Lauren Walker, a Partner in our Real Estate Team, looks at what a Substantial Property Transaction is and when you might need to consider its implications.
A substantial property transaction is a legal concept under UK company law that applies when a company buys or sells property involving its directors or other connected parties. These rules are designed to protect companies and their shareholders by ensuring transparency and proper approval for transactions where conflicts of interest may arise. These provisions are set out in sections 190–196 of the Companies Act 2006.
When do the rules apply?
A transaction will generally be a substantial property transaction where:
- A UK company acquires or disposes of a non‑cash asset (most commonly land or buildings);
- The asset is acquired from, or disposed to, a director of the company, a director of its holding company or a person connected with such director (such as a close family member or a company the director controls); and
- The value of the asset exceeds certain statutory thresholds.
These requirements apply whether the transaction is a purchase, sale, transfer, lease, or grant of rights over property.
What counts as “substantial”?
An asset will usually be “substantial” if its value is:
- More than £100,000; or
- More than £5,000 and exceeds 10% of the company’s net asset value.
If either of these thresholds is met, the statutory regime is engaged.
Who is a “connected person”?
Connected persons can include:
- A director’s spouse or civil partner;
- A director’s relatives, including parents, children, step‑children and siblings;
- Trustees of trusts connected with the director (or a connected person of the director); and
- Companies in which the director (or a connected person of the director) has control.
Determining whether a party is connected often requires careful legal analysis.
What approval is required?
Where a substantial property transaction arises, the company must obtain shareholder approval by ordinary resolution before the transaction completes. Any director (or connected person) who is interested in the transaction cannot vote on such ordinary resolution.
The resolution is typically supported by:
- Details of the proposed transaction;
- Information about the property and its value; and
- Disclosure of the director’s interest.
Importantly, failure to obtain approval can render the transaction voidable, and directors (or any connected person) may be personally liable to account for any gain or indemnify the company for losses.
Are there any exceptions?
Yes. Common exceptions include:
- Transactions between a company and its wholly‑owned subsidiary;
- Transactions entered into in the ordinary course of the company’s business; and
- Certain arrangements with insolvency practitioners.
Whether an exception applies should always be checked carefully.
Why this matters in practice?
Substantial property transaction issues frequently arise in:
- Intra‑group reorganisations;
- Transfers of property involving family‑owned companies;
- Directors acquiring property from, or selling property to, their company; and
- Refinancing or estate planning exercises.
Early identification of the issue can avoid delays, additional costs and potential legal risk.
Substantial property transaction rules are an important compliance consideration whenever a company and its directors are involved in property dealings. Taking legal advice at an early stage helps ensure that the correct approvals are obtained and that the transaction proceeds smoothly.
If you require assistance with a potential Substantial Property Transaction, please contact our Real Estate and Corporate Team.
