Advice on securing my half of an investment.

[The Hes]

Hi everyone,
my friend and I have just put in an offer to buy some land and commercial buildings which is likely to be accepted. I am a cash buyer of 50% and he is using a loan from his bank for his 50%. His bank are wanting to secure his loan on his existing business and the land were are purchasing- subject to valuation.
My question is how can I, or is there a way to secure my cash investment in the unlikely event that he defaults on his loan payments and the bank want to repossess.

My initial idea was to buy the land as two plots (which the vendor is happy with) so my half is separate from his and the bank does not secure on my half, but apparently this is a messy way of doing it. The brokers my partner has been dealing with, one has said there are ways to do it and one has said its not doable.

We are not quite at solicitor stage yet so I thought I would ask here if anyone has been in this situation before or even if there is a text book course of action for this type of partnership.

Thanks in advance for any input,

Hes.

 

[Gyumri]

My question is how can I, or is there a way to secure my cash investment in the unlikely event that he defaults on his loan payments and the bank want to repossess.

Firstly the land should be held by an Ltd and not personally. Then try to persuade his bank to confine their security to his personal guarantee and a debenture over his company (presumably his company is obtaining the 50% loan). If that's not enough then it's understandable why the bank want to take a first legal charge over the land.

In that case there would be nothing you could do to protect your investment should things go belly up and they wished to call in the loan, as any other mortgagee would do the same thing.

The bank could be asked to rank their interest behind your 50% investment, but that depends on how much they are lending and whether they have enough security already.

You might want to try obtaining a commercial mortgage rather than involving your friend's bank but either way your investment can never be fully protected if a commercial loan goes into default and a lender wants to get back its money.

 

[WaveJumper]

Agree with the above hold it in a Ltd, its sounds very much like your friend is stretching themselves to the max (not always an issue but risky for you) How about you put up your 50k take on the commercial mortgage for the rest with the agreement your friend pays you / ltd back then his % of cake / ltd increases along the way until equal

 

[Mark T Jones]

I don't know the answer, but as above, would suggest some caution here, since a lot depends on their ability to service a loan. (If they are taking a loan, why don't you take a loan and own 100%)

 

[MikeJ]

Two suggestions to hold in a ltd company, but neither said why?

 

[Ozzy]

My initial idea was to buy the land as two plots (which the vendor is happy with) so my half is separate from his and the bank does not secure on my half, but apparently this is a messy way of doing it.

I don't know the intrinsics to give any advice, but reading your post my gut says do this even if it is 'messy' I'd still approach it this way. With all the best will in the world, you would still need to protect yourself the best you can just in case.

 

[Paul Kelly ICHYB]

Whatever happens, PARTNERSHIP AGREEMENT.

 

[The Resolver]

Hi everyone,
my friend and I have just put in an offer to buy some land and commercial buildings .

His bank are wanting to secure his loan on his existing business and the land were are purchasing

Could I ask you to be a little more specific as to the 'land' Is it in some sort of use or derelict? What is the size approx? Does it have separate access? Does it have development potential?

As to the buildings are they all together and have shared access or are anyof them standalone and/or at separate locations?

 

[Chris Ashdown]

Tell the other person to put his house up as the guarantee, why should you take the risk. People called friends often let you down and walk away leaving you in the lurch

 

[Gyumri]

Two suggestions to hold in a ltd company, but neither said why?

It provides personal protection and therefore peace of mind against being sued as the owner in a way which no insurance policy can provide.

I can't think of any benefits in holding commercial property in one's own name - but if there are any then they would be outweighed by the risk of being sued personally.

If the property is being used solely for the purpose of a trade - such as a cafe - then provided the shares have been held for at least two years they will qualify for 100% business property relief - so no inheritance tax to pay.

Unless the law has changed.

 

[The Hes]

Could I ask you to be a little more specific as to the 'land' Is it in some sort of use or derelict? What is the size approx? Does it have separate access? Does it have development potential?

As to the buildings are they all together and have shared access or are any of them standalone and/or at separate locations?

Thanks for all the replies, some really good points and has given me some things to think about.
Let me elaborate a little about the situation.
The property is 2 acres of land with 7 small commercial units on it that are currently tenanted. one unit is standing alone, then there are two together, and the other four are as one building. There is scope to expand as only 1/3 of the land is used.
I am a cash buyer because I am lending some of my capital needed off a relative that offers a low interest rate!
My business partner is taking out a commercial mortgage through his own LTD company. The brokers will only lend him minimum 150k so he has no reason to use his own cash although he isnt short of it.

We plan to open a LTD company or an LLC or which ever we are best advised to do.

We are soon to go into a lock out agreement and then I can ask solicitors this question but I thought I would ask here first, I cant be the only business to have this situation, maybe there is a straight forward legal procedure for it?
The main thing here is for me to satisfy my relative (and myself) that his (and my) money is safe if somehow my business partner defaulted on payments and the mortgage company wanted to repossess.

 

[Gyumri]

I cant be the only business to have this situation, maybe there is a straight forward legal procedure for it?

If you want to protect your 50% investment then you would need to be able to exercise some control over your friend's finances otherwise he could over-extend himself financially and default on his borrowings.

You could take a first legal charge on the freehold to secure your investment and your friend would have to find a borrower to take a second charge.

A lot depends on the amount of money involved.