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HMRC internal manual

Guidance on Real Estate Investment Trusts

Breaches of conditions: Company Condition 4 ('not close'): actions of others


A company can become close as a result of the action of its shareholders. Where this isa consequence of a take-over bid, special rules apply (see GREIT07015).Note that during the course of a take-over, it is likely that the board of the target willat some stage recommend shareholders accept the offer. Although this recommendation is theaction of the company, the event that triggers the breach of Company Conditions 3 and 4 isthe action of the company making the bid to take over the UK-REIT, and the take-over andaction of others rules would apply to decide if or when the company or group ceased to bea UK-REIT.

A company can also become close when one shareholder increases their holding so that theyand four others control the company, or where two previously unconnected participantsbecome connected and attribution rules result in control by five or fewer. The companywould therefore fail Company Condition 4 at the date it becomes ‘close’, and theregime would cease to apply with effect from the end of the previous accounting period.

Note that ‘close’ is more strictly defined for the purposes of UK-REITS than itis in general tax legislation– see GREIT02010.

If the company does become close as a result of the action of others, then the regime cancontinue to apply to the company provided it is once again not close by the end of thenext but one accounting period (regulation 3 SI 2006/2864).

Breaches of Company Condition 4 as a result of the action (other than take-over) of othersdo count towards the number of times conditions can be breached before being thrown out ofthe regime (regulation 8 SI 2006/2864).


C is a UK-REIT and makes up its accounts to 31 December. Six shareholders S1 to S6 eachown 9% of the ordinary share capital (OSC) of C. None of the other shareholders owns morethan 4%. S2 is taken over by S1 (a listed company) on 30 June 2008. On that date, Cbecomes close since S1, S3, S4, S5 and S6 together own 54% of the OSC (S2’s holdingof 9% of the OSC is attributed to S1 since it controls S2). Company Condition 4 isbreached on 30 June 2008.

On 1 December 2009, S2 sells its entire holding of C shares. The breach is thereforeremedied in time, and C remains in the regime throughout.

If S2 delays selling its shares until 1 February 2010, the breach is not remedied in timeand the regime ceases to apply to C on 31 December 2007.