Here we are going to discuss a SIPP or SSAS joint ownership purchase where both parties are relying on bank finance for the purchase. This is perhaps one of the most complex pension property transactions. However, this should not put you off! With the right team in place it can easily be achieved.
A scenario which we often encounter is as follows:
Member ‘A’ owns commercial premises (which are subject to a mortgage) from which he runs his business. He wants to put this into his Pension Scheme but his pension scheme doesn’t have sufficient funds to purchase the property.
His IFA advises him that he could jointly purchase the property with his Pension Scheme.
However both Member A in his individual capacity and the Pension Scheme will still be short of funds to purchase the property in full and his IFA suggests that they both take out separate loans.
There are three main steps that you need to consider when dealing with the above scenario.
Step 1: The Lender
Find a lender who is firstly familiar with lending to Pension Schemes generally and secondly familiar with this type of lending arrangement. Also ensure both loans are with the same lender.
Selecting the right lender could reduce the length of the transaction by months!
Step 2: Legal Appointments
To achieve the best outcome two solicitors will need to be appointed. The first will act on behalf of Member A in his individual capacity and in his capacity as seller.
The second will act for the pension scheme and deal with the following:
- Review the property’s title, request searches and standard enquiries and approve the form of contract and transfer (please note that although Member A owns the property the Pension Scheme and the lender will want the usual searches and enquiries raised as if they were purchasing the property from a third party)
- Act on behalf of the lender and register the new legal charge at companies house and the land registry
- Advise the Pension Scheme in respect of the mortgage they are taking
- Agree the form of ring fencing letter
- Prepare the joint ownership agreement between the parties
- Prepare the new occupational lease which will need to be put in place on completion
- Deal with post completion matters such as paying any Stamp Duty Land Tax and update the property’s registered title at the Land Registry
Please note that on some occasions the lender may suggest appointing a third solicitor to act on their behalf. On most occasions this ought to be avoided as the second solicitor should also be able to act on behalf of the bank and in doing so will keep costs and timescales down.
Appointing two solicitors who are both familiar with this type of transaction will dramatically reduce the time it takes to complete the process.
Step 3: Documentation
As well as the contract and transfer which will deal with the sale / transfer of part of the property to the Pension Scheme there are also other documents which are vital to consider in this sort of transaction.
These are:
Joint Ownership Agreement: This agreement will set out in which proportion Member A and the Pension Scheme will own the Property.
Facility Agreement: The lender will issue separate facility agreements to Member A and the Pension Scheme.
Legal Charge: The loans detailed in the facility agreements will need to be secured against the property and this will either be done by the lender producing two legal mortgages (one for each facility agreement) or (which is a far better approach) one legal mortgage which Member A and the Pension Scheme are a party to.
Ring-Fencing Letter: As you will appreciate Member A and the Pension Scheme may be borrowing different amounts and therefore their liabilities to the lender may be different.
Furthermore what happens if one of them defaults on their loan obligations? If Member A cannot meet its repayments can the bank pursue the Pension Scheme?
In theory yes, however this would breach HMRC regulations and accordingly a ring fencing letter needs to be put in place in order to ‘ring –fence’ the liability of each party.
Occupational Lease: Almost certainly the bank will require an occupational lease to be put in place on completion. Member A may already have one in place but if this is not satisfactory then this may have to be surrendered (as mentioned above) and a new one put in place which meets both the Pension Scheme and bank’s requirements.
If you would like to discuss your legal SIPP or SSAS options with our specialist pension property solicitors, please contact Johanna Hammersley or call 01202 983 300.
