GREIT13005 - Joint ventures: introduction

Section 138 FA 2006 provides powers to make regulations to apply the UK-REIT rules to a joint venture in which a UK-REIT is involved. Although joint ventures may take many forms, ranging from limited companies, through partnerships to contractual arrangements, the regulations made under this power (SI 2006/2866) deal only with joint ventures carried out through a limited company (but see below for groups). Where the regulations apply, the joint venture company is treated for most purposes of the UK-REIT rules in the same way as members of a Group REIT.

For vehicles that are transparent, such as partnerships or contractual arrangements, the normal UK-REIT rules apply. For most purposes (including computing Entry Charge and exemption of qualifying profits from tax), the proportion of the underlying assets, profits etc are attributed to the UK-REIT, according to their interest in the venture. This is dealt with in more detail in GREIT09015 onwards. For the Balance of business Conditions for a Group REIT however, all vehicles are treated as opaque if the UK-REIT’s interest in it is less than 20% (see GREIT12015 and GREIT12020).

For other vehicles, including where a group of companies carries out the joint venture (but see below), no account is taken of the assets and activities of the joint venture in applying the various conditions and tests in the regime. The value of the UK-REIT’s interest in the venture is an asset of the residual business and income arising is residual income, regardless of the nature of the activities undertaken by the joint venture.

Joint ventures carried out as a group of companies

The 2006 Joint Venture regulations are framed in terms of the joint venture being carried out through a single company – the joint venture company. Although this does not rule out a joint venture carried out by a group of companies, in practice, it will not apply where the joint venture company is the holding company, with the property activities being carried on through subsidiaries.

This is because the joint venture company must meet the Balance of business Conditions in its own right, in the same way that a single company UK-REIT has to (unlike subsidiaries of a Group REIT). The effect of this is that where a joint venture company has a 75% subsidiary, the value of the subsidiary’s shares and its dividends are part of the non-ring fence activities of the joint venture company: there is no look-through to the underlying assets and income of the subsidiaries.

Note that regulations dealing with joint ventures carried on via groups were announced at Pre Budget Report in December 2006, but as yet have not been laid.