IFM27075 - Real Estate Investment Trust : Breaches of conditions/rules: summary table

Condition: S528(1)

• Detail : Condition A - Company is UK company.
• Sanction section :S578
• Details of sanction: If condition A not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP

Condition: S528(2)

• Detail :Condition B - S236 FISMA 2000 does not apply to company.
• Sanction section: S578
• Details of sanction : If condition B not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP

Condition: S528(3)

• Detail: Condition C- shares are admitted to trading on recognised stock exchange.
• Sanction section: S562(5)
• Details of sanction: If condition C not met Group/Company treated as having ceased to be a UK REIT at end of previous AP.
• Relaxation - section: S562(2)
• Details of relaxation : No breach if condition C not met as a result of UK REIT / UK Group REIT joining another REIT

Condition: S528(4)

• Detail: Condition D - company is not close.
• Sanction section: S562A(3) & (4)
  • Details of sanction: If condition D not met Company/Group is treated as ceasing to be a UK REIT at end of preceding AP or end of initial 3 year period.
• Sanction section: S573A
  • Details of sanction: Notice may be given that a company/group ceases as a UK-REIT on 1st day of AP1, or such later day as specified, where the business has been transferred, the transferee fails to meet the condition and transferor failed to meet it during the initial 3-year period
• Relaxation section: S527(6)&(7)
  • Details of relaxation: A breach of Condition D is ignored if it occurs during first 3 year period
• Relaxation section: S562A(5)
  • Details of relaxation: No breach if condition D not met as result of UK REIT / UK Group REIT joining another REIT
• Relaxation section: S562A(6)
  • Details of relaxation: No breach if condition D not met due to something done/not done by person other than company and breach remedied by the end of following AP.

Condition: S528(6)

• Detail: Condition E - one class of ordinary shares and preference shares must be non-voting.
• Sanction section:S578

Details of sanction: If condition E not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP

Condition: S528(8)

• Detail: Condition F - loan creditors not entitled to either interest depending on results of the company nor a non-commercial rate of return.
• Sanction section: S578
• Details of sanction: If condition F not met in an AP the company / group is taken to have automatically ceased to be a REIT at the end of the previous AP

Condition: S528A

• Detail: Ordinary share capital is listed throughout the AP or shares forming part of the ordinary share capital are traded on a recognised stock exchange during the AP.
• Sanction section: S562B and C(2)
  • Details of sanction: If condition in S528A not met the group/company is treated as having ceased to be a UK REIT at end of previous AP.
• Sanction section: S573B
  • Details of sanction: Notice may be given that a company/group ceases as a UK-REIT on 1st day of AP1, or such later day as specified, where the business has been transferred and the transferee fails to meet the S528A condition and transferor failed to meet the condition during the initial 3-year period
• Relaxation section: S528B
  • Details of relaxation: S528A treated as met for APs 1-3 if at the end of AP3 ordinary share capital is listed or shares forming part of the ordinary shares capital are traded on a recognised stock exchange during the APs 1-3.
• Relaxation section: S562B(3)
  • Details of relaxation: S562B(2) does not apply if condition not met as a result of the REIT / Group REIT joining another REIT.
• Relaxation section: S562C(3)
  • Details of relaxation: S562C(2) does not apply if condition not met as a result of the REIT / Group REIT joining another REIT.

Condition: S529

• Detail: Condition A- property rental business has at least 3 properties

• Sanction section: S574
  • Details of sanction: A termination notice may be given where - breach is considered serious
• Sanction section: S575
  • Details of sanction: A termination notice may be given where - there is a breach of conditions A or B in S529 in 3 consecutive Aps; - during the relevant 10 year period S563(2) has been relied upon more than twice in relation to condition A
  • Relaxation section: S563(1) & (2)
    • Details of relaxation: If condition A or B is not met for a UK REIT throughout an AP, the breach is to be ignored.
  • Relaxation section: S575(4)
    • Details of relaxation: If breach lasts for more than one AP but not more than two APs then for purpose of 10 year period treat as having relied on S563(2) only once

Condition: S529

• Detail: Condition B - No one property represents more than 40% of total value of properties in PRB
• Sanction section: S574
• Details of sanction: A termination notice may be given where - breach is considered serious - there is a breach of conditions A or B in S529 in 3 consecutive Aps; - during the relevant 10 year period S563(2) has been relied upon more than twice in relation to condition B
• Relaxation section: S563(1) & (2)
  • Details of relaxation: If condition A or B is not met for a UK REIT throughout an AP, the breach is to be ignored.
• Relaxation section: S575(4)
  • Details of relaxation: If breach of condition B is a consequence of breaching condition A then ignore breach of condition B in relation to the 10 year period. If breach lasts for more than one AP but not more than two APs then for purpose of 10 year period treat as having relied on S563(2) only once.

Condition: S530

• Detail: The PID distribution requirement
• Sanction section: S574
• Details of sanction: A termination notice may be given where breach is considered serious
• Relaxation section: S564
• Details of relaxation: The breach is ignored but S565 amount is chargeable.

Condition:S531

• Detail: Condition A- Profits of PRB are at least 75% of aggregate profits of group or company

• Sanction section: S576
  • Details of sanction: A termination notice may be issued if there is: a) a breach of condition A or B in S531 in three consecutive APs or b) during the relevant 10 year period S568(1) has been relied upon more than twice.
• Relaxation section: S576(6)
  • Details of relaxation: AP1 not included.
• Relaxation section: S568(1)
  • Details of relaxation: If condition A not met in an AP other than AP 1, but PRB profits are at least 50% of aggregate profits, breach is ignored
• Relaxation section: S576(5)
  • Details of relaxation: If breach lasts for more than one AP but not more than two APs then for purpose of 10 year period treat as having relied on S568(1) only once
• Sanction section: S574
  • Details of sanction: A termination notice may be given where breach is considered serious

Condition: S531

• Detail: Condition B - Assets used in PRB account for at least 75% of total assets of the group or company

• Sanction section: S576(1)
  • Details of sanction: A termination notice may be issued by HMRC under S572(1) if there is: a) a breach of condition A or B in S531 in three consecutive APs or b) during the relevant 10 year period S568(2) has been relied upon more than twice.
• Relaxation section : S566
  • Details of relaxation: If condition B not met in relation to AP1 breach is ignored if it is met at the beginning of the next AP
• Relaxation section: S568(2)
  • Details of relaxation: If condition B not met in an AP other than AP 1, but PRB assets are at least 50% of total assets, breach is ignored
• Relaxation section: S576(5)
  • Details of relaxation: If breach lasts for more than one AP but not more than two APs then for purpose of 10 year period treat as having relied on S568(2) only once
• Sanction section: S574
  • Details of sanction: A termination notice may be given where breach is considered serious and if this relates to AP1 then cessation may be from 1st day of AP1

Condition: S543

• Detail: Profit: financing cost ratio must be at least 1.25
• Sanction section: S543(3)
• Details of sanction: Any excess financing costs are charged to CT in the residual business
• Relaxation section: S543(7)
• Details of relaxation: CT charge may be waived if : i) company was in severe financial difficulties in AP; ii) Interest cover less than 1.25 due to ‘circumstances that arose unexpectedly’ & company could not reasonably have taken action to avoid result being less than 1.25

Condition: S551

• Detail: Distribution to holder of excessive rights
• Sanction section: S551(3)
• Details of sanction: Distributor is treated as receiving an amount of income in in accordance with S552.
• Relaxation section: S551(1)(b)
• Details of relaxation: If the distributor has taken “reasonable steps” to prevent a distribution to a HoER then there is no charge

Multiple breaches rule (CTA2010/S577) (see IFM27065) applies in relation to breaches of conditions in sections 528 to 531