Real Estate Tip of the Week: Corporate Housekeeping and SPVs – Avoiding Obvious Traps

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Real Estate Tip of the Week: Corporate Housekeeping and SPVs – Avoiding Obvious Traps

Published 5 August 2019

Failure to comply with the filing requirements of Companies House can inadvertently cause havoc in property transactions.

In a recent case at the High Court a special purpose vehicle (i.e. an “SPV”) had been struck off the register of companies after it failed to properly notify Companies House of its new address. This triggered insolvency obligations in a purchase contract, giving the seller a contractual right to terminate the arrangement. When the seller exercised this right of termination, the SPV argued that the seller could not do so as the SPV had since been restored on the register of companies (having then properly filed its necessary paperwork).

The High Court held that the subsequent restoration of the SPV at Companies House could not save it from the provisions of the contract: an exercisable right of termination had clearly arisen and the sale contract had therefore been properly terminated by the seller.

Buyers and sellers of commercial property should therefore diligently comply with all corporate housekeeping obligations in order to avoid such unfortunate circumstances. Furthermore, sellers should ensure that any sale contract with an SPV contains adequate insolvency provisions and otherwise properly deals with the risk that the SPV will default on its obligations, typically via the provision of a suitable deposit or a parent company guarantee. Sellers should have the same concerns where any purchaser has a low covenant strength.

Authors

Michael Roberts

Michael Roberts

Bristol

+44(0) 117 918 2743

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