#4783 - Property And Environmental Aspects

Property and Environmental Aspects

Property Aspects

Issues for Buyer

Essential element is that Seller/Target has good and marketable title to the Properties so on both share sale and asset sale the Buyer will want to check:

Value of property
That title is vested in seller (business sale) or target (share sale)
Any contingent liabilities
Any contingent environmental liabilities
Relevant planning permission obtained
Can be used for actual and proposed use
Any third party rights adversely affecting the Property
Full information in respect of SDLT history
Any charges or debentures burdening Property
Any consent required for transaction to go ahead:
- Landlord’s consent to assign (business sale)
- Consent under a change of control clause (share sale)

Due Diligence

Specifically going to be looking for existence of any:

Original Tenant Liability	If Tenant was original tenant of an Old Lease, remains liable to landlord for tenant covenants in the lease infinitely: Liability would pass to Target on Share Sale Liability would pass to Target on Business Sale if leasehold interest included in sale. If leasehold interest not included – Buyer will take free from liability.
Authorised Guarantee Agreement	If Tenant was original tenant of a New Lease then tenant will automatically be released from any obligations under the lease if assigned BUT: If an AGA was given – Tenant will have guaranteed the assignee’s obligations Target could thus remain liable to original Landlord Check data room for copies of any relevant AGA
Tenant’s Right of First Refusal	Where property is mixed commercial/residential, residential tenants will have: Right of first refusal on transfer of freehold If non residential use is 50% or less Due to Landlord and Tenant Act 1987 This means on a Business Sale where Target’s business is mixed residential/commercial and Seller wants to sell the multiple occupation property, residential tenants must be offered it first.
Security of Tenure	Under S30(1)(g) LTA 1954 a Landlord can oppose application for new tenancy if landlord intends to occupy the property itself. Needs to be considered: On business sale When acting for Buyer; and Seller is landlord of a lease coming to end within 5 years from completion of sale Always check in Lease whether this has been contracted out of (if yes – no problem) Not relevant on a share sale because: Landlord / Owner / Target / Tenant remains the same

Establishing Good and Marketable Title

Buyer will want to ensure they acquire the property with good and marketable title so need to establish:
- Seller has good title to all properties
- All properties have benefit of all necessary rights required for use/enjoyment
- Properties not subject to onerous conditions/third party rights
- Properties can be used for purposes intended by Buyer

Investigating Title & Protection

Business Sale

Share Sale

All properties elected/included in transaction will transfer to Buyer

Normal investigation of Title will occur via:

· Investigations/Searches/Enquiries

· Certificates of Title; or

· Property Warranties

The properties owned by the Target do not change hands, they stay with the Target so different conveyancing process to normal.

Buyer can obtain protection via three methods:1. Investigation of Title

· Title investigated in normal way by Buyer’s Solicitors

· Will be done if property important/big part of transaction/Target’s major assets

· Expensive/time consuming however

2. Certificate of Title

· Useful if Investigation of Title already been done

· Provided by Seller’s Solicitors

· Remedy = negligent misstatement against Solicitors

· Buyer can request warranty guaranteeing truth/accuracy

· Negotiation takes time but quicker than Full Investigation

Seller’s solicitor will seek to limit liability via:

· Disclaimer that won’t accept responsibility re information

· Certificate expressed to be for benefit of that particular transaction only

· Limit on financial liability

3. Property Warranties

· Lowest level of protection

· Used for unimportant properties in general scheme

· However only as good as person giving them

· If Seller has limited resources – unattractive warrantor

· Recovery under warranties subject to uncertainties of litigation

On the whole – relevant factors will depend on each parties bargaining powers and their resources. If one is stronger than the other then they can force the other to do an investigation or give extensive warranties.

Environmental Aspects

Having bought the property, the Buyer can be liable for costs of cleaning up contaminated land even if they were not responsible for the original contamination. Can be forced to clean up as a result of contamination notices served by Local Authorities.

· Whether contamination is an issue should be considered in every transaction

· Will allow Buyer to

Liability for Clean Up

Local Authority will notify Interested Person of Contamination:

· Class A – original polluter

· Class B – occupier, if original polluter cannot be found

· If more than one person responsible for pollution, can agree amongst themselves who is responsible for clean-up and apportion liability

Share Sale

Business Sale

· Buyer acquires Target and all liability

· Contamination can decrease value of Target

· Can re-negotiate purchase price to take into account cost of cleaning

· Buyer will become owner occupier of Property

· Will bear Class B liability

Licences

Buyer must check that Seller has all relevant licences for type of business carried on at the Property:

· Share Sale – licences remain with Target and transfer – no issue

· Business Sale – will need to ensure licence specifically transferred

Asbestos

· Seller must prove that they have complied with obligations under Control of Asbestos Regulations

Summary

A) Mixed Commercial/Residential Use

If there is a mixed use of commercial and residential of a property potentially being sold, it is important to establish the percentages of each because where a property is mixed, the residential tenants will have a right of first refusal of any transfer of the freehold if the non-residential use is 50% or less. Thus, if transaction structured as business sale some or all of the premises may have to be offered to existing tenants first. Will increase delay and may mean that Buyer cannot obtain some/all of the premises.

B) Security of Tenure

Must look for a clause in lease confirming parties agree that the lease is contracted out of security of tenure and referring to the dates on which the landlord served its warning notice on the tenant date tenant made its declaration/statutory declaration.

If it is a share sale, the landlord will remain the same. But if it is a business sale, the lease will need to be assigned to the Buyer who will then become the new landlord.

Note that if a lease is up for expiry and a landlord is posed to change as a result of a sale, a change of landlord within the last 5 years will mean that the Buyer will not be able to rely on the firm and settled intention to live in the property ground.

C) Change of Control

If a lease does not contain a change of control provision, the transaction will be completed much more quickly if structured as a share sale.

If transaction is structured as business sale, will take longer as will be necessary to obtain landlord’s consent to assignment of lease.

On change of control, Landlord may request licence to assign, AGA and deed of guarantee from Buyer.

D) Title

Share sale – very important to ensure the Target has good and marketable title to all properties.

On a share sale, the properties will not be changing hands and therefore no application for registration will need to be made by the Buyer (no TR1).

E) Proving Title

Investigation of title...

#4783 - Property And Environmental Aspects - Mergers and Acquisitions (Private Acquisitions)

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