Expiry of real property exemption
The Financial Markets Authority has allowed the Securities Act (Real Property Proportionate Ownership Schemes) Exemption Notice 2002 (the Exemption Notice) to expire, with effect from 1 October 2012. This will have implications for property syndicates and their potential investors.
Real property proportionate ownership schemes
The Exemption Notice applied to proportionate ownership schemes, or property syndicates, which allow investors to “pool” their funds in order to purchase a commercial property that might otherwise be out of the investor’s financial reach.
Property syndicates have seen a resurgence in popularity in recent years, partially due to the collapse of finance companies. Property syndicates generally promise high returns and appeal to those who want to invest in real estate but do not want the responsibility of managing a property.
The previous position
Prior to the expiry of the Exemption Notice, issuers that fell within the class exemption were not required to prepare a registered prospectus and investment statement, or appoint a statutory supervisor. These issuers could instead simply provide potential investors with an “offeror’s statement” (similar to an investment statement) and a recent valuation of the target property.
Financial Markets Authority decision
The Financial Markets Authority made the decision to allow the Exemption Notice to expire largely due to the risks involved in syndicated property investments. Potential investors should have access to information sufficient that they can assess these risks and make an informed decision as to whether or not to invest.
The Financial Markets Authority has indicated they will refuse to grant specific exemptions along the lines of the Exemption Notice in the future.
With the expiry of the Exemption Notice, property syndicate promoters and issuers will now have the following main options:
- Register a full prospectus with the Companies Office, prepare and distribute an investment statement and appoint a statutory supervisor. This may prove costly and time-consuming, but sound legal advice would ensure the issuer is fully compliant with securities legislation.
- Apply to the Financial Markets Authority for a specific exemption tailored to their particular circumstances. However, given the Authority’s indication that it will not grant specific exemptions to syndicates in the future, such an application is unlikely to be successful barring extraordinary circumstances.
- Structure the offer so that securities are only offered to excluded or exempted persons. Using this option will severely limit the number of people to whom offers may be made.
Securities law is an area that is fraught with risk, and can carry hefty penalties for non-compliance. Any person looking to offer securities to the public, or who is unsure whether their offer is to the “public” or not, should seek legal advice to ensure they are fully compliant before proceeding.
Laura is an Associate in our Commercial Team and can be contacted on 07 958 7461.
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