A brief summary of the law, structure and procedure regarding foreign ownership and acquisition of UK Property.
The UK Land Registry
In the UK, all freehold purchases and leases for a term of over seven years must be registered with the UK Land Registry. The result of this is that the identity of the legal owner, and the price for which the property was sold, will be referred to on the register.
The Land Registry records only the legal title to the property and does not deal with or require details of any beneficial interest to be noted. There are, however, certain formalities to be complied with in the case of a foreign company purchasing property in the UK. Our property lawyers will guide clients through all necessary elements of the process.
Property Searches & Due Diligence
The buyer would normally instruct a surveyor to negotiate the commercial terms of the deal with the seller’s surveyor, and once heads of terms are drawn up, the seller’s solicitor will draft the sale contract and send both it and any title information relating to the property to the buyer’s solicitor.
The solicitors acting for the buyer will undertake due diligence which would involve investigation of the title information and the commissioning of a number of searches. These searches give further background and detail regarding the property on a wide variety of issues. Such issues may include: the planning history of the site (to confirm that the necessary consents were obtained for the building’s construction and use), clarification in respect of access issues, and the identification of any service media serving the property, to name but a few.
When undertaking this due diligence, the buyer may commission and request further detailed reports such as a structural survey or environmental reports (dependent on the needs of that specific property).) The buyer would also raise detailed property specific enquiries to which the seller would need to revert.
It typically takes in the region of 3 weeks for the searches to be completed and documented back to the firm. There can be many variables to the work undertaken by both solicitors in any transaction though and no two matters will be the same.
Exchange of contracts and completion
After the property searches and due diligence processes are completed, focus would shift to the exchange of contracts, which contractually commits both parties to the purchase.
At this stage the buyer will pay a non-refundable deposit (usually 10% of the sale price) and the contract will fix a completion date which is agreed between the two parties. After the exchange of contracts, the risk in the property will often pass to the buyer, which means the buyer may wish to insure the property from that date. If any damage occurs between exchange and completion the buyer would be liable and they would be expected to complete the sale regardless – relying on the insurance in relation to the damage. Note that if a client was buying an investment property in which there were occupational tenants, then the seller would usually retain the risk until completion as it will probably be under an obligation to insure by way of those occupational leases. This insurance position is something our solicitors would deal with during the negotiation on the terms of the sale contract.
On the completion date specified by the contract, the buyer will transfer to their solicitor the required funds, typically being the balance of the purchase price and any necessary apportionments. The solicitors will then complete the transaction, usually over the telephone, via a series of undertakings. Although at this point the buyer will “own” the property, legal title does not actually pass until the transfer, executed by the seller, is registered at the Land Registry. This will be attended to by the buyer’s solicitor. There will also be stamp duty land tax payable by the buyer on the completion of a purchase, as discussed below.
The whole process normally takes around 4 – 6 weeks from heads of terms being produced until completion. It can however take significantly longer, particularly if there are other parties involved; perhaps on a leasehold purchase, a development site, or if lettings need to be agreed. Such variables could increase costs in addition to the length of time it takes to exchange contracts.
As mentioned above, stamp duty land tax is often payable on the purchase of a property, the duty payable being a percentage of the sale price (including VAT if VAT is payable on the sale price).
On commercial properties, the duty is 4% where the value of the property is £500,000 or higher.
If a particular property was owned by a company and it was possible for a client to purchase the shares in the company, rather than the property as an asset, the stamp duty land tax payable on a share transfer would be 0% or 0.5% depending on the vehicle used to acquire the shares. A share purchase is not often viable though, unless the property is held in a special purpose vehicle. If the company owns other assets and/or has other liabilities it is not an applicable option.