Selling a Company That Owns Commercial Property: Key Legal and Tax Considerations

Selling a company that owns commercial property involves a different set of legal, tax and commercial considerations from a typical trading business sale. Property often represents the majority of the company’s value, and buyers will focus as much on historic risk and embedded tax liabilities as on future income or development potential. For shareholders, understanding what is actually being sold, how buyers assess risk and how those risks are dealt with in transaction documents is critical to achieving a successful outcome.

What Is Being Sold – Shares or Assets?

A key starting point is understanding what the shareholders own and what the buyer will acquire.

In most cases, the shareholders own shares in a company, and it is the company that owns the commercial property, not the shareholders directly. That distinction drives almost every legal and tax outcome.

Any transaction will broadly take one of two forms:

• a share sale, where the buyer acquires the company (and therefore the property and all associated liabilities), or 
• an asset sale, where the company sells the property and then distributes the proceeds to shareholders.
  

Each route has materially different tax consequences, risk profiles and buyer appeal, and the choice is often shaped by what emerges during due diligence.

Share Sale vs Asset Sale – Legal and Tax Implications

From a tax perspective, a share sale is often more efficient for sellers. Shareholders are taxed on the gain arising on disposal of their shares, calculated by reference to their base cost (often the market value when the shares were acquired). For most higher‑rate and additional‑rate taxpayers, gains on shares that are not residential property or carried interest are generally subject to Capital Gains Tax at a standard rate (currently 24% for 2025/26), with different rates applying in some cases depending on income and the nature of the asset. Reliefs aimed at trading businesses, such as Business Asset Disposal Relief, are frequently unavailable where the company is primarily property‑investment focused and does not meet the relevant “trading company” tests.

An asset sale is usually less attractive overall from a seller’s tax perspective. The company will pay Corporation Tax on gains realised on the sale of the property, with the gain added to its profits and taxed at the applicable Corporation Tax rate. For the current rules, this can be up to 25% for companies with higher profits, with a 19% small‑profits rate and marginal relief for companies in between, so the effective rate depends on profit levels. A second layer of tax then arises when post‑tax profits are extracted by shareholders, whether by dividend or on liquidation, which can materially increase the overall effective tax burden. When combined with Stamp Duty Land Tax (SDLT) payable by the buyer on a direct property purchase, this structure often produces a higher effective tax cost and can depress the achievable sale price.

From a buyer’s perspective, however, a share sale means inheriting:

• latent capital gains in the property, 
• historic tax positions, and 
• all legal and regulatory risks within the company.
  

As a result, buyers will often seek price discounts, extensive warranties and specific indemnities to manage that exposure. In practice, the choice between share and asset sale is heavily driven by tax modelling on both sides and by what due diligence uncovers. Given frequent changes in tax rates and reliefs, specific advice for the relevant tax year is essential.

Commercial Property Due Diligence – Typical Issues That Arise

Property due diligence is central to transactions involving property‑owning companies and frequently uncovers issues that have built up over many years.

Title and ownership issues are common, including missing rights of access or services, defective easements, breached restrictive covenants or historic options or overage arrangements. Buyers will focus not only on legal ownership but also on whether the property can be freely used, developed or sold post‑completion.

Planning and building regulation compliance often presents risk. Changes of use, extensions or alterations may lack formal consent or completion certificates, and even where no enforcement action has been taken, buyers will be concerned about future challenge or limitations on redevelopment.

Environmental risk is another recurring theme, particularly where properties have an industrial or manufacturing history. Liability can arise regardless of when contamination occurred under UK environmental regimes, making this a sensitive area for buyers.

Leases and occupation arrangements frequently create complexity. Informal side letters, historic rent concessions, unresolved dilapidations or undocumented variations can undermine certainty of income and value.

Group and intra‑company arrangements are also a common issue. Property may be held in a separate company or occupied under informal arrangements that buyers will require to be formalised or restructured before completion.

How Due Diligence Issues Are Addressed in Transaction Documents

Issues identified during due diligence are rarely deal‑stoppers, but they do shape the legal documentation and risk allocation.

The share purchase agreement (SPA) is the primary document used to deal with property risk. It will contain detailed property warranties covering matters such as title, compliance with planning law, environmental matters and the absence of disputes. Where specific risks are identified, buyers will often seek bespoke indemnities, transferring financial responsibility for those risks directly to the sellers.

Sellers will look to manage exposure by:

• ensuring issues are fully and accurately disclosed in the disclosure letter, 
• limiting indemnities by time and financial cap, and 
• using title, planning or environmental indemnity insurance where appropriate to avoid long‑tail personal liability. 

In some cases, structural solutions are required, such as granting new leases, unwinding informal occupation arrangements or carrying out pre‑completion group reorganisations.

Warranties, Indemnities and Seller Exposure

In property‑backed share sales, warranties and indemnities are often more extensive than in trading company disposals. Tax indemnities are commonly required to protect the buyer against historic tax liabilities, while property‑specific indemnities may cover environmental risk, planning breaches, lease disputes or title defects. These obligations can expose sellers to personal liability long after completion, making careful negotiation and disclosure essential.

Warranty and indemnity insurance may be used in larger transactions to facilitate a clean exit, although it will not always replace the need for targeted indemnities where risks are known.

Key Legal Documents in a Property‑Owning Company Sale

Transactions of this nature typically involve a broader suite of documents than a standard business sale, including:

• Heads of terms, addressing deal structure, property treatment and exclusivity 
• Share purchase agreement, setting out price, warranties and indemnities 
• Disclosure letter, qualifying warranties and managing seller risk 
• Property documents, such as new leases, lease surrenders or licences, where occupation arrangements change 
• Financing and consent documents, where lenders or third parties are involved 

Each document plays a role in allocating risk and ensuring the transaction is workable in practice.

Process and Typical Timescales

Sales involving commercial property generally take longer than those without. The due diligence phase alone can take several weeks, particularly where title or planning issues require investigation.

From agreed heads of terms, a relatively straightforward transaction may complete within three to four months. Where property issues are complex, indemnities are heavily negotiated or restructuring is required, timescales can extend significantly. Early preparation, including property and tax reviews before going to market, can materially reduce delay and execution risk.

Commercial Reality – Buyer Appetite and Market Practice

Property‑owning companies are typically acquired by specialist buyers such as property funds, family offices or overseas investment vehicles. Valuation is often driven by yield and embedded tax liabilities rather than bricks‑and‑mortar value alone.

A share sale is usually the preferred route, but only where records are clean, property documentation is robust and historic risks are understood and managed. Where historic or structural issues make risk hard to quantify, buyers may instead push for an asset purchase or insist on significant price adjustments and protections.

How We Can Help

At The Jonathan Lea Network, we advise shareholders, investors and management teams on the sale of companies that own commercial property. Our role is to clarify the issues, structure the transaction and coordinate corporate, property and tax considerations to support informed decision‑making.

We work closely with clients and their advisers to manage due diligence risk, negotiate SPAs and indemnities, and keep transactions moving towards completion. If you are considering a sale involving commercial property, we can help you understand your options and navigate the process with confidence, alongside taking bespoke advice on the latest tax rates and reliefs for your circumstances.

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).

Please email wewillhelp@jonathanlea.net providing us with any relevant information or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

 

 

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.