GREIT06030 - Leaving the regime: automatic termination

If a company breaches Company Conditions 1,2, 5 or 6 in section 106 FA 2006, it automatically leaves the regime (section 130 FA 2006). Unlike all of the other conditions of the regime, there are n o provisions that can be relied on to remain in the regime if these Company conditions are breached.

Where a company has breached one of these conditions, the regime will, in general, cease to apply from the end of the accounting period before the breach occurs. The exception is where the company has been a UK-REIT for less than ten years - in which case HMRC can direct that a different date of cessation applies - see GREIT06045.

The events that result in automatic termination are:

• ceasing to be UK resident for tax purposes
• becoming an open-ended investment company
• issuing a new class of ordinary shares or any other type of share apart from relevant preference shares, and
• borrowing money on terms that effectively entitle the lender to a share of the profits.

Where any of these events occur, the company is required to notify HMRC that it no longer meets the condition as soon as practicable.

Group REITs

For Group REITs, the Company Conditions must be met by the principal company of the group. The automatic termination rules apply to cause the group to leave the regime if the principal company breaches any of the conditions - see GREIT11325 for details.