Tughans’ Real Estate Department discuss issues to be aware of for prospective purchasers of Commercial and Residential property in the Republic of Ireland:-
1. Distressed Sales
Distressed sales of property (both commercial and residential) are attractive for investors given the reduced prices asked by vendors. Often, contracts for such property are heavily restricted and do not contain standard warranties and representations as to boundaries, planning, services, easements, identity, rights and privileges and other related matters that a purchaser would normally expect in a standard conveyancing contract and there is an element of risk for any purchaser in proceeding with such distressed transactions, as property sold by a receiver is sold “as is” and “as it stands”. Therefore, it is essential to ensure that comprehensive pre-contract due-diligence enquiries are completed to determine if there are any matters requiring remediation. Often, registered owners of such properties are in insolvency and it is key in agreeing a price that any title or planning risks are identified and requirements for remediation costed prior to entering into a binding contract for sale.
2. Commercial Property Rates Arrears
Section 32 of the Local Government Reform Act 2014 imposes a statutory requirement on a vendor to notify the relevant rating office that a sale of commercial property has taken place within 14 days of the closing date. Vendors are obliged to settle all arrears for which the vendor is liable to the closing date. Purchasers need to consider this legislation in finalising a contract for sale to avoid taking any responsibility for historic arrears of commercial rates that may have accumulated. If a purchaser buys a commercial property with arrears of rates that are not dealt with in the contract for sale (in that the vendor agrees to discharge same), liability will pass to the purchaser on completion. Unpaid rates amount to a charge on the property in priority after closing and will restrict a purchaser from selling or charging property unless paid. Rates payable on vacant commercial property may be partly refundable (subject to compliance with certain conditions).
3. Occupational Tenancies and Rights of Renewal
A purchaser needs to be aware of the number of occupants and the terms and conditions of their occupancy prior to entering into a binding contract to purchase a property. Occupational leases should be reviewed in regards to all the terms included in each with particular attention paid to the repairing and yielding up provisions applying. Ideally a vendor should confirm there has been compliance with all material terms of any leases including payment of rent, insurance and service charges (if applicable) as a purchaser will take on these issues on closing if not investigated, identified and remediated beforehand. Pre-Contract enquiries should include reviews of current leases and a report as to the key points of each.
In purchasing property, investors need to be aware that occupational tenants in situ on closing may have statutory rights to renew a tenancy unless renounced or waived by them in writing. If such rights have not been renounced and a tenant has accrued statutory tenancy rights, such a tenant may be entitled to compensation to vacate the property which will be a cost to be borne by the purchaser (if not otherwise dealt with in the contract for sale and deemed a cost of the vendor). It is incumbent on a purchaser prior to closing to ascertain, by means of detailed pre-contract enquiries, the status of the property, the number of occupiers and the basis of their occupation. Recent legislative amendments now mean that any termination notice served on a tenant of a residential property is invalid if it does not specifically state that the landlord intends to enter into a binding agreement to sell the property within three months of termination of the occupational lease and such termination notices should be reviewed and approved, ideally, at pre contract stage.
4. Managed Developments
If a purchaser is intent on buying property located in a managed development, detailed due-diligence should be completed prior to entering into a binding contract for sale to determine the status and ownership of the management company. Enquiries should be made as to whether the common areas have been transferred in compliance with the Multi-Unit Developments Act 2011, the directors running the management company need to be identified, and what the annual fee charged per unit should be confirmed. The published accounts of the management company need to be reviewed to determine the amount of debtors, creditors, sinking fund and general charges for services paid by property owners. Often managed developments do not have sufficient funds reserved in their sinking funds to pay for the upkeep and repair of common areas in general and all of these issues need to be examined prior to entering into a binding contract for sale. The listed director details need to be reviewed to determine if the original developer still controls the common areas or whether the common areas have been transferred to the management company and that the unit owners (rather than the developers) are current directors showing as listed directors of the management company and so exercising control.
5. Cash Purchase Versus Loan Finance Purchase
Many recently completed purchases of distressed assets in the Republic of Ireland have been by way of cash rather than by loan finance in that “standard” closing property documents generally demanded by lending institutions cannot be provided with such distressed sales often the subject of restricted contracts given the lack of information and detail available to vendors. If there is a “gap” between the title documents and information made available by vendors and what is sought as “commonly accepted and standard” by a lending institution, the responsibility and cost of filling such “gap” will be negotiated between the vendor and purchaser as to who is to remediate on completion (or shortly afterwards). Ultimately it depends on the commercial agreement reached between the parties and the relative financial strength of the purchaser, the quality of the distressed property being sold, the discount in price being asked and the ease and/or difficulty and cost in obtaining this information. Often a vendor in a distressed sale will look for any “gap” to be filled by the purchaser (at their cost and trouble) in that either they remediate and put in place the necessary documentation post completion including, inter alia, planning documentation (that can include obtaining architects opinions of compliance with planning and/ or building regulations, applying for retention permission and discharging outstanding financial contributions payable on foot of granted planning permissions) and land registry compliant maps or putting in place title insurance to rectify title problems. All of these requirements can delay completion of a transaction.
If you are intent on completing the purchase of a distressed property by means of loan finance, then there will most likely be delays in closing and you may ultimately be refused loan finance or have the amount you can borrow strictly capped given title and planning issues surrounding many distressed properties. Vendors of distressed properties generally like sales to complete relatively quickly and cash purchasers are at an advantage in having greater freedom to elect to deal with property issues that require remediation after closing and are generally able to make immediate decisions that can make them very attractive to vendors in completing transactions without undue delay. Conversely, transactions intended to be completed by loan finance may need property issues that are identified and requiring remediation to be considered and debated internally by a lender before they can be considered to be included as conditions subsequent in facility letters issued to purchasers to allow monies to be made available to close all of which can delay the completion process.
6. Stamp Duty
Subject to certain exceptions, 1% of the purchase price is the stamp duty rate for residential properties up to a value of €1,000,000 in the Republic of Ireland with 2% being the rate of stamp duty for any portion of the purchase price above €1,000,000 paid. In regards to non-residential property, 2% is the rate of stamp duty paid on all such transfers.
7. Republic of Ireland Property Taxes (Nppr Charge /Local Property Tax /Household Charge)
Please click on the link for our separate article here.
8. Value Added Tax (Vat)
Prior to the sale of property, detailed pre contract VAT enquiries need to be completed and signed off by vendors and purchasers in transacting property (unless the property is clearly exempt). Vendors and purchasers should get specific VAT advice from tax advisers with expertise in the area as often the VAT history of the property will need to be reviewed and specific VAT advices provided.
This article is for general guidance only and should not be regarded as a substitute for professional advice and specific advice should always be obtained before acting on any of the matters as discussed.
While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.
