LCN Legal has launched a new, simpler way for UK property developers to raise funds from private investors. This approach reduces the up-front costs for developers, and enables them to respond more quickly to opportunities. It should also reduce the time and cost that developers have to spend in negotiations, so that they can focus on the things that really matter: establishing professional relationships, sourcing properties, and delivering the developments.
Who this approach is suitable for
This is suitable for you if you are a property developer or property contractor and you already have relationships with experienced investors who trust you. You may have already used SPV or JV structures to fund previous projects or you may want to expand your financing options by reaching out to contacts you have not worked with before. The structure can be used for both leveraged and non-leveraged investments.
How it works
Our simplified approach is to offer a tried-and-tested structure, using a UK private limited company as a “special purpose vehicle” (SPV). Up to 10 investors can participate in the funding of any one SPV and do so by making loans to the SPV that are secured on the underlying property. The developer (or its principals) holds A shares in the SPV and the investors hold B shares.
Clients who choose this offering can select key terms such as the development period, the amount (if any) to be co-invested by the developer, the interest rate to be offered to investors and so on. However, the control provisions are essentially pre-set, following tried-and-tested documents which we have developed on other projects. These pre-set terms are intended to represent a fair “middle ground”, and are accompanied by FAQs for both you as developer and for investors. The aim of this is to cut-out unnecessary to-ing and fro-ing between lawyers and to significantly reduce the time you have to spend in approaching multiple investors, because you can present a full package each time.
In short, the new simplified package will provide the legal foundation for you to confirm investor appetite, following which which we can swiftly establish the legal structure required to support your project.
The package will comprise the following legal documents and legal support:
- A structure chart providing participants with an overview of how the project works
- A written summary to share with prospective investors, including a list of FAQs
- A template business plan for you to complete in relation to the specific development opportunity or opportunities
- Incorporation of the SPV company
- A shareholders agreement for the SPV company, which will set out details of how the structure will work, including loan terms and control provisions
- Articles of association for the SPV company
- Standard charging document to secure the loan finance provided by investors
- Standard development services agreement for the provision of property-related services to the SPV company
- Filing of all relevant forms with Companies House relating to the appointment of directors and the issue of shares on establishment of the SPV company
- Share certificates for the issue of shares to investors on the establishment of the SPV company
This package also includes telephone access to our senior solicitors to discuss any questions you may have as your project progresses.
The payment terms
The payment terms for this package involve an initial fee which is payable prior to commencement of work.
If the project does not proceed (for example, if the required funds are not raised), then no further fee is payable. If the project does proceed to raise funds, then an additional fee is payable, which is fixed in advance and is payable on completion of the fundraising.
What if someone wants a different structure or different terms?
It is completely up to the parties to modify the structure and renegotiate the terms if they want. In fact, you should recommend that your investors should be consider getting their own legal advice. However, the aim of this simplified package is to adopt a “middle ground” which fairly reflects the interests of all parties and in order that you can get your projects funded as quickly as possible, we would strongly recommend that you present the package on a “take it or leave it” basis. If an investor does want to insist on making changes, then that investor should be asked to pick up the additional professional costs on both sides.
Who is LCN Legal?
We are an independent law firm which specialises in corporate investment structures. This includes property joint ventures, property SPVs, property funds and P2P platforms. We are regulated by the Solicitors Regulation Authority of England & Wales.
Before co-founding LCN Legal 3 years ago, I was a Corporate Partner in the London office of Pinsent Masons, a top 20 UK law firm. Before that I was a Director in KPMG’s law firm, and in that role I worked closely with KPMG’s real estate tax team in Canary Wharf. I am currently a contributor to Lexis Nexis’ materials for practicing lawyers, and I wrote their guide to buying property SPVs.
Our core team of lawyers comprises corporate and finance specialists who trained at ‘blue chip’ law firms such as Linklaters, Baker & McKenzie and Shearman & Sterling. We regularly present seminars and publish articles for our clients and contacts. You can find out more about our team here.
Want more information?
Please just give us a call on 020 3286 8868, and ask to speak to one of our specialists. We will be delighted to help.