Can you buy a share of a commercial property?

The four ways of holding a share

Tenants in common. Two or more people own defined shares of the same property directly, and the shares are recorded at the Land Registry. Each share can be sold or left in a will on its own. It is simple, but every decision needs everyone's agreement, which becomes impractical beyond a handful of owners.

A syndicate. A larger group funds the purchase together, usually through a limited liability partnership, a trust or a nominee company. Each investor holds a defined percentage, and a manager looks after the letting, the rent collection and the paperwork. This is how most groups of ten or more people own a building together, and it is how Helmsley has structured co-ownership for our clients for more than forty years.

Shares in a company. A company owns the building and you own shares in the company. Familiar and tidy, but you own the company rather than the property, and profits are taxed at company level before anything reaches you.

Units in a fund. You own a slice of a pool of many buildings. Convenient and diversified, but you cannot point at a particular building and say that part of it is yours.

What does owning a share give you?

Income. Your proportion of the rent after costs such as management, insurance, repairs and business rates on any empty space. Most syndicates pay quarterly, because that is how commercial rent is usually collected.

Some say in what happens. How much varies. In most syndicates the big decisions, such as selling the building, spending serious money on it or agreeing an unusual lease, go to a vote of the investors, while the day-to-day management sits with the manager. Read the constitutional documents carefully; being consulted and being in control are not the same thing.

A particular tax treatment. This is where the structures differ most. Some are tax transparent, meaning the income and any gain are treated as yours directly and taxed at your own rates. Others tax profits in the entity first. Transparency is usually the more efficient of the two, and it is one reason a properly structured syndicate can often be held inside a SIPP or SSAS, subject to the pension provider agreeing. Tax always depends on your own circumstances, so take advice.

A place in the queue. If the structure has borrowed, the lender is ahead of you. If it has not, nobody is.

Can you sell your share?

This is the part that tends to get glossed over, so we would rather be plain about it.

There is no established market for shares in individual commercial buildings. You cannot sell at four o'clock on a Tuesday afternoon the way you can sell a listed share. In practice a sale means finding another qualifying investor who wants that particular building, and that usually happens through the manager's own client base. In our case, most transfers between clients happen that way.

Three things follow. A sale can take time. The price may not be the figure you had in mind. And in a weak market there may simply be no buyer for a while. If you might need the money back at short notice, this is the wrong place for it.

Can a pension hold a share?

Often, yes. Commercial property is one of the few real assets a self-invested personal pension or a small self-administered scheme can own, and a tax-transparent syndicate share can qualify, subject to the provider's approval and the scheme's rules. Residential property generally cannot be held this way.

Comparing the structures

What to establish before you commit

Four things. What is your legal interest, and where is it recorded? Who ranks ahead of you if the structure has debt? What has to happen for you to get your money out, and has that route actually worked for other investors? And who decides when there is a decision to be made?

If the documents do not answer those questions clearly, that tells you something in itself.