Case Study – Self-Administered Pension Scheme (SSAS) – Purchase of a Commercial Property, with a Mortgage and with a Lease-Back

Introduction:

In this case study, we look into the strategic decision made by an individual client, utilising a Self-Administered Scheme (SSAS) to purchase a Commercial Property with the assistance a Mortgage. The Property was subsequently leased back to the client’s Limited Company, capitalising on both the real estate opportunity and rental income back into the SSAS.

Background:

Our client, a conscientious business owner and investor, sought to diversify his retirement portfolio through a Self-Administered Scheme (SSAS).

Recognising the potential in the commercial real estate sector, he identified an opportunity to purchase the commercial property where his current business traded from and simultaneously leased it back to his company, the tenant. The result, generating a reliable income stream into his pension pot while benefiting from potential property appreciation.

Lee Gaddes, Property Solicitor, was tasked with facilitating the legal aspects of this transaction, ensuring that the Pension Trustee’s rights and interests were protected throughout process. This included the due diligence required in the commercial conveyancing purchase, protecting the mortgage lender’s interest, and drafting the Commercial Lease.

Purchasing a commercial property through a SSAS involves a series of steps to ensure compliance with pension regulations and Land and Property Law.

Here is an overview of the key legal aspects of this process:

1. Legal Structure and Compliance:
   • Establishing a SSAS involves adherence to specific legal requirements. The scheme must be set up in accordance with pension regulations, and the trust deed and rules must be drafted to outline the structure, powers, and obligations of the trustees.
2. Trustee Responsibilities:
   • The trustees of the SSAS play a crucial role in the legal process. They have a fiduciary duty to act in the best interests of the scheme members. The trustees are responsible for making investment decisions, including the purchase of a commercial property.
3. Investment Strategy and Property Selection:
   • Before proceeding with the purchase, the trustees must formulate an investment strategy that aligns with the objectives of the SSAS. This strategy may include considerations such as risk tolerance, diversification, and long-term growth.
   • Property selection involves due diligence to ensure the chosen commercial property meets legal requirements, local authority regulations, and other compliance standards.
   • We were involved in reviewing the property’s title, conducting property searches, and examining any existing leases.
4. Mortgage Selection:
   • If the SSAS intends to finance the property acquisition with a mortgage, the trustees and the appointed solicitor must review terms with lenders, consider mortgage agreements, and ensure compliance with pension and financial regulations.
5. Lease-Back Agreement:
   • Drafting a lease-back agreement is a further legal step when purchasing a commercial property. This agreement outlines the terms and conditions under which the property will be leased back to a tenant company. As part of the conveyancing process, we were involved in drafting and reviewing the lease agreement to ensure it complied with relevant laws and protected the interests of the SSAS Trustees.
6. Legal Due Diligence:
   • Thorough legal due diligence is essential before finalising the property transaction. This involves investigating the property’s legal history, potential encumbrances, and any outstanding legal issues that could affect the SSAS’s ownership rights.
7. Contract Negotiation and Execution:
   • The negotiation and execution of the purchase contract involved various legal documents and we were engaged to draft, review, and negotiate the terms of the contract, ensuring that it reflected the agreed heads of terms and protected the legal interests of the SSAS. We effectively limited any liability to ensure any liability would not exceed in amount, the value of the assets less the liabilities of the SSAS from time to time in their capacity as trustees for the pension fund.
8. Completion and Transfer of Ownership:
   • The completion process involved the finalisation of the property purchase. facilitating the transfer of legal ownership, ensuring that all legal requirements were met, and necessary documents are filed with Land Registry, Companies House and the Pension Trustees.

Conclusion:

Engaging legal professionals with expertise in pension law, commercial property transactions, and commercial leases is essential to the process to navigate the complex legal landscape and ensure a compliant and successful acquisition of a commercial property by a Self-Administered Scheme.