Most of our property development projects are structured as Unit Trusts. A Unit Trust is a method of collective investment created by, and operating in accordance with, a trust deed. A Unit Trust pools money from multiple investors into a single fund, which is then managed by the trustee.
By structuring our investments as a Unit Trust, we provide our investors with legal protections that secure their invested capital.
Unit Trusts are created by a legal document called a trust deed. A trust deed is prepared by a solicitor and is a legally-binding agreement for all parties involved in the Unit Trust. The Trust Deed outlines the purpose of the trust, the rights and obligations of trustees, the rights and obligations of unit holders, the powers of the trustee, and identifies the various parties involved in the trust.
When a Unit Trust is created for a development, we also create a special purpose vehicle (SPV) company to function as the trustee of the unit trust. This SPV is typically named after the address of the development site. For example, the SPV of our Olympus development is called 49 Toorak Rd Pty Ltd.
When an investor invests into one our developments, they are actually investing into a Unit Trust that has been created specifically for that development. Each investor in the trust receives units proportional to the amount of capital they invest ($1,000 equals one unit). A unit is a piece of property that entitles the unit holder to a specified portion of the income and capital of the Trust (as specified in the Trust Deed). The trustee then uses the funds within the trust to undertake the development on the behalf of the unit holders.
The largest protection offered to investors by Unit Trusts is that an investor’s capital is secured against the land that is purchased by the Unit Trust. The Unit Trust owns the land, and the unit holders are entitled to a portion of the trust’s assets. In the worst-case scenario, unit holders can choose to appoint a new trustee to undertake the development or even sell the purchased land to recoup their capital.
Another protection is that a trustee owes a duty of care to unit holders and beneficiaries within the Unit Trust and the unit deed mandates that the trustee acts in the best interests of the unit holders and beneficiaries at all times. If a trustee fails to do so, they can be held personally liable with civil and criminal penalties depending on the severity of the their actions.
Of course, no investment is entirely without risk, but this legal structure minimises that risk as much as possible by ensuring that an investor’s capital is secured against a tangible asset and that the trustee is acting in the best interests of investors at all times.