Special Purpose Vehicles
As a firm we act for many property investors and developers. Many clients ask us about whether it’s better to buy, develop and own property via a limited company and in doing so, setting up a Special Purpose Vehicle (SPV).
There are complex considerations in advising on SPVs, involving tax and many other issues.
Common considerations include :-
- Potential tax implications and/or savings by setting up and using an SPV.
- Legal risk reduction by separating out the risk by using a limited company vehicle.
A particularly common consideration and use of an SPV is for more risky transactions involving property development.
Do SPV’s reduce personal liability in reality?
In theory, with a higher risk property transaction, it makes sense to use a limited company entity to avoid risk of personal liability. The potential problem with this is that 3rd parties also involved in any underlying transaction will be well aware of this and may require comfort. For example, if you have an SPV which has been created to buy a property but funding is required, the lenders may still require personal guarantees from directors. The same may apply if you are developing a property and have an SPV company owning the property and you bring in builders. Their contract may be with the company which owns the property but they may well require more protection.
Group company structures including an SPV
One potential way to reduce the chances of having to accept personal liability is where an SPV is set up as part of a group company structure. Where further assurance is required by lenders or others involved in the underlying transaction, such assurances or guarantees may be accepted from other companies in the same group.
Property Joint Ventures using an SPV
A common use of a limited company special purpose vehicle is for property joint ventures. As with other forms of joint venture, important considerations will include:-
- Composition of the board and shareholdings.
- Consideration of whether the company’s articles of association need to be amended.
- Whether a comprehensive shareholders agreement is needed.
Most of the above issues and considerations will centre on who will contribute what, both financially and practically, as well as control and exit planning. These are key issues.
Solicitors for advice on an SPV
If you need lawyers to advise on whether a special purpose vehicle is a good idea for you, we can assist. We advise on SPVs both on property transactions and other commercial matters very regularly. Please do get in contact.