Apply to the Facts – Also refer to Real Estate ERNotes
2020-2021
LPC Exam Ready Notes
[Advanced Real Estate]
1
, Apply to the Facts – Also refer to Real Estate ERNotes
Site Acquisition (Preliminary Steps)
Joint Venture Methods – Pros & Cons (Workshop 1, Task 2)
Commercial developments are costly and require expertise, therefore development projects are often
undertaken by multiple parties
Potential parties = landowner, developer, funder and ultimate occupier
Contractual Parties enter into a contract which sets out the terms of their agreement, namely, their
JV financial commitments and duties relating to the development
In other words, a Joint Venture Contract is ‘an agreement between two or more
developers to develop a site together without the need to create a separate legal
entity, nor to assume any liability for each other’s actions is’
Pros & No need to set up a separate corporate entity, this avoids the need to pay
Cons SDLT for transferring the land into the joint names of the parties
The contract is ‘tax-transparent’, so each party is responsible for the payment
of its own income tax and CGT, meaning they each benefit from tax
deductions and reliefs
As it is merely a contractual relationship, the actions of one party is unlikely
to cause the liability of another
o There is typically no joint and several liability, meaning you do not
tend to take on liability for the defaults of the whole joint entity
Parties are free to negotiate the terms
No SCP, and thus there is unlimited liability for individual losses, threatening
bankruptcy
SPV This is a limited company set up for a particular purpose (here, to develop a particular site)
Company Pros & Shareholder agreements allow for flexibility
(“SPVC”) Cons CA2006 governs private companies, which is a predictable framework
Parties enjoy limited liability
Investors can sell their shares to get out
Forming an SPVC jointly reduces overall exposure to costs because the SPVC
would have limited liability
At the completion of the development, it is possible to transfer the
development by selling shares in the SPV, rather than transferring the
development itself
o This reduces risk because its more flexible for potential buyers
o This is beneficial because selling shares is a flat 0.5% on the
consideration paid, rather than 5% (on consideration over £250,000)
which is charged on the sale of commercial land.
o This benefits the Seller also since, since the Buyer makes the SDLT
savings, the Buyer will be willing to pay a higher price
o Note: this is subject to anti-avoidance SDLT rules, which will require
specialist tax advice
You still have to pay tax of profits and SDLT
The SPV will pay itself corporation tax (comprised of rental income and CGT
gains), as will any corporate shareholders to the SPV
o This is known as double taxation
The SPV, governed by the CA2006, will have to file annual returns which lacks
privacy and is an administrative burden
The Development must be transferred to the SPV on incorporation, which
will incur SDLT liability
Double taxation – Company pays Corporation Tax, and then the Shareholders
pay Income Tax/CGT on their Dividends and Shares
Traditional The Partnership is governed by the Partnership Agreement or, if applicable, the PA1890
(unlimited Pros & Partnership Agreement is a legally recognised structure and can be flexed
liability) Cons depending on the needs of the parties
Partnership
2
, Apply to the Facts – Also refer to Real Estate ERNotes
The PA1890 steps in if there are any issues uncovered by the agreement
Traditional Partnerships are tax transparent, meaning each partner is taxed
on their own share of the profits/capital gains separately – meaning each can
benefit from their own tax deductions and reliefs
No requirement to file annual returns – less administrative hassle and more
privacy
The Development will be held in the name of the Partnership, meaning there
will be the administrative hassle and SDLT liability associated with
transferring the Development
The legal title to the Development can only be held by 4 people maximum,
which adds complications if there are more than 4 parties
Unlimited joint and several liability (s9), meaning there needs to be a high
degree of trust since each partner is fully liable for the debts of the
partnership
Traditional partnerships involve increased risk of being held liable for the
defaults of your partner
Limited An LLP is a hybrid between a Partnership and a Limited Company
Liability If the parties want to have limited liability and keep the property as a long-term
Partnership investment, then the tax transparency of an LLP will be more attractive than the
double taxation imposed on SPVCs
Pros & LLPs are tax transparent, meaning each partner is taxed on their own share of
Cons the profits/capital gains separately – meaning each can benefit from their
own tax deductions and reliefs
Limited liability
The LLP agreement is private and does not need to be filed
The accounting and filing requirements for an LLP are similar to those for a
company, which is less private
Joint Venture Methods – Summary
ContJV JV-P JV-LLP SPV
Ability to negotiate written terms X X X
Statutory code X X X
No charge to tax on transfer into/out of JV X
No charge to tax on profits at JV level X X
Separate taxation X X
Choice to sell JV vehicle or property X
Unlimited liability for loses X X*
Liability for defaults of other parties X
Statutory registration and reporting X* X
requirements
** = Subject to terms of the Partnership/LLPartnership Agreement
Methods of Financing (the Site Acquisition)
Share capital The allotment and issue of shares in exchange for capital.
Pros & Cons Popular and well-known method
Fresh issue of shares may result in reduced dividend for current
shareholders as their shareholding may have been diluted
o Current shareholder’s voting power and capital rights may
also have been diluted following a fresh issue
If the Company is public, additional regulatory requirements must be
met in order to issue shares
3
, Apply to the Facts – Also refer to Real Estate ERNotes
Forward Using institutional investor to finance the Development from the outset, acquiring the
funding land and paying all construction costs. The developer is paid a fee for its work and receives
a cut of the profit once the development has been sold/let.
Pros & Cons Less risk for the developer as the institutional investor pays the
development costs
Investor has significant sway in how the development is to take place
Equity funding An investor and a developer will form a joint venture company to acquire the
Development and undertake the project. The investor takes preference shares to secure a
priority return on its investment.
Pros & Cons Less risk for the developer as the institutional investor pays the
development costs
Investor has significant sway in how the development is to take place
Sale and Sale of a freehold Property owned and occupied by the Developer, who then immediately
leaseback takes a leasehold over the Property to maintain occupation but to simultaneously raise
funds for another purpose – here, another development project.
Gist: Sale and leaseback involves selling some of your existing property and then
renting them from the new owner.
Pros & Cons Raising funds without losing occupation of current place of business
Lost the freehold title to your current premises, and are thus at the
will of the new LL
Debt finance Borrowing money from a lending institution (or syndicate of lending institutions)
Core information of loan set out on Term Sheet
The Lender will perform due diligence on the Borrower
A Loan Agreement will be drafted by the Lender’s solicitors to facilitate the
lending of the money
o The Loan Agreement will have provisions dealing with what happens in
the event of default
The Lender will often require security
o The Lender will want their security ‘perfected’, this means it is valid
against third parties and takes priority over other security interests
There might be arrangements whereby the Borrower will receive further
advances as the development proceeds
Pros & Cons Predictable and stable repayment plan
Tax relief on any loan interest paid
Potential for profit if the developer can invest the borrowed monies
and secure a return more favourable than the interest rate it is paying
to the lender
Further advances on the loan amount may be available
Risk of bankruptcy of the Developer (if person) or insolvency (if
company)
Security is required for the loan, which will typically involve the
Development being used as collateral
Lender will perform due diligence before granting of debt
(Complex) Title Investigation (Workshop 1, Prep Task 2 and Task 1)
Structure of Use the IDEA format when commenting on each issue
an answer Issue
o State the entry, name the issue
Description
o Describe, in your own words, how it operates
Describe where the Buyer fits into the entry – for example, they
may be the successor in title to the
Explanation
4
, Apply to the Facts – Also refer to Real Estate ERNotes
o Explain why it might, or might not be an issue for the Buyer
Action
o Explain what actions could be taken to address the issue, actions include:
Make further enquiries
Tell the client and advise them what action to take
Cure the defect
Is it a deal breaker?
Possible Check the Title Plan, is the thing to which a particular entry relates detailed on the
actions Title Plan? If not, either:
o Get a more detailed plan
o Get a copy of the document which confers the [Issue] in question (e.g.
Conveyance Dated XX/XX/XXXX); or
o Raise a requisition at LR
Tell Buyer – is it a deal breaker?
Personal inspection
Take out insurance
Add a Special Condition to the Contract to deal with it
Negotiate with the Rightsholder for a release of covenant
Raise requisitions of the Seller for clarification
Get a copy of the document which confers the [Issue] in question (e.g. Conveyance
Dated XX/XX/XXXX)
MCQ Title If you see ‘the Transfer to the Proprietor contains a covenant to observe and perform
Investigation the covenants referred to in the Charges Register and of indemnity in respect thereof’
this means there is an indemnity chain. To deal with this:
o You should make enquiries about the covenants to which this provision
relates as the contract for sale is likely to contain a clause which will ensure
that your client is bound by them
If you see an Entry in the Charges Register saying ‘not at any time hereafter to erect
any permanent building on the said piece of land hereby within a distance of five feet
from [Neighbour]’. To deal with this:
o You should inform the Buyer about the covenant and seek instructions as
to where it intends to build the Property so that you can assess whether or
not the ‘building line’ will be encroached upon
If you see an Entry saying:
The land is subject to the following rights granted by a Deed of Grant dated 1 April
1932 made between (1) Foxton Mining Limited (the Grantor) and (2) the Midshire
Electricity Board (the Board):
"The Grantor as trustee hereby grants unto the Board full right and liberty to place
and maintain a double circuit overhead electric line for transmitting electricity at a
pressure not exceeding 12,000 volts over the said land in the position shown by a red
line on the said plan and from time to time to inspect repair alter or remove the
same and for those purposes only to enter upon so much of the said land as may be
necessary in order to exercise the rights hereinbefore granted to hold the said rights
unto the Board in fee simple"
o This means The rights granted by the deed could affect the layout of the
buildings on the Site, so the Buyer should obtain a full copy of the Deed of
Grant
If you see an entry in the Charges register stating that ‘by a Deed of Grant dated 13
September 1921, the Site is subject to rights of drainage’. To deal with this:
o You should ask the seller’s solicitor to provide a copy of the Deed (or get
one from Land Registry) as if there are drainage rights over the Site in
favour of an adjoining owner, this may affect your client’s plans for
redevelopment of the Site
5
2020-2021
LPC Exam Ready Notes
[Advanced Real Estate]
1
, Apply to the Facts – Also refer to Real Estate ERNotes
Site Acquisition (Preliminary Steps)
Joint Venture Methods – Pros & Cons (Workshop 1, Task 2)
Commercial developments are costly and require expertise, therefore development projects are often
undertaken by multiple parties
Potential parties = landowner, developer, funder and ultimate occupier
Contractual Parties enter into a contract which sets out the terms of their agreement, namely, their
JV financial commitments and duties relating to the development
In other words, a Joint Venture Contract is ‘an agreement between two or more
developers to develop a site together without the need to create a separate legal
entity, nor to assume any liability for each other’s actions is’
Pros & No need to set up a separate corporate entity, this avoids the need to pay
Cons SDLT for transferring the land into the joint names of the parties
The contract is ‘tax-transparent’, so each party is responsible for the payment
of its own income tax and CGT, meaning they each benefit from tax
deductions and reliefs
As it is merely a contractual relationship, the actions of one party is unlikely
to cause the liability of another
o There is typically no joint and several liability, meaning you do not
tend to take on liability for the defaults of the whole joint entity
Parties are free to negotiate the terms
No SCP, and thus there is unlimited liability for individual losses, threatening
bankruptcy
SPV This is a limited company set up for a particular purpose (here, to develop a particular site)
Company Pros & Shareholder agreements allow for flexibility
(“SPVC”) Cons CA2006 governs private companies, which is a predictable framework
Parties enjoy limited liability
Investors can sell their shares to get out
Forming an SPVC jointly reduces overall exposure to costs because the SPVC
would have limited liability
At the completion of the development, it is possible to transfer the
development by selling shares in the SPV, rather than transferring the
development itself
o This reduces risk because its more flexible for potential buyers
o This is beneficial because selling shares is a flat 0.5% on the
consideration paid, rather than 5% (on consideration over £250,000)
which is charged on the sale of commercial land.
o This benefits the Seller also since, since the Buyer makes the SDLT
savings, the Buyer will be willing to pay a higher price
o Note: this is subject to anti-avoidance SDLT rules, which will require
specialist tax advice
You still have to pay tax of profits and SDLT
The SPV will pay itself corporation tax (comprised of rental income and CGT
gains), as will any corporate shareholders to the SPV
o This is known as double taxation
The SPV, governed by the CA2006, will have to file annual returns which lacks
privacy and is an administrative burden
The Development must be transferred to the SPV on incorporation, which
will incur SDLT liability
Double taxation – Company pays Corporation Tax, and then the Shareholders
pay Income Tax/CGT on their Dividends and Shares
Traditional The Partnership is governed by the Partnership Agreement or, if applicable, the PA1890
(unlimited Pros & Partnership Agreement is a legally recognised structure and can be flexed
liability) Cons depending on the needs of the parties
Partnership
2
, Apply to the Facts – Also refer to Real Estate ERNotes
The PA1890 steps in if there are any issues uncovered by the agreement
Traditional Partnerships are tax transparent, meaning each partner is taxed
on their own share of the profits/capital gains separately – meaning each can
benefit from their own tax deductions and reliefs
No requirement to file annual returns – less administrative hassle and more
privacy
The Development will be held in the name of the Partnership, meaning there
will be the administrative hassle and SDLT liability associated with
transferring the Development
The legal title to the Development can only be held by 4 people maximum,
which adds complications if there are more than 4 parties
Unlimited joint and several liability (s9), meaning there needs to be a high
degree of trust since each partner is fully liable for the debts of the
partnership
Traditional partnerships involve increased risk of being held liable for the
defaults of your partner
Limited An LLP is a hybrid between a Partnership and a Limited Company
Liability If the parties want to have limited liability and keep the property as a long-term
Partnership investment, then the tax transparency of an LLP will be more attractive than the
double taxation imposed on SPVCs
Pros & LLPs are tax transparent, meaning each partner is taxed on their own share of
Cons the profits/capital gains separately – meaning each can benefit from their
own tax deductions and reliefs
Limited liability
The LLP agreement is private and does not need to be filed
The accounting and filing requirements for an LLP are similar to those for a
company, which is less private
Joint Venture Methods – Summary
ContJV JV-P JV-LLP SPV
Ability to negotiate written terms X X X
Statutory code X X X
No charge to tax on transfer into/out of JV X
No charge to tax on profits at JV level X X
Separate taxation X X
Choice to sell JV vehicle or property X
Unlimited liability for loses X X*
Liability for defaults of other parties X
Statutory registration and reporting X* X
requirements
** = Subject to terms of the Partnership/LLPartnership Agreement
Methods of Financing (the Site Acquisition)
Share capital The allotment and issue of shares in exchange for capital.
Pros & Cons Popular and well-known method
Fresh issue of shares may result in reduced dividend for current
shareholders as their shareholding may have been diluted
o Current shareholder’s voting power and capital rights may
also have been diluted following a fresh issue
If the Company is public, additional regulatory requirements must be
met in order to issue shares
3
, Apply to the Facts – Also refer to Real Estate ERNotes
Forward Using institutional investor to finance the Development from the outset, acquiring the
funding land and paying all construction costs. The developer is paid a fee for its work and receives
a cut of the profit once the development has been sold/let.
Pros & Cons Less risk for the developer as the institutional investor pays the
development costs
Investor has significant sway in how the development is to take place
Equity funding An investor and a developer will form a joint venture company to acquire the
Development and undertake the project. The investor takes preference shares to secure a
priority return on its investment.
Pros & Cons Less risk for the developer as the institutional investor pays the
development costs
Investor has significant sway in how the development is to take place
Sale and Sale of a freehold Property owned and occupied by the Developer, who then immediately
leaseback takes a leasehold over the Property to maintain occupation but to simultaneously raise
funds for another purpose – here, another development project.
Gist: Sale and leaseback involves selling some of your existing property and then
renting them from the new owner.
Pros & Cons Raising funds without losing occupation of current place of business
Lost the freehold title to your current premises, and are thus at the
will of the new LL
Debt finance Borrowing money from a lending institution (or syndicate of lending institutions)
Core information of loan set out on Term Sheet
The Lender will perform due diligence on the Borrower
A Loan Agreement will be drafted by the Lender’s solicitors to facilitate the
lending of the money
o The Loan Agreement will have provisions dealing with what happens in
the event of default
The Lender will often require security
o The Lender will want their security ‘perfected’, this means it is valid
against third parties and takes priority over other security interests
There might be arrangements whereby the Borrower will receive further
advances as the development proceeds
Pros & Cons Predictable and stable repayment plan
Tax relief on any loan interest paid
Potential for profit if the developer can invest the borrowed monies
and secure a return more favourable than the interest rate it is paying
to the lender
Further advances on the loan amount may be available
Risk of bankruptcy of the Developer (if person) or insolvency (if
company)
Security is required for the loan, which will typically involve the
Development being used as collateral
Lender will perform due diligence before granting of debt
(Complex) Title Investigation (Workshop 1, Prep Task 2 and Task 1)
Structure of Use the IDEA format when commenting on each issue
an answer Issue
o State the entry, name the issue
Description
o Describe, in your own words, how it operates
Describe where the Buyer fits into the entry – for example, they
may be the successor in title to the
Explanation
4
, Apply to the Facts – Also refer to Real Estate ERNotes
o Explain why it might, or might not be an issue for the Buyer
Action
o Explain what actions could be taken to address the issue, actions include:
Make further enquiries
Tell the client and advise them what action to take
Cure the defect
Is it a deal breaker?
Possible Check the Title Plan, is the thing to which a particular entry relates detailed on the
actions Title Plan? If not, either:
o Get a more detailed plan
o Get a copy of the document which confers the [Issue] in question (e.g.
Conveyance Dated XX/XX/XXXX); or
o Raise a requisition at LR
Tell Buyer – is it a deal breaker?
Personal inspection
Take out insurance
Add a Special Condition to the Contract to deal with it
Negotiate with the Rightsholder for a release of covenant
Raise requisitions of the Seller for clarification
Get a copy of the document which confers the [Issue] in question (e.g. Conveyance
Dated XX/XX/XXXX)
MCQ Title If you see ‘the Transfer to the Proprietor contains a covenant to observe and perform
Investigation the covenants referred to in the Charges Register and of indemnity in respect thereof’
this means there is an indemnity chain. To deal with this:
o You should make enquiries about the covenants to which this provision
relates as the contract for sale is likely to contain a clause which will ensure
that your client is bound by them
If you see an Entry in the Charges Register saying ‘not at any time hereafter to erect
any permanent building on the said piece of land hereby within a distance of five feet
from [Neighbour]’. To deal with this:
o You should inform the Buyer about the covenant and seek instructions as
to where it intends to build the Property so that you can assess whether or
not the ‘building line’ will be encroached upon
If you see an Entry saying:
The land is subject to the following rights granted by a Deed of Grant dated 1 April
1932 made between (1) Foxton Mining Limited (the Grantor) and (2) the Midshire
Electricity Board (the Board):
"The Grantor as trustee hereby grants unto the Board full right and liberty to place
and maintain a double circuit overhead electric line for transmitting electricity at a
pressure not exceeding 12,000 volts over the said land in the position shown by a red
line on the said plan and from time to time to inspect repair alter or remove the
same and for those purposes only to enter upon so much of the said land as may be
necessary in order to exercise the rights hereinbefore granted to hold the said rights
unto the Board in fee simple"
o This means The rights granted by the deed could affect the layout of the
buildings on the Site, so the Buyer should obtain a full copy of the Deed of
Grant
If you see an entry in the Charges register stating that ‘by a Deed of Grant dated 13
September 1921, the Site is subject to rights of drainage’. To deal with this:
o You should ask the seller’s solicitor to provide a copy of the Deed (or get
one from Land Registry) as if there are drainage rights over the Site in
favour of an adjoining owner, this may affect your client’s plans for
redevelopment of the Site
5
