Joint ventures: conditions to give a Joint Venture Look-Through Notice
Single company UK-REITs - venturing company
The Joint Venture regulations (SI 2006/2866) refer to the company that is the UK-REIT as the ‘venturing company’ and the company through which the joint venture is carried on as the ‘joint venture company’. The conditions that have to be met to give a joint venture look-through notice are set out in regulation 3 SI 2006/2866. They are as follows:
- Condition1 - the venturing company is carrying on a joint venture with another person. Although the singular is used, following normal rules for interpreting statute, the joint venture can be carried on with more than one person. There are no restrictions on the legal nature, residence etc of the other person(s).
- Condition 2 - the joint venture is a company. In the absence of any particular definition for this purpose, the normal section 832(1) ICTA meaning applies (body corporate or unincorporated association excluding partnerships).
- Condition 3 - the joint venture company must carry on a property rental business as defined in section 104 FA 2006 (see GREIT01020).
- Condition 4 - the venturing company must be beneficially entitled to 40% or more of the joint venture profits that are available for distribution to shareholders. Note that there are no restrictions on the % shareholding etc of other parties to the joint venture - it does not have to be 50/50 or 40/40/20 to qualify.
- Condition 5 - the venturing company must be beneficially entitled to 40% or more of the assets of the joint venture in the event of a winding up.
- Condition 6 - owner-occupied property is excluded from the property rental business. ‘Owner-occupied’ takes its accounting meaning but is extended so that property owned by the joint venture company and occupied by the venturing company is excluded from the ring fence.
- Condition 7 - the property rental business of the joint venture company has to satisfy Conditions 1 and 2 of the Balance of business Conditions in section 108 FA 2006 (75/25 asset and income tests) (see GREIT02065).
As with subsidiaries of a Group REIT, there are no special rules or limitations on the types of share capital, financing or the residence of the joint venture company.
Group REITs - venturing group
The regulations refer to the group that is the UK-REIT as the ‘venturing group’ and the company through which the joint venture is carried on as the ‘joint venture company’. The conditions that have to be met to give notice are set out in regulation 10 SI 2006/2866. They are identical to the single company UK-REIT conditions, with venturing group replacing venturing company throughout.
Joint Venture Groups
The Joint Venture Groups regulations set out the conditions for the venturing company or group to meet to give a look through notice, these conditions are at Regulations 6 and 18 SI2007/3425 and follow the Conditions 1-5 above. At least one member of the joint venture group must be carrying on a property business(Reg 6 SI2007/3425Owner occupied property is excluded by Schedule 16 and the conditions for the balance of business test for a joint venture group are at Regulations 8 and 20 SI2007/3425.