A company can become close as a result of the action of its
shareholders. Where this is a 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
will at some stage recommend shareholders accept the offer.
Although this recommendation is the action of the company, the
event that triggers the breach of Company Conditions 3 and 4 is the
action of the company making the bid to take over the UK-REIT, and
the take-over and action of others rules would apply to decide if
or when the company or group ceased to be a UK-REIT.
A company can also become close when one shareholder
increases their holding so that they and four others control the
company, or where two previously unconnected participants become
connected and attribution rules result in control by five or fewer.
The company would therefore fail Company Condition 4 at the date it
becomes ‘close’, and the regime 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 it is in general tax
legislation– see
GREIT02010.
If the company does become close as a result of the action of
others, then the regime can continue to apply to the company
provided it is once again not close by the end of the next 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 others do count towards the number of
times conditions can be breached before being thrown out of the
regime (regulation 8 SI 2006/2864).
C is a UK-REIT and makes up its accounts to 31 December. Six
shareholders S1 to S6 each own 9% of the ordinary share capital
(OSC) of C. None of the other shareholders owns more than 4%. S2 is
taken over by S1 (a listed company) on 30 June 2008. On that date,
C becomes close since S1, S3, S4, S5 and S6 together own 54% of the
OSC (S2’s holding of 9% of the OSC is attributed to S1 since
it controls S2). Company Condition 4 is breached on 30 June 2008.
On 1 December 2009, S2 sells its entire holding of C shares.
The breach is therefore remedied 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 time and the regime ceases to apply to C
on 31 December 2007.
