Reference to 'loan note' in lease / shared freehold - what could it actually be?

NameUnavailable

Hi,

I have been ploughing through all of the documents that my solicitors have sent me regarding my flat purchase. It's a shared freehold and within the Deed of Variation (issued when it became share of freehold) there is a clause which states;

"Not at any time to assign or transfer the whole or part of the flat unless contemporaneously with such assignment or transfer the Lessee assigns the loan note dated the same date as this deed in accordance with the Company's Memorandum of Articles of Association so long as that loan note is unredeemed"

TIA

eddddy

As far as I understand it, a Loan Note is like an 'IOU'. 

So the leaseholder lent the freehold company some money at some point - so the freehold company owes the current leaseholder that money. The clause you quote says that, if you buy the flat, any money still owed will become owed to you instead.


I think there may be different reasons why this loan would come about - but one reason is as follows:

• Let's say the 10 leasehold flat owners want to form a company to buy the building's freehold - and the freehold costs £50k.

• So each leaseholder lends the company £5k (and gets a Loan Note or 'IOU' confirming this)

• As the freehold company earns ground rents and/or lease extension fees - they gradually pay back the Lone Notes / IOUs 

It's done this way for tax efficiency. If you lend money, and then it gets repaid - there's no tax to pay.


The alternative might be for the 10 leaseholders to each buy £5k worth of shares in the freehold company (to raise the £50k), and then get ground rents and/or lease extension fees paid as dividends. But dividends would be subject to income tax.


But I'm no expert in this...

NameUnavailable

Thanks, that makes sense - the solicitors are querying it with the vendors solicitors but I wondered if it was something others had seen.

I just want to be sure that I'm not liable for some kind of debt!