Brexit, Symbol of the Referendum UK vs EU

It’s over a month since the seismic vote to leave and we are still unclear about the strategic direction the UK will take or how it will extricate itself from the EU.  One thing is for sure, uncertainty in the corporate world will mirror that of the political class – and for the property market so far it has meant some interesting outcomes.

Open ended and institutional property funds account for 14% of the UK’s commercial property.  The surge in redemptions received by the open ended funds in the days after the vote was such that seven of the largest funds suspended trading in a bid to generate short term liquidity to satisfy their investors’ requests to liquidate their investment.  This period quickly settled down but it has still meant that prime assets have been offloaded very quickly.

In a market that could benefit the most nimble investor, what should be done to further enhance the value of an acquisition?  The simple answer is – make sure you do your capital allowances due diligence!

Let’s look at a brief example.  Institutional Investor A is keen to improve their liquidity and offers Investor B a prime newly built office for £40m, discounted from the pre-Brexit value of £50m.  Investor A has entitlement to claim capital allowances, amounting to £15m, but hasn’t done so and is keen to press forward with the sale as quickly as possible.  Investor B’s advisors receive the capital allowances section of the Commercial Property Standard Enquiries containing the unhelpful but oft used line ‘not applicable’.

Speed is of the essence and, without additional interrogation of the seller’s capital allowances position, the contract remains silent on capital allowances and the buyer thinks he has a Brexit bargain.  What he doesn’t realise is that the deal has effectively cost him £5m.

The question is, would a more robust due diligence put a deal like this at risk?  The answer is absolutely not.  As soon as an investor engages in a transaction he will want to take specialist advice – legal, accounting, finance, banking.  There is every reason to add capital allowances specialist to the list.

Immediately, the capital allowances team will prepare clauses for the Heads of Terms to ensure any entitlement will be preserved. Independently and therefore unobtrusively the team can set to work on the necessary due diligence to assess the historic ownership and gauge what value potentially exists.  Only when the replies to CPSEs arrive will a specialist need to liaise with the seller’s advisors to clarify and conclude the process.  Given it is in the best interests of the seller to complete this quickly, with a few well-chosen enquiries the matter is resolved and the contract drafted to include a pooling clause.

This pooling clause allows for the valuation and pooling of allowances to occur at any time up to two years after completion.

With a capital allowances specialist in the loop, there is at least some certainty that this valuable entitlement is not lost.

This post was edited by Chris Bird. For more information, email

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.