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Eversheds Global Estate Management

UK Northern Ireland

Real Estate Guide

Principles of ownership

Principles of ownership

Freehold/Ownership - is unlimited in time. The freeholder may choose to occupy the property or may grant a lease enabling someone else to occupy it. After the lease expires (subject to statutory security of tenure) (See section "Security of Tenure") the right to occupy will pass back to the freeholder. It is possible to sell freehold land either vacant or subject to one or more leases.

Leasehold - leasehold ownership is for a limited period specified in the lease and known as the term. The term may be a long period (e.g. 999 years) or a shorter period (e.g. 1 to 25 years). If the term is long, the annual rent is usually a nominal account (e.g. £100) and a premium (i.e. a one off payment) close to the value of the freehold is paid on the grant of the lease. If the term is short the annual rent is usually the full market rate. Subject to the terms of the lease, the lease can be assigned (i.e. sold) to third parties or else a sublease with a term that is shorter than the lease can be created out of the lease.

Common hold/Usufruct - not applicable.

Condominium ownership - not applicable.

Utilisation right - not applicable.

Joint/Co-ownership - It is possible to have co - ownership of freehold or leasehold property. It is also possible to hold freehold or leasehold property on trust for a third party.

Fee Farm - an interest in land peculiar to Ireland, having features of both freehold and leaseholds interests. The interest is essentially a freehold ( i.e. unlimited in time) but subject to rent and to covenants ( in these respects like a leasehold interest ). It is no longer possible in Northern Ireland to grant a new fee farm interest but many of these titles remain in issue.

Registration - freehold land and leases with terms in excess of twenty one years must be registered at the Land Registry. Some land may not be registered at the time of purchase but registration will be triggered by the acquisition. The register is public, provides evidence of title and shows a description of the land and the identity of the proprietor, and shows or refers to documents containing any matters benefiting and burdening the land and the quality of title.

 

Restrictions on foreign ownership

Restrictions on foreign ownership

There are no restrictions on foreign individuals or corporations buying, holding or selling Northern Irish property although if the title has to be registered at the Land Registry they will have to satisfy the Land Registry as to their corporate status.

 

Title to real estate

Title to real estate

Investigation of title - the buyer/tenant’s lawyer will investigate title, carry out searches of public registers, raise enquiries of the seller/landlord and review and where necessary negotiate the contract and any draft lease. The buyer/tenant meanwhile will commission a building survey, sometimes an environmental survey and will complete his/her financial arrangements. The buyer/tenant’s solicitor will produce a report on the title for the buyer/tenant.

Transfer of title - beneficial title passes immediately on transfer but where the transaction is registrable, legal title only passes on registration.

Registration - freehold land and leases with terms in excess of twenty one years must be registered at the Land Registry. Some land may not be registered at the time of purchase but registration will be triggered by the acquisition. The register is public, provides absolute evidence of title and shows a description of the land, the identity of the proprietor, any matters benefiting and burdening the land and the quality of title.

Information on register - the register is public. See "Registration" above

Commercial leases - a lease for a term in excess of twenty one years must be registered at Land Registry.

 

Structure of a real estate transaction

Structure of a real estate transaction

Negotiation of terms/Agreement - commercial terms are usually negotiated between the estate agents/surveyors representing the seller/landlord and the buyer/tenant and the agreed terms are then provided to the parties' lawyers. Investigation of title - the buyer/tenant’s lawyer will investigate title, carry out searches of public registers, raise enquiries of the seller/landlord and review and where necessary negotiate the contract and any draft lease. The buyer/tenant meanwhile will commission a building survey, sometimes an environmental survey and will complete his/her financial arrangements. The buyer/tenant’s solicitor will produce a report on the title for the buyer/tenant. Purchase deed - The transfer of property must be by deed. For registered property, the Land Registry have prescribed the form of deed that must be used depending on the nature of the transaction (transfer or whole or part of if new easements or burdens are being created)

Contracts - once the parties execute and form a formal contract/agreement for lease they are committed to complete at a specified future date. Completion may sometimes be conditional on other events such as obtaining of a landlord's consent, obtaining of planning permission or completion of building works. Either party can usually withdraw from the transaction without penalty if one or more of the conditions are not satisfied.

Completion/closing - takes place when the parties have executed the transfer/lease and the balance of any monies due has been paid. At this point the buyer/tenant is entitled to take possession.

Post completion - after completion any stamp duty land tax must be paid and the buyer/tenant's interest registered at the Land Registry within a specific period (save where the interest is leasehold for a term not exceeding twenty one years).

Leases - the tenant's lawyer will investigate title, carry out searches of public registers, raise enquiries of the landlord and review and where necessary negotiate the agreement for lease and any draft lease. The tenant meanwhile will commission a building survey, sometimes an environmental survey and will complete his financial arrangements. The tenant's solicitor will produce a report on the title for the tenant. Once the parties sign and "exchange" a formal agreement for lease they are committed to complete at a specified future date. Completion may sometimes be conditional on other events such as obtaining of a landlord's consent, obtaining of planning permission or completion of building works. Usually, if one or more of the conditions is or are not satisfied by a certain date then either party can withdraw from the transaction.

Transfer of ownership of leased property (alienation) - Holding on trust/dealing with part - this is usually prohibited

  • Assignment of whole - this is usually permitted with the landlord's consent as long as certain conditions are met to safeguard the value of the landlord's investment

  • Underlettings of whole - this is commonly permitted with landlord's consent subject to conditions

  • Underlettings of part - this is less commonly permitted where the design of the building allows a floor plate to be conveniently divided

  • Sharing with group companies - this is usually permitted without consent

  • Charging of whole - this is usually permitted without consent.

 

Usual commercial lease terms

Usual commercial lease terms

Summary of available lease types - broadly speaking, there are two main lease types being long leases where a one off payment is paid on the grant of the lease and only a nominal annual rent is payable and shorter leases where the annual rent is at full market value. See section "leasehold" for further details.

Alterations/modifications - are usually permitted with the landlord's consent with no consent being required for installation for works to internal removable partitioning.

Assignment and sub/under letting - see section "Transfer of ownership of leased property ( alienation) within "Structure of real estate transaction"

Destruction/reinstatement - see section "Insurance/Terrorist Damage" below for the position where the property is destroyed by an injured risk or terrorist damage. Commonly the tenant must reinstate any alterations at the end of the term and return the premises to the landlord in accordance with the repairing covenants. The tenant is not normally compensated for improvements.

Duration of lease - the duration of the lease is for the parties to agree. There are no limitations on this other than it is not possible to grant a lease that starts more than 21 years in the future.

Forfeiture/irritancy - leases will usually provide that the landlord can forfeit the lease for non payment of rent and breach of covenant by the tenant. Short leases (see section "Leasehold" for further detail) will also include an ability for the landlord to forfeit if the tenant is insolvent, enters into administration or there are other specified indications of financial difficulties. Forfeiture is a very complicated area. In simple terms, if the landlord intends to forfeit the lease for breach of covenant it must comply with a statutory procedure before it can forfeit. For all other cases (except administration) a landlord can forfeit a lease by re-entering the premises and changing the locks. However, if the landlord wants to forfeit and the tenant is in administration it must seek the consent of the court. The tenant can, in all cases, apply to the court of relief from forfeiture.

Insurance/ Terrorist Damage - a landlord usually insures the building and recovers a contribution of the cost of insurance from the tenants. Rent is usually suspended if the premises are destroyed by an insured risk until expiry of the period of loss of rent insurance. It is normally the landlord's responsibility to reinstate following damage and often there may be rights to break if reinstatement is not carried out within a specified period. In Northern Ireland there is a statutory scheme for compensation payable by the government where property is damaged or destroyed by terrorist activity and the parties to the lease will negotiate if the landlord or the tenant is to repair or reinstate in that event and whether the rent is to be suspended.

Rent review - is commonly reviewed upwards on a five year cycle to match the market rate.

Repair/decoration/furnishing

  1. (a) Lease of whole building - repair and decoration are usually the tenant's responsibility.(b) Lease of part of a building - the tenant is usually liable for internal repairs and decoration. The landlord normally carries out structural repairs of the whole building and repair and decoration of the common parts, recovering the cost from the tenant through the operation of a service charge.

Service Charges - if a landlord repairs the structure and common parts, the lease usually provides a service charge regime under which certain costs can be recovered by the landlord from the tenants. The proportion of service charge payable by each tenant is usually calculated by reference to the area occupied by the tenant compared to the building/estate as a whole.

Tenant’s duties - the tenant has numerous obligations in the lease (such as keeping the premises repaired and decorated, complying will all statues affecting the property etc)

Termination/break clauses - it is possible to negotiate early termination rights in favour of either the landlord or the tenant. Tenant's break clauses are more common and are usually conditional on the rent being paid and the premises being returned to the landlord without any occupiers.

 

Increasing covenant strength

Increasing covenant strength

Lease deposit - rent deposits are the most common form of security and usually involve placing a sum equal to three or six months' rent in an interest bearing account which is charged to the landlord and which can be drawn against by the landlord in the event of default. The deposit is usually released on assignment or on the determination of the term. Some rent deposits also provide that the deposit is released once the tenant satisfies a specified financial test.

Surety - a company or individual may be required to guarantee the tenant's performance of its covenants and also be required to take a lease on identical terms in lieu of the tenant in the event of the tenant's default.

Warranty - not applicable.

Rent deposit/bank guarantee - rent deposits are the most common form of security and usually involve placing a sum equal to three or six months' rent in an interest-bearing account which is charged to the landlord which can be drawn against by the landlord in the event of default. The deposit is usually released when the tenant satisfies a specified financial test, on assignment or on the determination of the term. Some rent deposits also provide that the deposit is released once the tenant satisfies a specified financial test. Bank guarantees are not common.

 

Security of tenure

Security of tenure

A business tenant has a basic statutory right to remain in occupation after his lease expires. He will usually agree the terms of the new lease with the landlord but failing agreement the terms are fixed by the Lands Tribunal at an open market rent and for a maximum duration of 15 years. A landlord can only oppose an application for a new lease on specified statutory grounds. The most commonly used is the landlord’s intention to redevelop the property. This requires compensation to be paid to the tenant.

It is not possible in Northern Ireland to exclude the tenant’s statutory right to renewal. At the end of the term of the lease if the tenant does not exercise any statutory right to renew the lease will expire at the end of the term.

In the months leading up to expiry of the lease, the landlord will notify the tenant of any repairs (dilapidations) that need to be carried out at the premises for them to be returned in accordance with the terms of the lease.

 

Taxes

Taxes

On sale/acquisition of real estate - stamp duty land tax is a one off payment made by the buyer/tenant to the HM Revenue and Customs within 30 days of completion failing which penalties and interest become payable. The amount of stamp duty land tax is determined by reference to the purchase price or, in the case of a lease, by the term, level of rent and any capital sum paid. If Value Added Tax (VAT) is payable on the purchase of the property than stamp duty land tax is payable on the purchase price or annual rent plus VAT. ( See section "Value Added Tax" for further details)

Sales by investors resident outside the UK are usually free of tax but traders may not escape liability.

Immovable property tax - See section "On sale/acquisition of real estate"

Income tax - is payable on rental income. However a landlord can claim expenses against the tax based on the cost of maintenance of the building and, in certain cases the interest on associated loans. Allowances may also be made for depreciation on plant, equipment and other elements of the building.

Land tax - see section "on sale acquisition of real estate"

Lease tax - see section "on sale acquisition of real estate"

Local tax - business rates are payable by the occupant of a building to the local authority in proportion to the value the building might realise if it were let on a yearly basis. This value is reassessed every five years.

Mortgage - not applicable.

Other taxes - see section "on sale/acquisition of real estate"

Property lease tax - see section "on sale/acquisition of real estate".

Value added tax - most commercial property is made subject to Value Added Tax (VAT) by the owner opting to pay VAT. This option is made so that the owner can recover any VAT on sums it has paid on the property. VAT is usually paid by the buyer to the seller who then passes it to HM Revenue and Customs. It is usually recoverable by the buyer. It is possible, where the property is let to a third party and certain conditions are met, for the buyer not to have to pay VAT on the purchase. This is known as a transfer of a going concern and saves the buyer from paying stamp duty land tax on the VAT element of the purchase price/rent.