Colin McNulty" at "15/05/2017 - 09:42":

Thanks Colin. Appreciated.

Puzzler

17:36 PM, 24th May 2017
About 2 years ago

Reply to the comment left by "Man on Stilts" at "11/05/2017 - 11:12":

I meant are they flats and if so how many? That is a very strange lease. Is it in Scotland? When was it drawn up and how old is the property?


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