His Shares Went To His Widow. So Did Your Office.

A shareholder protection cross option agreement does one job well: when a shareholder dies, it moves his shares. The surviving shareholders get the option to buy them, the deceased's personal representatives get the option to sell, and if life cover was arranged alongside it, there is money in the right hands to make the purchase happen. Control of the company stays with the people running it. That is the problem it was built to solve, and it solves it.

But if the deceased's pension owns the building you trade from, the cross option agreement does not touch it. A SIPP that holds your trading premises is a pension asset, not a company asset, and nothing in a shareholders' agreement can move a pension asset. So you can complete a textbook share buyout, keep full control of the business, and discover that you are now running that business as a tenant of the dead man's family — in a building they may want to sell.

What a cross option agreement actually moves

Start with what the agreement is, because its strength is exactly what defines its limit. A cross option agreement — often called a double option — gives the surviving shareholders an option to buy the deceased's shares, and the deceased's personal representatives an option to sell them, at a valuation the agreement sets out. Life cover is normally written alongside it, usually in trust, so that when a shareholder dies the survivors actually have the funds to exercise their option rather than only the right to.

Notice the noun throughout: shares. The agreement operates on the shareholding, and on nothing else. It says who ends up owning the company. It is silent on where the company works, what it owns, and — critically — on any asset the deceased happened to hold outside the company, however essential that asset is to the business. A building sitting inside his pension is precisely such an asset.

If you have not yet put a cross option agreement in place at all, that is the first and larger gap, and we deal with it separately in our piece on why you should sign a shareholder protection agreement before it is too late. This article assumes the shares are handled and asks the question that the shares agreement leaves open.

Why the building you trade from may not be the company's at all

It is common, and often sensible, for a director to hold the company's premises inside a self-invested personal pension rather than in the company itself. The pension buys the building; the company pays rent to the pension; the rent grows the pension in a tax-advantaged wrapper. For a profitable family company it can be an efficient arrangement while everyone is alive.

The catch is ownership. The building belongs to the pension, not to the company and not personally to the director. The company is a tenant. When the member dies, the property does not pass under his will, and it is not swept up by the shareholders' agreement, because neither of those documents governs a pension asset. It passes under the scheme's death benefit rules — at the discretion of the SIPP provider or trustees, guided by the member's expression of wish — to his chosen beneficiaries. The same mechanism that decides who inherits a cash pot decides who inherits an interest in your factory floor. If the property instead sits in a small self-administered scheme with several members, the position is more tangled still, because the surviving members and the deceased's beneficiaries all have interests to reconcile.

Who becomes your landlord when the member dies

Follow the property to its new owner and the risk becomes concrete. The beneficiaries — often a widow, sometimes adult children, sometimes a mix from more than one relationship — inherit an interest in the pension, and through it an interest in the building. In practical terms they, or the trustees acting for them, become your landlord.

Their interests and yours are not the same. A widow who has just lost her husband's income may need the building sold to release cash. Adult children may want nothing to do with a lease to their late father's business partners. The trustees have a duty to the beneficiaries, not to the company, so if the beneficiaries want the asset turned into money, the pressure runs towards a sale — possibly to a third party who has no reason to keep you as a tenant on your current terms. Meanwhile the surviving shareholders, who have just spent the insurance money buying the shares, may have nothing left to buy the building with. That is the mismatch at the heart of this: the shares were funded, the premises were not.

Control of the company, incidentally, is its own separate question — if the deceased held a controlling stake, deciding who now votes those shares can matter as much as who owns the building, and we cover that in who votes the shares when a majority shareholder dies.

Why it has to be options, not an obligation

People sometimes ask why the shares are not simply dealt with by a binding contract that forces the sale and purchase on death, and the same instinct leads them to want a binding buy-and-sell clause over the property too. There is a tax reason to resist that instinct, and it is worth understanding before anything is drafted.

A binding obligation to sell business assets on death can jeopardise the inheritance tax relief that would otherwise apply to those assets, because the relief broadly expects the asset to be genuinely part of the estate rather than already contracted away for cash. Options — a put and a call — achieve the commercial result without creating a binding contract for sale before the death, which is why well-drafted shareholder arrangements use them. The same logic shapes how any option over the pension property should be written. We explain the mechanism in why options rather than an obligation preserve business relief, and it is a point to raise with your own solicitor rather than to improvise.

What the April 2027 change adds to the pressure

There is a further reason this cannot be left, and it is a change to the tax treatment of pensions themselves.

From 6 April 2027, unused pension funds and lump sum death benefits are due to be brought into the value of a person's estate for inheritance tax. A commercial building held in a SIPP is exactly the kind of asset that change captures. Where inheritance tax is due, the standard rate on the amount above the available nil-rate band is 40%, and a building is not a thing you can settle a bill with in slices — it either has to be sold, or the family has to find the cash from somewhere else. So the beneficiaries may be pushed towards selling your premises not only because they want cash, but because they need it to pay a tax bill with a deadline. A family that would happily have kept you as a tenant can be forced into a sale by the arithmetic.

Source: HM Treasury and HMRC, policy paper Inheritance Tax on unused pension funds and death benefits from 6 April 2027; the 40% standard rate is set out at GOV.UK, Inheritance Tax.

If the wider worry is what the 2027 change does to a pension pot generally, rather than to a building specifically, our companion article on whether to draw a pension down before the 2027 inheritance tax change works through that honestly.

How to deal with it before it is needed

None of this is unfixable. All of it has to be arranged while the member is alive, because every fix depends on an agreement that a dead person can no longer sign.

Four things, taken together, close the gap:

• A proper lease at a market rent. The company should occupy under a written lease on commercial terms with a sensible unexpired term, not on an informal arrangement. That gives the business a defined right to be there that survives a change of landlord, and it keeps the pension's tax position clean while the member is alive.
• A put and call option over the property. Documented so that, on the member's death, the company or the surviving members can buy the building from the pension at market value and the beneficiaries can require them to. Drafted as options for the tax reason above, not as a binding sale.
• Cover arranged to fund the purchase. This is the piece almost everyone leaves out. The share buyout is usually insured; the property buyout usually is not. A policy sized to the value of the building gives the survivors the liquidity to exercise the option instead of watching the premises be sold out from under them. If you want to see what such cover would involve for your own building and business, you can get life insurance quotes and have an FCA-authorised broker price it against the numbers that actually apply.
• An agreement between the pension members. Where the scheme has more than one member, a written understanding of what happens to the property on a death prevents the surviving members and the beneficiaries starting from scratch at the worst possible moment.

Sequence it properly with advice. A solicitor drafts the option and the lease, a pension specialist confirms the scheme can do what you intend, and a broker arranges the cover. Our guide to pensions, nominations and death benefits sets the wider context, but this particular overlap of company, pension and property is one to get drafted by professionals rather than assembled from templates.

Scotland and Northern Ireland

The pension rules are UK-wide: a SIPP holds property, and passes it under its death benefit rules, in the same way in Edinburgh, Cardiff or Belfast. The inheritance tax change from 2027 is also UK-wide. What differs is the property and landlord-and-tenant law wrapped around the building.

Business tenancy protection in England and Wales runs through the Landlord and Tenant Act 1954, which can give a business tenant a right to renew unless the lease has been contracted out of it. Scotland and Northern Ireland have their own commercial tenancy regimes, so the security your company has as a tenant, and the mechanics of transferring the building, follow local law. The strategy is the same everywhere — lease, option, cover, member agreement — but have it drafted by advisers who work in the jurisdiction where the property sits.

Frequently asked questions

What does a cross option agreement actually do?

It gives the surviving shareholders an option to buy, and the deceased's personal representatives an option to sell, the shares at a valuation set out in the agreement. Life cover is normally arranged alongside it so the survivors have the money to exercise the option when needed. It deals with the shares only, so it says who controls the company but nothing about premises or other assets held outside the company, including a building inside the deceased's pension.

What happens if the deceased's SIPP owns the trading premises?

The building is a pension asset rather than a company asset, so it is untouched by the shareholders' agreement. It passes under the pension's death benefit rules to his beneficiaries, who become your landlord. They may want it sold, while the company needs to stay in the building, and from 6 April 2027 the building's value may also be counted in the estate for inheritance tax, which can force a sale to raise the money to pay the bill.

How can that be dealt with in advance?

Options include a properly documented lease at a market rent, a put and call option for the company or the other shareholders to buy the property from the pension, cover arranged to fund that purchase, and an agreement between the pension members about what happens on a death. All of it has to be drafted and signed while the member is alive, so get it done with a solicitor and a pension specialist before it is needed, not after.