Property SPVs: what does ‘the purchase price’ actually mean?

When people talk about 'the purchase price' of a Property SPV (Special Purpose Vehicle), they usually mean 'the commercially agreed value of the underlying property'. In fact, however, the reality is more complex.

29 September 2022
Paul O’Regan

The actual purchase price for the SPV’s shares is usually the net asset value of the SPV, calculated using the negotiated value of the property. The net asset value will also reflect any cash and any debt in the SPV; and the SPV’s income and outgoings, apportioned on an accruals basis.

This means that the total amount paid by the purchaser on completing the purchase of the SPV often comprises three main elements.

1. The purchase price for the shares, calculated on a net asset basis and paid to the seller;

2. Any debt owing by the Property SPV to the seller or associated parties (often referred to as ‘shareholder debt’), paid to the seller or associated parties on behalf of the Property SPV; and

3. Any debt owing by the SPV to third parties (such as a bank), paid to the relevant third parties on behalf of the SPV.

In general, to avoid mistakes, it is advisable for the share purchase agreement to provide for a completion balance sheet to be prepared in respect of the Property SPV. Ideally, a pro-forma balance sheet should be prepared in advance and included as a schedule or appendix to the share purchase agreement.

The provisional purchase price payable on completion may be calculated based on the pro-forma balance sheet, and then adjusted by reference to the actual figures in the completion accounts. This approach is particularly important where the SPV’s property is tenanted, so that prepayments and accruals can be dealt with correctly, irrespective of where the completion date falls in the cycle of rental receipts.

In short, beware: most things get a bit more complicated once you dig under the surface, and in this case the seemingly straightforward phrase ‘the purchase price’ is no exception.

For more practical guidance on how to manage the sale or purchase of property SPVs, you can download the free guide in the Resources section of this website.

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