Fair share – should you structure your property transaction as a share sale?

Asset sales advantages:

1. Control over Assets: asset sales allow the buyer to select and acquire specific assets associated with the property, such as land, buildings, fixtures, or equipment. This provides greater control and flexibility to the buyer in managing and utilising those assets according to its specific needs.
2. Reduced Liability: In an asset sale, the buyer can typically negotiate to assume only specific liabilities and obligations related to the acquired assets. This allows the buyer to minimise the risk of inheriting unknown or contingent liabilities associated with the property.
3. Value Allocation: Asset sales provide the opportunity for the buyer and seller to allocate the purchase price among the specific assets being transferred. This can have tax benefits, such as depreciation deductions or favorable capital gains treatment, depending on the applicable tax regulations.

Asset sales disadvantages:

1. Transfer of Title: In an asset sale, each individual asset must be transferred and documented separately, including the transfer of legal title, permits, and approvals associated with the property. This process can be time-consuming and may involve additional costs, such as legal and administrative fees.
2. Novation of Existing Contracts: Asset sales may require the buyer to renegotiate or establish new contracts and relationships associated with the property. This can cause disruption and uncertainty, particularly if there are existing leases, service contracts, or tenant relationships that need to be transferred or terminated.

Share Sales advantages:

1. Simplicity: Share sales involve transferring ownership of the entity that holds the property, which can simplify the real estate transaction process. The buyer acquires the shares of the company, thereby gaining control over the property and assuming all its associated assets and liabilities.
2. No Transfer of Legal Title: In a share sale, the legal ownership of the property remains with the company. This can be advantageous in situations where there are complex title issues, permits, or approvals associated with the property, as they do not need to be transferred individually.
3. Continuity: Share sales can maintain the ongoing operations and contracts of the company that owns the property. This can be beneficial when there are existing leases, contracts, or relationships that the buyer wants to retain.
4. Tax Benefits: Depending on the jurisdiction, share sales can provide certain tax advantages. For example, there is no requirement for additional stamp duty land tax to be paid in respect of any property which is already in the ownership of company which the buyer acquires and the stamp duty rate on shares is significantly lower than that charged on the transfer of real estate.

Share Sales disadvantages:

1. Inherited Liabilities: When acquiring shares, the buyer assumes all existing liabilities and obligations of the company, including any potential legal disputes, environmental liabilities, or unpaid taxes. This can be a significant risk if the buyer is unaware of these issues or unable to adequately assess them.
2. Limited Control: Share sales involve acquiring an existing company, which means the buyer may inherit management structures, contracts, or other arrangements that they may not have control over or wish to continue. This can limit the buyer’s ability to make significant changes or implement their own strategies.
3. Warranties and liability: A seller will be required to provide numerous warranties in respect of the company and assets being transferred. Depending on how shares are held this can lead to personal liability remaining long after you have disposed of your interest. Given that part of the benefit of holding a property in a company is limited liability this is a significant change for shareholders to bear in mind.

It’s important to note that the advantages and disadvantages of share sales and asset sales for property can vary depending on the specific circumstances of the transaction, the jurisdiction, and the parties involved. Seeking professional advice from legal and financial experts is crucial to evaluate the implications and make informed decisions.