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Selling part of your business property

If your business no longer needs all the land that it owns, then selling part of its property for development can be a good way to release capital to invest in other aspects of the business.  However, you must think ahead about how a development or another business next door will affect the land the business still owns and your business activities.

‘Selling off part of the land belonging to the business requires careful thought,’ says Richard Morgan, commercial property solicitor with Myers & Co Solicitors in Stoke on Trent, ‘because the two sites will each need utilities, drainage and rights of way from the other.  If you do not get these right at the outset, problems can arise later on.’

You should seek expert legal advice well in advance, to make sure you have thought about all the rights the business needs to keep for itself over the land it is selling, what rights the new owner will require over its land, and all the obligations you want to impose on the new owner.  The first step is to sit down with your solicitor and think about how a development would work in practice.

Future development value

If you plan to sell to someone who will go on to develop the land and sell the new buildings, you may want to secure a share of the eventual profit for yourself.  This is something that can be dealt with in negotiations and in the contract and transfer documentation.

Freehold or leasehold?

You could sell the freehold or you could create a long leasehold interest.  A leasehold purchaser would pay a substantial premium at the time of sale, with a nominal yearly rent (known as ground rent) payable throughout the lease.  Leasehold sales can be more complex, particularly where the purchaser is looking for a mortgage to fund the purchase, but leasehold does make it easier to deal with sharing costs and maintenance obligations in the future.

Rights over the land

As a minimum, each part of the land or property will need:

  • access to and from the highway;
  • drainage; and
  • utilities such as electricity and gas, water and telephone/broadband.

How these can be organised in practice will be influenced by the current arrangements, the geography of the site and the nature of the proposed development.  The key issue is that once the land has been divided, the owner of each part will need express permission for the use of any area of the other part for access or services.  If this is not properly dealt with, some rights may be implied by law but it is far better to be explicit about what you have agreed.

The legal transfer must set out the rights that the owners of each part will have over the other part.  After the sale is completed, these rights must be registered at the Land Registry to make sure that they bind any future owners of either piece of land.

Obligations

You should also think about who will cover the costs of maintaining roadways, drains, fences and anything else which is shared.  For example, if you give the new owner a right to use an access road over the land the business is keeping, you will need to set out a mechanism for them to contribute to the costs.  If they later sell their land, you will want the purchaser to carry on with these contributions.  The law makes it complex to pass obligations like this to future owners, so it is crucial that you get a solicitor to set out the right mechanism in the transfer documents.  This is much easier if you sell a leasehold interest in the land, rather than the freehold, because obligations in leases will pass to future owners.

Restrictions

If you are going to sell off business land you will need to adapt to having a new neighbour, and you should think ahead to whether there are any restrictions you want to impose on how the land the  business is selling can be used in the future.  For example, you may want to restrict the number of buildings that may be put on the land or limit their height to make sure light to the land is not blocked.

One key area to consider is whether you want to restrict the type of business that can operate next to you, so you do not find your own business affected by unwelcome noise, smells, additional traffic or antisocial behaviour.  You may have a remedy for things like this in the law of nuisance but it is better to avoid issues arising in the first place.  You will need to be careful not to infringe competition law, so you must discuss any proposed restrictions with your solicitor.

Restrictions like this must be properly drafted and registered at the Land Registry, so you will need your solicitor to do this.  Bear in mind that if you impose restrictions, the person buying the land from the business may want to put similar restrictions on your land.

How we can help

Selling part of the land can be well worth the effort from a financial point of view.  Expert legal advice throughout the process will help to make the project a success and avoid disputes over rights and future development.

For further information, please contact Richard Morgan in the commercial property team on 01782 525027 or email richard.morgan@myerssolicitors.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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