Property in Ltd Co.

Fencepost · Apr 2, 2019

We have a high street shop property that we used to run our business from before retiring. We currently have a tenant in that property for the next few years. After that I think there will be little to no chance of renting it out, which could see us having to maintain and pay rates on a property we don't want and nobody else wants (think millstone)

If i set up a Ltd company and transferred the property into that company, if the worst come to the worst could we just wind the company up and wave goodbye to it all without it being able to touch our own personal money.

I am aware of the costs of running a Ltd company (we had one for years) and I am also aware that I may be liable to capital gains if we transfer the property over. My idea is that if all goes pear shaped then my losses will be limited to purely the property. Not that I wish to loose the property but its a loss I could cope with, whereas long term responsibility for this potential millstone is something I don't want.

For whatever bizarre reasons my solicitor seems a little unsure and won't give any 100% guarantees. Any thoughts ?

WaveJumper · Apr 2, 2019

I would only say two years is a long time in business so hopefully the picture may change and suddenly you have a new tenant. When the times comes does the current tenant want to stay on maybe on a monthly basis even on reduced rent but liable for business rates of course, letting it out for short term storage, charity shop, a local art group or such who need a place to showcase art etc but cant afford high rent but could again cover your business rates.

If your prepared too write it off as a loss as mentioned above surely someone would want to buy it if the price was right

It would be a shame to 'loose' any money on your investment

Fencepost · Apr 2, 2019

I am thinking on how to protect myself from worst case scenarios. This high street is finished and it is reasonable to think it will be the same in a few years time. Also part of the rest of the property with some shared liability (it is a large old building owned by various parties) has been abandoned and a neighbouring property (also abandoned) is in a bit of a state.
Yes it is potentially a reasonable investment and the current rent pays well, and that would still continue within a ltd co. But if it was in a Ltd Co, could I stick the shares in a bottle, chuck it off the end of the pier and wave it good bye. Or could I still somehow be liable.

Lisa Thomas · Apr 2, 2019

Assuming the subsequent Limited Company is solvent you could consider a Solvent Liquidation - A Members Voluntary Liquidation.

The property could then be sold and cash transferred to shareholders or the property could be transferred to shareholders as a distribution in specie.

This often has the benefit of saving the shareholders tax as they can claim entrepreneurs relief on the distributions and only pay 10% tax.

Best to take advice from your accountants. You will need an IP to facilitate the MVL.

tony84 · Apr 2, 2019

You can not get rid of a property?
As in you could not even give it away?

ComPropSolicitor · Apr 2, 2019

Thinking outside the box but if you all acted together (i.e. other owners and occupiers) could you not apply for planning for change of use to residential? and, do the necessary works or at least you would then be able to sell to someone who could develop. Depends absolutely on where it is and what the building is like but I note that you said property as opposed to industrial unit.

Financial-Modeller · Apr 2, 2019

It seems like a lot of hassle to dispose of a property.

An investment property with a tenant is exactly the type of asset that has value to certain investors.

Why not just sell it at auction?

WaveJumper · Apr 2, 2019

If you jointly have a sizable plot check out Travelodge they actively looking for in town sites for development

Fencepost · Apr 3, 2019

Thanks for all the answers, however we seem to be heading off in the wrong direction, and I am just trying to focus only on liability of ownership, so I will try to frame my question in another way, a bit exaggerated I know but may be it will explain better what I am trying to get at.

If in some bizarre event where the property was destroyed one evening in a storm of lightening and high winds, and then I found out I had not renewed the insurance. And as the property is Listed the council demands that it is fully restored and as its listed the rebuild is many many hundreds of thousands, many many times its market value - (its rebuild cost is something stupid like 8x its market value)
Now if the property was held in a ltd co where I was the only shareholder, could I just wind the company up and walk away ?
Or could it be somehow argued that the company never had any money and really I should pay out of my own pocket for its rebuild, a scenario that would destroy me financially.

I have always thought that a director/shareholder could just walk away any time they choose, but my solicitor (who I do not rate at all) does not seem absolutely convinced and even though she thinks I'm right will not give me a 100% guarantee - which is sewing the seeds of doubt in my mind.

WaveJumper · Apr 3, 2019

You seem to be going to great lengths to avoid any possible future liability on this property. A ltd is an entity in its own right, yes, however my understanding is it will need to “purchase” the said property at a fair market price, this will also involve stamp duty and possible capital gains tax for you personally.

It sounds like you need to seek advice from both a commercial lawyer and an accountant

Lisa Thomas · Apr 3, 2019

If the property is personally owned by you, and based on your hypothetical scenario is is destroyed, you have no insurance and you are held to make it good, then you will be liable.

If you cannot pay you will face personal insolvency like Bankruptcy.

If the property is owned by a Limited Company and it is onerous it can be disclaimed and passed to the government to deal with, or if the Company is Liquidated and/or dissolved it will pass to the government to deal with.

However the Directors of the Company can be held personally liable if they have committed misconduct and potentially back to facing personal insolvency again.

ComPropSolicitor · Apr 3, 2019

I don't really understand the structure of the building. You appear to be suggesting that you own the freehold of part of an older building that is listed by the Council. Are you sure that you do not have some form of Lease? I fail to see how you own any part of a larger listing building outright but at the end of the day who knows without all of the information.

To further cast doubt on the above you also appear to suggest that your part of it could fall or burn down but what about the other elements of the building? Would these not fall or burn down?

Just trying to understand the structure of the building as it makes a big difference to the advice.

Fencepost · Apr 3, 2019

WaveJumper said:
You seem to be going to great lengths to avoid any possible future liability on this property. A ltd is an entity in its own right, yes, however my understanding is it will need to “purchase” the said property at a fair market price, this will also involve stamp duty and possible capital gains tax for you personally.

It sounds like you need to seek advice from both a commercial lawyer and an accountant

we have done the accountancy side - some capital gains to pay and the accountacy fees would def be a negative, but still worth it for peace of mind.

Lisa Thomas said:
If the property is personally owned by you, and based on your hypothetical scenario is is destroyed, you have no insurance and you are held to make it good, then you will be liable.

If you cannot pay you will face personal insolvency like Bankruptcy.

If the property is owned by a Limited Company and it is onerous it can be disclaimed and passed to the government to deal with, or if the Company is Liquidated and/or dissolved it will pass to the government to deal with.

However the Directors of the Company can be held personally liable if they have committed misconduct and potentially back to facing personal insolvency again.

That sounds like what I want to hear - if it all goes pear shaped just walk away.

what could constitute misconduct?

ComPropSolicitor said:
I don't really understand the structure of the building. You appear to be suggesting that you own the freehold of part of an older building that is listed by the Council. Are you sure that you do not have some form of Lease? I fail to see how you own any part of a larger listing building outright but at the end of the day who knows without all of the information.

To further cast doubt on the above you also appear to suggest that your part of it could fall or burn down but what about the other elements of the building? Would these not fall or burn down?

Just trying to understand the structure of the building as it makes a big difference to the advice.

Presumably it was once a stand-alone building from the 1840s that was split up into 5 separate parts in the 1930s. all parts are individual freehold properties, deeds give shared responsibilities to roof/ gable walls, foundations etc.
If there was a complete loss of the building (the whole of which would easily cost a 7 fig sum at listed building specifications) and some of the properties have owners who are missing/bankrupt/likely uninsured - then god knows who would be responsible
thats why I want the millstone away from my home / pensions / savings.

I am in the process of getting proper sound legal advice but my own solicitor just seems a bit lost. I am asking in here to get some pointers for when I see someone who may know something.

Gordon - Commercial Finance · Apr 3, 2019

Fencepost said:
what could constitute misconduct?

Perhaps stuff like not having appropriate insurance on a listed building...?

Financial-Modeller · Apr 4, 2019

@Lisa Thomas has answered your question.

You have introduced legal fees, accounting fees and potential capital gains tax to the situation, suggesting that the building does have some value to you, in contradiction to your initial post:

Fencepost said:
...I think there will be little to no chance of renting it out, which could see us having to maintain and pay rates on a property we don't want and nobody else wants

If selling is not an option - which still seems like the best outcome, based on information provided - and you are considering embarking on the process of incorporating, purely to mitigate risk of ownership, is it likely that the other four owners might be willing sellers?

If so, your NewCo could buy the entire property and make better decisions about next steps? Next steps could perhaps include redevelopment, etc.

MikeJ · Apr 4, 2019

Who owns the rest of the building? There's a chance they'd be interested in taking on another bit, at a knock down price. Presumably they've found a way of mitigating this risk.

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