Although the property market in the UK has seen a downturn in recent years, putting money into property can still be a good choice for those wanting to invest or generate an income.
Property syndicates involve a group of investors combining their funds to make a joint investment in commercial or residential property. Here, we outline five legal and practical considerations to take into account when buying property with others.
Be clear about the aim
First, the aim of the syndicate will need to be clarified. Is the plan to retain property in order to generate rental income over a longer period (this would be treated as an investment for tax purposes)? Or perhaps to develop property in order to sell it on at a profit in a shorter time frame (where the company will be treated as trading) .
Getting the business structure right
The business structure will depend on which approach is taken. A limited company, limited liability partnership or trust can all be used to formalise the investment. Anyone intending to set up a syndicate should take detailed advice on the best structure to use. Some investments could fall into the category of a collective investment scheme or alternative investment fund, which are formally regulated and require a qualified manager who is authorised by the Financial Conduct Authority.
Define roles of members
The role of individual syndicate members also needs to be defined. By ensuring that all syndicate members have a say in how the syndicate is run, you should avoid disagreements later down the line. You will still need to appoint others to handle other responsibilities, such as legal, accounting and letting services. A managing agent will deal with day-to-day issues regarding tenants, keep suitable records and if appropriate, distribute funds to members.
A number of additional key elements will need to be set out in a legal document.
- defining the type of property to be invested in
- the length of investment
- how much each member will be required to invest
- whether additional lending will be sought
Draw up clear rules
There will need to be rules that govern how the syndicate is run. The rules should cover:
- how many of the syndicate will be required to agree to make decision
- how profit and interest payments will be allocated (note that tax will be payable on net rental income)
- a process for exiting the syndicate before the time agreed
- how new investors will be chosen and admitted.
- a procedure if any of the investors in the syndicate defaults on a payment – for example, do the others have the option to buy out the investor?
- a statement to outline how or when the property will be sold
At Gravita we offer services to a wide range of property investors and syndicates, from large portfolios to single properties. Please do not hesitate to contact us to find out how we can help with an existing or planned property investment.