Q&As

Can real estate joint venture arrangements be subject to onerous and costly regulation under the Alternative Investment Fund Managers Directive?

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Published on LexisPSL on 25/03/2020

The following Financial Services Q&A provides comprehensive and up to date legal information covering:

  • Can real estate joint venture arrangements be subject to onerous and costly regulation under the Alternative Investment Fund Managers Directive?

Certain real estate joint venture arrangements (JVs) may potentially be subject to onerous and costly regulation under the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD), as implemented. The AIFMD had to be implemented by EU Member States by 22 July 2013. A transitional period under Article 61(1) of the AIFMD gave AIFMs a year to submit an application for authorisation—this ended on 22 July 2014.

The AIFMD framework gives rise to a major change for the real estate funds industry, which previously had been relatively lightly regulated by the collective investment schemes (CIS) regime under section 235 of The Financial Services and Markets Act 2000 (FSMA 2000), and related regulations. Crucially, a JV is subject to the AIFMD, as implemented, if it falls within the definition of alternative investment fund (AIF) in Article 4.1(a) of the AIFMD, even if referred to as a ‘JV’. A JV that falls outside the definition of AIF may still be regulated as a CIS under FSMA 2000, s 235—see below.

Failing to identify a JV as an AIF will have serious consequences, as managing an AIF in the UK is a regulated activity under The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, SI 2001/544 (RAO), as amended (RAO, SI 2001/544, art 51ZC). Conducting a regulated activity in the UK without authorisation is a criminal offence under FSMA

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