Loan to nominee purchase company

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    Loan to nominee purchase company

    We are a block of five flats considering a collective enfranchisement (CE) action in which all leaseholders wish to participate. The long leases on four of the five flats have already been extended (by 99 years), but the fifth flat has not with only around 60 years remaining. In order to minimise the cost of acquiring the freehold, our plan is to undertake the CE action without the fifth leaseholder initially since there would then be no marriage value to pay. We would subsequently include him on the freehold after the ownership had been transferred to the nominee purchase company (NPC).

    I have given this some thought, and concluded that the easiest way to structure this would be for the fifth floor to make an interest-free loan to the NPC which would then be repaid after the freehold had been transferred to the NPC in exchange for the fifth flat's share of freehold. My question is, would this loan be disclosable in the course of the freehold acquisition? If so, I guess the freeholder may be able to bid up the hope value and we might have to think of another way to finance it.

    Although this would be the neatest way to finance the acquisition, I thought it would make sense to first run it by the pros! Thanks in advance for any advice you might be able to give me on this.

    #2
    The neatest way is to enfranchise and allow participation by the four only.

    The other four can make a loan to the company repayable by the company when the lease is extended, in order to fund the purchase price of the flat which will in part reflect the value of that unsold lease extension.

    Trying to include the fifth person only conflates matters. There is nothing to stop you including them in decisions and discussions informally.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

    Comment


      #3
      You could ask your NPC conveyancing solicitor if the 4 leaseholders are required to disclose the source of their funds for contributing to purchase. Its not usual requirement to disclose the source of funds to seller who should know the NPC's funding are coming from its shareholders who are the leaseholders.

      Comment


        #4
        Thanks that's good advice. Is there anywhere I could look for a standard Loan Agreement template and Articles of Association for the NPC?

        Comment


          #5
          Look Google doesn't have the answer for everthing, a loan agreement and configuration of the articles should be custom written for your situation and paid for.

          Moroever these loan agreements have to take into consideration that a loan may be due to a person who has sold their flat. Have you considered if they should still be a member of the company.

          That is particularly important as the nominee under the statutory route has to be a guarentee company not one with share capital.

          In particular have you even looked at how to recover company expenses that are not recoverable under the service charges, let alone other expenses and rights or obligations which your extended leases do not cover?

          Have you looked at defining and restricting the roles of directors in the articles or the structure and frequency of board and general meetings?

          You can begin to see cut and paste and lay drafting won't work..... the point I am making is that you have to carefully consider your positionand get "paid for advice" as I have seen, and will continue to see people thinking " its all covered" only to pay many more times in costs to put it right, than the cost of the initial advice.
          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

          Comment


            #6
            Originally posted by leaseholdanswers View Post
            That is particularly important as the nominee under the statutory route has to be a guarentee company not one with share capital.
            Thanks, this is very good advice.

            Where is it stated that the NPC cannot be limited by share capital? This guidance from the lease-advice.org site is as follows:

            "The Nominee Purchaser can be a person, one of the tenants, or a corporate person, a trust or, more probably, a company formed by the tenants for the purpose. There are currently no controls or qualifications in the legislation governing selection of Nominee Purchasers and the tenants are free to choose whoever or whatever agency they wish."

            Comment


              #7
              See the 1993 Act on CE.
              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

              Comment

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