If you have a business that owns a substantive property asset, you may have heard the phrase ‘opco/propco’. Swansea law experts Peter Lynn & Partners go through what this phrase means.
The opco/propco structure is a process that separates the property asset from the trading business. This is done by transferring the property to a property holding company, or ‘propco’.
The trading business remains in the original operating company, or ‘opco’. The propco then leases the property back to the opco.
So why do this? There are two main reasons:
To protect the property asset in the event of opco business failure.
It is often a requirement of a lender to have this structure where a substantive part of the lending value is in the property owned by the business.
Sectors that typically see this structure include:
- Care homes
- Industrial units / large warehouses (aka ‘tin sheds’)
- any other business that has a large property asset on its balance sheet.
Lenders to a business will take the first charge on the property asset. This first charge allows a lender, in the event of opco failure, to appoint receivers to sell, or, sell under power of sale, the property asset in the propco, without having to factor in the trading business element.
In some cases, a lender may also take a charge over a rent account, with rent paid directly to the bank, and over insurance policies in the event of a damage or destruction claim.
Peter Lynn & Partners Solicitors recently advised their client South Wales Transport (SWT) on an opco propco structure.
SWT were advised by their accountant to transfer their main premises to a property holding company to protect the property asset as noted above.
Head of Commercial Property Chris Tymanowski commented,
“While the structure and banking process is quite common, it’s not just a simple property matter. It must be accountant-driven, taking into consideration short to medium term business profits, forecasts and business plans. Insolvency rules need to be considered as well to ensure the property transfer is not an ‘avoidance measure’ for a failing opco”.
David Fowles, Managing Director of SWT commented:
“We undertook this exercise on the recommendation of our accountants. I have been delighted with the work of Chris in leading us through this matter in an informed and swift manner, all while in the middle of a Global Pandemic. I feel assured with the accounts and legal advice that the property transfer has helped protect the long term interests of the business.”
Chris Tymanowski further commented,
“We, as a firm, have been working with SWT for some time. Once you have a good client relationship and understand their business needs, along with good communication with accountants and lender, what can seem a complex matter can proceed smoothly and efficiently”.