Commercial property transfers during mergers and acquisitions

When a business changes hands, the focus is often on shares, contracts and people. Property can sometimes slip down the list which can be costly.

Commercial premises often represent a big part of the value of the deal and problems with title or occupation have a habit of surfacing at the worst possible moment.

In mergers and acquisitions (M&As), commercial property is rarely an asset that can simply be passed across with just a couple of signatures.

It may be owned by the target company, held in a group structure or occupied under a lease.

Each position brings its own risks and obligations and these need careful thought before the transaction completes.

Freehold property within the target business

Where the target company owns property outright, buyers often assume that the property will transfer automatically with the shares.

From a legal perspective that is broadly correct, but it does not mean the property should be ignored.

Title issues, rights of way, restrictive covenants or historic breaches can all affect future use or value.

A buyer who plans to redevelop, refinance or sell at a later stage may find those ambitions frustrated if the position is not understood from the outset.

Due diligence should therefore go beyond a basic title check and consider how the property supports the wider business plan.

We can help you carry out this due diligence so you are not left blindsided later.

Leasehold premises and consent issues

The majority of UK trading businesses occupy leasehold premises. In an asset purchase, leases usually need to be assigned.

This often requires landlord consent and that consent may be conditional. Delays here are common and can derail completion timetables if not addressed early.

Common conditions attached to landlord consent include the buyer providing financial information to demonstrate covenant strength or a requirement to remedy existing breaches of the lease before consent is given.

Even in a share purchase, leases can contain change of control provisions. These may give the landlord rights to terminate or impose new conditions.

Reviewing the lease terms at an early stage allows time for discussion and avoids unwelcome surprises after completion.

Property held outside the trading entity

It is not unusual for property to sit in a separate company or personal ownership, with the trading business operating under an informal arrangement.

Where a buyer is acquiring a company structured in this way, clear documentation will be essential to ensure continued occupation on acceptable terms once the deal completes.

This is also an opportunity to establish more formal and official arrangements.

A properly drafted lease can provide certainty for both parties and make the business more attractive to funders and future purchasers.

Timing and coordination in commercial property transfers

Property work often runs alongside corporate negotiations, but the two should not be treated in isolation.

Completion statements, conditions precedent and post-completion obligations can all hinge on property matters.

A last-minute discovery that consent has not been obtained or that a transfer deed is outstanding can create unnecessary pressure.

Early coordination between corporate advisers and property solicitors helps keep momentum and ensures that the transaction structure reflects the reality on the ground.

If you are considering a merger or acquisition and commercial property forms part of the picture, our team can guide you through the process.

Get in touch with our solicitors today to discuss commercial property transfers.