Can you sell your company if the lease is in your own name, or your SIPP owns the building? Yes, but it has to be sorted out before completion, and in my experience it’s one of the things most likely to hold up a sale that is otherwise ready to go. On a share sale the buyer is buying the company. Anything the company doesn’t own, or doesn’t have a proper legal right to use, doesn’t come with it, and that includes the building it trades from.
There are two versions of this problem and they come up all the time with owner-managed businesses. The first is where the lease was taken in your own name years ago (often before the company existed, or because the landlord wanted a person rather than a company) and the company has just carried on trading from the premises. The second is where you own the building, usually through a SIPP or a SSAS, and the company occupies it on a lease that is either informal, out of date or doesn’t exist at all.
A share sale doesn’t move the lease for you
People sometimes assume that selling the company takes the premises with it. It does if the company is the tenant, because the tenant hasn’t changed; the buyer has simply bought the company that holds the lease. That’s one of the advantages of a share sale, which I’ve written about in more detail when comparing share sales and asset sales.
But if you’re the tenant personally, the company is at best occupying with your permission and at worst occupying with no formal right at all. The buyer’s due diligence will pick this up straight away, and no sensible buyer will complete on a business whose right to be in its own building depends on the goodwill of the person who has just sold it.
If the lease is in your personal name
There are three ways to deal with it, and the choice usually depends on the landlord.
The first is to assign your lease to the company before completion. Most commercial leases say you can only assign with the landlord’s consent. Where the lease says consent can’t be unreasonably withheld, section 19 of the Landlord and Tenant Act 1927 supports that, and section 1 of the Landlord and Tenant Act 1988 requires the landlord to deal with the request within a reasonable time. What the landlord will often ask for in return is an authorised guarantee agreement from you, under section 16 of the Landlord and Tenant (Covenants) Act 1995. That means you guarantee the company’s obligations under the lease until the company itself assigns it on. So you’ve sold the business and you’re still on the hook for its rent, which is not most sellers’ idea of a clean exit.
The second is for the landlord to grant a new lease directly to the company, with your old lease surrendered. This is often cleaner, but the landlord will look at the company’s finances and may want a guarantee from someone. If the buyer won’t give a personal guarantee (and many won’t), the fallback is usually a rent deposit, which costs money and needs to be agreed as part of the deal.
The third is for you to keep the lease and sublet to the company. That’s almost always the worst option for a seller, because you stay liable to the landlord for the rest of the term while having no say in how the business is run.
On a recent purchase I was asked to quote on, both leases were in the seller’s personal name, one of them had expired a couple of years earlier and was being held over, and the buyer had said (quite reasonably) that it wouldn’t take on the leases personally or give a guarantee. None of that is unusual. What it means in practice is that the property work has to start as soon as heads of terms are signed and run alongside everything else, and a property colleague at Nexa handles that side while I deal with the sale.
A word on holding over. If a lease has expired but the tenant is still there, it may be continuing under section 24 of the Landlord and Tenant Act 1954, depending on whether the lease was protected by that Act in the first place. Even where it is, a buyer will usually want a new lease with a proper term, because a continuation tenancy gives very little certainty about how long the business can stay.
If your SIPP or SSAS owns the building
This is a very common arrangement and it works well while you own both the business and the building. It gets more complicated when you sell one and keep the other.
The first job is making sure there’s a proper written lease between the pension and the company. It’s surprising how often there isn’t, or how often the lease expired years ago and the company has simply kept paying rent. Your pension provider (and, for a SSAS, the trustees, who are often you and your fellow directors) will need the lease to be on commercial terms, including a market rent, because the tax rules on pension schemes don’t look kindly on arrangements with connected people that aren’t at arm’s length. Expect the provider to want its own solicitors and a rent valuation, and expect it to take its time. SIPP providers are not known for moving at the pace of a business sale.
The second thing to think about is that after completion you’ll be the buyer’s landlord, through your pension. Your interests flip. As a seller you want the lease to look attractive to the buyer; as a landlord you want a good tenant covenant, sensible rent reviews and proper repairing obligations. The buyer will want a long term, a break clause and limits on what it has to put right at the end. You’re on both sides of that negotiation, and it’s worth being conscious of it (and, for a SSAS, thinking about whether the scheme needs separate advice).
Some buyers want to buy the building as well. That’s a separate property transaction with the pension scheme as seller, at market value, and it runs on its own timetable.
What buyers will actually ask for
Whichever version you have, the buyer will want the company to have a lease in its own name, for a term that fits their plans, at a rent they can live with, completed on or before completion of the share sale. They’ll also want to know whether the lease has the protection of the 1954 Act, because that affects whether the business can stay when the term ends. You can expect these points to appear in the buyer’s due diligence questions and then as conditions in the heads of terms, and the share purchase agreement will usually make the new lease a condition of completion.
What to do now
Find the lease, and check who the tenant actually is. You’d be surprised how many owners assume the company is the tenant when it isn’t. Check when the lease ends, whether it has expired, and what it says about assignment. If your pension owns the building, get the lease documented properly now, at a market rent, while nobody is waiting for it. And if you’re thinking of selling in the next year or two, speak to the landlord or the pension provider early. They work to their own timetable, not yours, and a delay at the point where everything else is ready is the last thing you want. My due diligence questionnaire covers the other documents a buyer will ask for at the same time.
I help owners of small and medium-sized businesses sell their companies, working with property colleagues at Nexa on the leases that come with them. Get in touch if you’d like some help.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
