With Chancellor Gordon Brown signalling the introduction of real estate investment trusts (Reits) in the Budget delivered on 22 March, the City’s commercial property departments kicked their marketing plans into overdrive.
Reits have been used to great success for a number of years in the US and Australia. Being a trust rather than a company allows the Reit to avoid paying company tax in return for distributing 90 per cent of its profit to shareholders.
A relaxation on the conditions for becoming a Reit in the UK, which had been seen by some within the industry as a major stumbling block, saw the share price of several of the UK’s leading property companies shoot up by double-digit percentages. That sort of shareholder interest was the final straw that makes it inevitable that, come the official introduction date of 1 January 2007, there will be a swathe of companies taking the plunge to convert into Reits.
Land Securities, British Land, Hammerson, Slough Estates and Liberty International all saw their share prices skyrocket and all are leading candidates to transfer to Reit status.
For the lawyers, it is a double bonus. Corporate and tax teams will be jockeying for position to secure the lucrative conversion work to transfer the company structures into Reits, while the commercial property lawyers will use it as an opportunity to get closer to their clients (and introduce them to their corporate and tax colleagues), advising on which properties in the portfolio are best suited to the Reit structure to get the best returns and, of course, for future transactions that will be judged on their expected success under the new business model.
Berwin Leighton Paisner, DLA Piper Rudnick Gray Cary, Herbert Smith, Lovells, Nabarro Nathanson and SJ Berwin are among the firms with the City’s most respected property practices, and all have the corporate and tax clout to handle Reit transitions efficiently.
All the firms are keen to point out that they have already been working closely with clients to advise them on the process, and with Reits on the drawing board since 2003 it has been a long process to get to this stage.
The real work starts now, though, and it is going to be a very busy period for the lawyers lucky enough to land the work.