Hi Property Lovers
I came across this article that had a great selection of information of different kind of syndicates.
Structure: unit trusts
McMahon Clarke Legal associate Brendan Ivers explains that the most common structure for a simple unregistered property fund for the purpose of undertaking a development or making a passive investment is through a unit trust. Under a unit trust arrangement a company is created, which acts as trustee of a unit trust.
The investors in the fund pay money to receive units in the trust (alternatively, investors can get units in the trust and shares in the trustee company under a 'stapled arrangement'), and the company which is acting as trustee of the trust will hold the title to the property "on trust" for the investors in the fund.
The company will also enter into all contracts related to the project, such as a development management agreement or building contracts (for developments) or leases and property management agreements (for passive investments).
Ivers explains that this structure can provide some protection for the investors in the fund and segregates their investment in the fund from their other investments and assets.
Structure: small property syndicate
If it's just a few friends and family getting together to buy a passive investment, then Ivers suggests an alternative to the unit trust is in establishing a property fund, which complies with the requirements of a 'small property syndicate'.
Under a 'small property syndicate' all of the investors are named on the title to the property as 'tenants in common' and there's a 'syndicate agreement', which sets out the rules of the game for each of the investors. There's also a management agreement entered into between the investors and a manager, and the manager (generally one of the investors) is appointed to provide the property management services for the property, such as collecting rent, arranging repairs and maintenance work.
Ivers explains that for a 'small property syndicate' the 'syndicate agreement' has prescriptive requirement inclusions but there are no particular content requirements for the management agreement.
The number of investors in these syndicates is also limited to 15 investors and the promoter (the person setting up the fund) must hold at least five per cent of the fund. These sorts of funds also have other restrictions, which need to be carefully considered from the outset.
Structure: participating property syndicate
Ivers explains that a participating property syndicate is designed to make it easier for a promoter (the person setting up the fund) of a property fund to set up a small fund. He notes that these sorts of property funds can be useful for people who are looking to get into the property funds management industry but don't yet have an AFS licence.
The major hurdle with these structures is that they require the promoter to issue a product disclosure statement (PDS) if retail investors are investing in the fund, he explains.
If the investors in the fund can fall within one of the exemptions to the requirement to provide a PDS (discussed in more detail below) then it can be structured to avoid this, but if not then Ivers warns that it can be a costly exercise to prepare and issue a PDS.
He explains that these sorts of funds are limited at 15 investors and no investor can hold less than five per cent of the total value of investments made by the fund. As with the small property syndicate there are also additional restrictions to comply with.
Structure: joint venture
Property funds are usually set up for a faster income or gain and need to comply with ASIC, explains MJS Law solicitor Mary Sealy on the difference between property funds compared to the more familiar 'joint ventures'.
She adds that funds are more 'passive' than the 'active' joint ventures. For a joint venture she refers to the common example of a renovation or new build where parties are actively involved in the decision-making, funding and technical details of a project.
Licensing
Ivers says depending on the circumstances the vehicle used to run the property fund (such as a company acting as trustee of a unit trust) may need to hold an AFS licence. An AFS licence is issued by ASIC and is difficult to obtain. Consequently, this isn't really an option for most ordinary investors.
However, there can be an exemption from the need to hold an AFS license, and Ivers explains that as a rule of thumb, if mum and dad investors are doing a once-off project with a close group of friends and family which isn't set up to be an ongoing venture, then they shouldn't need an AFS licence. But once they move onto more than one project, then it's likely an AFS licence will be required.
ASIC also provides exemptions from the need to hold an AFS licence for 'small property syndicates' and 'participating property syndicates', as explained earlier.
This information was gathered from:
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