LONDON, March 15 (Reuters) - Upmarket British retailer Liberty (LIBE.L) is selling its distinctive mock Tudor department store building in London's West End for 41.5 million pounds ($62.9 million) to pay off debt, it said on Monday 15 March.

Liberty store in London - Photo: www.liberty.co.uk

The 135-year-old firm, 68-percent owned by property group MWB Holdings (MWB.L), said it had exchanged contracts to sell the freehold interest in the 125,000-square-foot store on London's Great Malborough Street to Sirosa Liberty Ltd.

Liberty will take a 30-year lease on the building at an initial annual rent of 2.1 million pounds, with five yearly fixed rent reviews during the intervening period, it said.

Liberty said on Friday 12 March it was in the early stages of takeover talks with suitors and a spokesman said on Monday 15 March these discussions were unaffected by the deal.

Newspapers have said the most serious suitor is BlueGem Capital Partners, a private equity fund set up by former Merrill Lynch bankers to invest in mid-market companies in the UK and in Italy.

Liberty declined to comment and BlueGem could not immediately be reached.

Liberty said it would use proceeds from the sale, which reflects an initial yield of 4.8 percent, to pay off debt and provide extra financial resources.

The freehold of the store, built in 1924 from the timbers of two ships, HMS Impregnable and HMS Hindustan, was valued at 30.25 million pounds at Dec. 31, 2009.

British commercial property values rose 1 percent in January, the sixth-consecutive monthly gain in capital values in a strong rebound following a 45 percent plunge in values between June 2007 and August 2009, Investment Property Databank data showed last month.

Liberty said the deal depended on approval by MWB and investors owning about 33 percent of that company had confirmed their support.

At 0913 GMT, Liberty shares were up 2.54 percent at 295 pence. MWB was down 1.1 percent at 45 pence.

Liberty was advised by Knight Frank and Sirosa by Savills. ($1=.6594 Pound) (Reporting by Mark Potter; Editing by Hans Peters)