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Buying a property with debt - how is this treated?

Buying a property with debt - how is this treated?

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We have a client who's company is considering acquiring a property but will also acquire £27,000 worth of outstanding debt owed in unpaid service charges if the purchase is made.

How would this debt be recognised, would it be Dr expense Cr liability or would it somehow form part of the asset. Any thoughts or a nudge in the right direction would be appreciated.

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By Accountant A
11th Sep 2019 11:15

Thomas654654 wrote:

How would this debt be recognised, would it be Dr expense Cr liability

I would definitely suggest that you speak to an accountant.

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Replying to Accountant A:
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By Thomas654654
11th Sep 2019 12:24

I tried talking to myself but I received funny looks

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By Mr_awol
11th Sep 2019 11:50

I doubt the client will acquire a debt. I suspect that the management company will refuse to register the transfer until the arrears are paid and that the buyer's solicitor will therefore clear the arrears at the point of purchase. Both parties' legal advisors will probably insist on this (unless the arrears are disputed for example).

That minor point aside, what do YOU think the answer is? From your post I suspect that your gut feeling is currently wrong

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By GW
11th Sep 2019 12:03

I agree with Mr AWOL

What does the purchase agreement say?
I would expect it would be something along the lines £27,000 of the purchase price is to be paid to the service charge provider, in which case it would be part of the cost of the property.

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Replying to GW:
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By Thomas654654
11th Sep 2019 12:25

This was my initial thought but there isn't a purchase agreement (yet) so I don't have all the details. Thanks for your input, I think I'll suggest to the client we must wait until we have the arrangement in writing.

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By Duggimon
11th Sep 2019 13:05

If I was buying a property and acquired £27,000 debt along with it, I would expect to pay the value of the property, less £27,000, and that's where I'd put the leftover £27,000 in the transaction, not on the P&L where it has no right being.

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By johngroganjga
11th Sep 2019 14:06

How much has the purchase price been adjusted for the unpaid debt?

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