REALWorld Law

Corporate vehicles

Corporate governance

What corporate governance requirements apply to each type of corporate vehicle used to invest in real estate?

UK - England and Wales UK - England and Wales

UK - England and Wales

Limited partnership

A limited partnership must have a general partner (GP), who is the only partner with the authority to commit the partnership to a binding contract. Limited partners (the investors) cannot participate in the management of the partnership or they risk losing their limited liability status. Limited partners can be consulted on strategic issues and their consent can be reserved on constitutional and specific issues (generally through an Investor Advisory Committee) without prejudicing their limited liability. The GP will normally be a corporate SPV (single purpose vehicle), owned or controlled by the fund's sponsor. In joint venture limited partnerships, the GP may be jointly controlled by the joint venture investor/parties.

Limited liability partnership

Although a limited liability partnership (LLP) has its own legal personality distinct from its members, it has membership interests instead of share capital. These interests can be classified into different types in much the same way as share capital. An LLP can be run by a management committee appointed by its members. It can have a corporate managing member if desired (which can be a separate LLP).

Investment syndicate trust

The trust is run by trustees – normally consisting of two corporate trustees – owned by the sponsor/manager of the syndicate. The trustees generally delegate the day-to-day management of the property to a property manager who makes recommendations on key decisions, for example, purchase, sale, rent review and leasing.

Property unit trust

The trustee acts as the custodian and overseer of the fund, which will be run by a Financial Conduct Authority (FCA) authorized manager in the UK (of which England and Wales form part). For a non FCA-authorized unit trust, the position will be governed entirely by the Trust Deed and by the agreement with the asset manager, which will contain substantial investor protections on a wide range of issues.

Limited company

UK company law provides a comprehensive code regulating the rights and obligations of the company, its directors and its shareholders. If a private company has external shareholders (for example a private equity or venture capital investor), various detailed governance controls will be built into the constitution of the company and into the shareholders agreement to protect the position of investors.

Public limited company

In common with private limited companies, UK company law provides a comprehensive code regulating the rights and obligations of the company, its directors and its shareholders. Public limited companies are in certain regards subject to more stringent corporate governance requirements than private limited companies. If a public limited company has external shareholders (for example a private equity or venture capital investor), detailed governance controls will be built into the constitution of the company and into the shareholders agreement to protect the position of investors.

Safeguards apply in the case of a public limited company since, subject to compliance with the requirements of the EU Prospectus Regulation (EU 2017/1129) (as incorporated into English law by the European Union (Withdrawal) Act 2018) (which, with certain exceptions, require the production of a prospectus), a public limited company can offer its shares to the public. In practice, such an offering will either be made on a restricted basis to pre-qualified investors within the exemptions from the requirement to produce a prospectus, or in accordance with the rules of the relevant Stock Exchange with a fully compliant prospectus.

REIT – Real Estate Investment Trusts

To qualify as a REIT, the shares of the company (or the principal in the case of groups) must be either listed on the Official List of the London Stock Exchange (or a foreign equivalent) or traded on a recognised stock exchange, which now extends to other London based exchanges, AIM and ISDX, throughout the accounting period. The listing/trading requirement is relaxed in a new REIT's first three accounting periods but a REIT can benefit from this relaxation only once and also does not apply for REITs where institutional investors hold at least 99% of the ordinary share capital of the REIT. The REIT must comply with the Financial Services and Markets Act 2000 (FSMA) and the continuing obligations for listed companies imposed by the Listing Rules and the Model Code. There is a further requirement that shares are actually traded. Therefore, an investment in a REIT is generally liquid. For these reasons, REITs are often attractive to retail investors.

PAIF – Property Authorised Investment Fund

There is no requirement for a PAIF's shares to be listed or traded on a stock exchange, so various listing requirements will not apply. However, PAIFs are required to be authorised and regulated by the FCA and are therefore subject to detailed regulatory requirements in relation to their operation. Such requirements include an obligation to appoint an FCA authorised manager (known as the authorised corporate director) to manage the PAIF and to appoint an FCA authorised person to act as depositary of the PAIF.

PAIFs that are subject to the European Union's Undertakings for Collective Investment in Transferable Securities Directives (UCITS) or classified as a non-UCITS retail fund are subject to additional requirements and are often preferred by retail investors because they offer an increased level of protection for investors.