Back to basics – Top 5 things to consider before selling a property SPV

Selling a property special purpose vehicle (SPV) can be an attractive alternative to selling the underlying property directly. It may offer commercial, timing and tax advantages, but it also requires careful planning. Before launching a sale process, sellers should take time to understand what a buyer will be looking at and where potential issues may arise.  The primary goal is to present a “clean,” low-risk entity to buyers which will reduce due diligence time and offer stamp duty land tax savings.

Review the SPV’s corporate structure

Selling an SPV will take the legal form of a share sale.  In a share sale, the buyer acquires the whole company, including all of its assets, liabilities and historic obligations.  Therefore an early health check by the seller of the SPV’s corporate records, shareholder arrangements and governance documents can help avoid unnecessary questions during the buyer’s due diligence process, and give the buyer confidence that the company is well organised.  If the SPV was incorporated some time ago or has undertaken other trading activities in addition to owning / letting property, this could affect the buyer’s view of the risk profile and should be disclosed to a buyer at an early stage.

Understand the tax position

The tax treatment of a company share sale can be very different from an asset sale (selling just the property). Individual sellers should consider potential capital gains tax implications, the availability of any reliefs and whether the SPV carries any historic tax exposures. Taking tax advice prior to the sale process beginning will help identify issues early on and allow for the deal to be restructured if needed.  For corporate sellers, any internal corporate restructuring that has taken place within the seller’s group which has involved the SPV should also be reviewed carefully by the seller’s tax advisors to ensure that the subsequent sale of the company doesn’t inadvertently trigger a tax charge either in the SPV or wider seller group.

Identify and address historic liabilities

On a corporate disposal, the buyer will inherit all of the SPV’s history which will include any actual or potential liabilities, including tax matters, environmental issues, contractual disputes and regulatory compliance. Dealing with known issues before going to market can improve deal certainty and may reduce the need for extensive warranties or indemnities in the share purchase agreement (SPA).

Review financing arrangements

If the SPV has existing debt, lender consent may be needed before a change of ownership can take place. Financing documents should be reviewed early to identify any change-of-control provisions, repayment requirements or restrictions that could affect the structure or timing of the transaction.

Prepare for due diligence and negotiations

A clear and well-managed due diligence process helps maintain momentum and can support the valuation of the company. Sellers should collate key property documents, including leases, tenancy agreements, deposit protection certificates, contracts, planning materials, EPCs and financial information in advance.  The legal titles to all properties vested in the SPV should be checked thoroughly to ensure ownership is as expected and free from obscure covenants.

In terms of agreeing the purchase price, the valuation of a SPV is often linked to the value of the property.  However, when a property sits within a corporate wrapper, there may be other assets or liabilities to consider which can affect the price to be paid, i.e. deposits paid, rents received, or tax rebates.  The parties will need to consider whether the price should be fixed or if it should be adjusted for the net assets in the company as at the date of completion.

Final thoughts

Selling a property SPV can be a practical and efficient route to disposal, but preparation is key. Early legal, tax and financial input can help identify risks, avoid delays and put sellers in the strongest position when negotiations begin.