City Trustees - part of Mattioli Woods



News and Media

22 April 2015

Pensions Perspective: As a scheme trustee, should I allow the company to break the lease on the property held within the scheme?”

I am a trustee of a SSAS, as well as being a Director of the company that trades from the property held within the scheme. The company has found bigger premises from which to trade. Can the company break the lease and, as a trustee, should I let them?

There are two great questions here, the first regarding breaking a lease and the second regarding your conflicting roles of company director and trustee.

In all walks of life we have conflicts of interest, be it in the office, the home or on the football terraces. We are a nation of debaters, arguing as easily about the latest soap opera as we do about political matters!

However, as you have realised, there is a section of our pensions' community that has to debate with themselves - they are company directors who also take on the role of trustee. For them, often the right commercial decision for the company may not be the correct decision for the scheme of which they are trustee (and vice versa).

There are two main elements of conflict - confidentiality and issue. As a trustee and a company director, you have separate duties to act in the best interests of both the scheme and the company, but those duties may conflict. As a trustee, you have a duty to keep confidential information about the scheme and to disclose to the scheme any information you acquire that could affect the scheme. However, as a director, you will have a similar duty to the company.

The trick is to know which 'hat' you are wearing, to understand your duties and responsibilities with both 'hats' on, and to document in writing all company and trustee meetings.

The question regarding the lease is a good example. The company can make a request to the trustees to break the lease. The trustees then need to make a decision as to whether to allow the company to break the lease.

As trustees, you need to decide how you would proceed if this were an unconnected tenant and act prudently. If this were a non-connected tenant, would you, as trustee, allow the lease to be broken without some kind of payment? However, you will also be mindful of the effect your decision will have on the company. It is like completing a pros and cons list for both parties.

There may be an advantage in not breaking the lease. The company will still receive corporation tax relief for the rent it is paying on a property, which is rental income to your scheme. For the company, even if the property is empty, the corporate advantage of moving to alternative premises may outweigh the disadvantage of having to pay rent on a property they are no longer using. Conversely, the trustees may be approached by a prospective new tenant or purchaser, and having the property as vacant possession may assist in the sale or reletting.

For audit purposes, make sure that the company records in writing their intentions, and that the trustees formally confirm their response, also in writing. Then, whatever decision is made initially can always be reviewed in the future as circumstances change ... but do remember to document those meetings.

 

Pension Perspective is a weekly feature from City Trustees, covering questions that our experienced sales and technical teams have received from advisers. The Q&A covers a range of subjects including property, pension contributions, protection, auto-enrolment and more.

City Trustees operates a free technical helpline for advisers for support with pension challenges. Tel: 0116 240 8731 or email: technicalhelp@citytrustees.co.uk.

 

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