A commensurate fee

06 September 2011

Issue: 4320 / Categories: Forum & Feedback , Companies

B Ltd owned a commercial property for ten years which was managed by A Ltd, a company under common control. The property is being sold to an unconnected party and B Ltd plans to pay a management fee to A Ltd, which has trading losses brought forward

For ten years B Ltd has owned a commercial rental property which is on its balance sheet and which is managed by A Ltd a company under common control. B Ltd may sell the property to an unconnected party C Ltd which is seeking planning permission for residential development.

The proposed selling price of £2m reflects possible planning permission being granted. There would be a gain of £300 000 after indexation allowance of £500 000.

We have not yet seen a copy of the management agreement but the client has indicated that annual management fees have been undercharged and in the event of a sale A Ltd will receive a performance-based fee of 25% of the uplift in value: about £200 000.

Bearing in mind the relative size of the fee the fact that...

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