9 September 2016 by

A sweet deal: “Corporate wrappers” for property investors structuring investments through an SPV

With the London property market thriving, private investors should consider how best to secure their property investments. We advise our clients that the first step should always be to ensure that the right structure in place.

A special purpose vehicle or ‘SPV’ is a legal entity (e.g. a company, LLP or unit trust) created for a specific purpose, usually because they are free from any pre-existing liabilities and debts. We often see our clients use SPVs to hold real estate and the most common entity used is a limited company (essentially, the SPV is a property investment company).

Interesting recent investment trends you may have heard of include equity property crowdfunding, where multiple investors contribute to buy investment properties and split the profits. Often, the investors here will use an SPV to buy the property and will be issued with shares in the SPV.

We recently acted for a client who used an SPV for the structuring of its property development joint venture. It’s often the case that London properties will be held by an SPV and bought and sold with this “corporate wrapper” in place.

So why use an SPV for property investment? Here are a few key reasons our clients often consider.

  • Ease of set up: it is relatively cheap and easy to set-up an SPV, particularly a UK limited company. The SPV documentation can set out its purpose and limit its activities as required by investors. It may be that a single SPV is used for a number of different property acquisitions, or individual SPVs are used, depending on the circumstances at play.
  • Flexibility: SPVs are useful when there are several investors, avoiding the need for parties to contract separately with each other. As we said above, multiple investors can own the property assets held by an SPV. Investors can utilise the flexible structures afforded to regulate the activities and rights of the investor group, for example by setting out how the SPV will be controlled and how profits shall be distributed on the sale of properties. SPVs are also useful vehicles for raising funds for investments.
  • Lower risk: as an investor you can isolate your property assets, within a limited company SPV, so that this class of asset is separated from other assets and liabilities. Further, if a particular project fails then the SPV structure may limit legal liabilities that you as an individual investor might otherwise face.
  • Faster transactions:  the property assets within an SPV can be easily transferred. By using an an SPV, property, contracts, leases and licenses can be sold within the SPV rather than assigning separate contracts to a buyer on property sales.

These are a few of the benefits afforded to property investors by way of an SPV structure, in this area as opposed to investing and owning property in their individual capacities. You must also take appropriate tax advice from an accountant specialising in this area to ensure that you are aware of the tax position in relation to an SPV.

At Bolt Burdon we regularly deal with the structuring of SPVs for property investors, in addition to acting on property SPV transactions. We would be happy to give more specific advice tailored to your circumstances.

If you have any questions in relation to your property investment strategy and identifying the appropriate acquisition vehicle, please contact Sej Lamba in our Corporate Commercial team on 020 7288 4756 or sehajlamba@boltburdon.co.uk.

You can also contact one of our other solicitors in the Corporate and Commercial team here.

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