44 | Investor Guide to Europe 2014
statutory power of sale in the event of borrower default (as the
statutory powers are fairly limited the lender will look to extend
them under the terms of the security documentation).
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Must be created by «deed» and, in the case of registered land,
registered at Land Registry.
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Contractual rights
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A variety of other contractual rights affecting land can also
be created such as option/pre-emption rights and licences to
occupy.
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Property is often subject to restrictive covenants similar to the
position in England.
aCQuISITIon PRoCESS:
KEY STaGES
Under ROI law any individual or legal entity, whether resident or
non-resident can acquire property. There are no foreign direct
investment restrictions. Although the following briefly summa-
rises the process involved in the direct acquisition of property it is
often the case in practice that high value properties (or portfolios
of properties) are acquired indirectly through a variety of different
corporate vehicles including through buying shares in REITs or
investing in units in a property unit trust.
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Marketing
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The marketing of commercial property is usually carried out by
a property agent representing the seller. There are legislative
controls on guide prices quoted by agents. High value commer-
cial property is frequently marketed through a private tender
process.
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negotiation
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Commercial negotiations commence once an interested party
has been identified.
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While normally until a written sale contract is agreed, signed
and dated («exchanged») neither party is legally bound, all
written negotiations must be headed “subject to contract”. It is
common to find non binding «heads of terms» recording the
principal commercial terms of the transaction.
•
A serious buyer may require an exclusivity period within which
to try to agree terms with the seller and lawyers may be ins-
tructed to draw up an exclusivity agreement giving the buyer
a period of time to undertake its due diligence and «exchange
contracts» for the purchase.
•
Subject to above lawyers would usually only get involved once
the seller and buyer (via their respective agents) have agreed
terms.
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Pre-exchange
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Once terms have been agreed the buyer’s lawyer will carry
out due diligence. Generally a seller of property is not under
an obligation of disclosure to the buyer and the principle of
«caveat emptor» (let the buyer aware) is adopted.
•
It is also likely that the buyer will instruct a number of other
professionals to advise on the transaction eg surveyors and tax
advisers.
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Sale contract
•
The sale contract will be negotiated by the parties’ lawyers and
will contain all the terms agreed between the seller and the
buyer including any special conditions required to deal with
matters revealed by the buyer’s due diligence.
•
The buyer become legally bound to complete the purchase
and the seller to sell, subject to any conditions specified in
the sale contract, once the sale contract has been exchanged
(formally entered into).
•
Typically a deposit of 10% of the purchase price is payable
by the buyer on exchange. If the buyer fails to complete the
purchase then the seller may retain the deposit.
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Transfer
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The sale of the property will be completed on the date speci-
fied in the sale contract by way of completion of a separate
document known as an assurance. Simultaneous exchange
and completion is not common in ROI. More typical is a 4 to 6
week interval between exchange and completion.. the balance
of the purchase price will be paid on completion.
•
The assurance needs to be registered at Land Registry.
Although as between seller and buyer title to the property
passes on completion the buyer will not become the legal
owner of the property until it has been registered as owner at
Land Registry. While a priority search procedure similar to the
UK exists, it is not common to avail of it. Completion searches
are carried out on the day of completion itself
TaX
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Direct acquisition of a property
•
The acquisition of a property gives rise to stamp duty.
•
Stamp Duty is payable by the buyer/tenant (as appropriate).
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On a freehold acquisition the rate payable is a percentage
of the purchase price - 2% on commercial property and 1%
on the first €1 million and 2% on the excess on residential
property; on long leases the same rates apply. On market rent
leases, stamp duty of 1% of the average annual rent is paid on
leases of up to 35 years.
•
Value Added Tax (VAT) which is a form of sales tax may be
payable in addition. As a general rule the first sale of a com-
mercial property developed within the previous 5 years is likely
to be subject to VAT at the current rate of 13.5%. The sale of an
older commercial property is in the main exempt from VAT but
a capital goods scheme applies which confers a VAT life of 20
years on a property from the date of development or acquisi-
tion. Sales within that adjustment period may trigger a propor-
tionate clawback for the owner on VAT reclaimed. Where this
is the case a sale may be the subject of a joint option to tax by
seller and buyer. There are transfer of business relief rules in
ROI (similar to the transfer of a going concern relief in the UK) .
In general leases are exempt supplies but subject to a landlord
opting to charge VAT on rents (current rate of 23%).. the sale
of residential property by a developer is generally always sub-
ject to VAT but otherwise residential property will not attract
VAT.
