In his Budget, the Chancellor announced that, subject to informal consultation, ”the Government will legislate in Finance Bill 2012 to support good business practices and remove barriers to entry, and investment in, the REITs regime, including removing the REITs 2 per cent conversion charge.”
The informal consultation was launched on 5 April and puts forward a number of issues and questions for discussion, including:
1. Introducing a diverse ownership rule for institutional investors. How should “diversity of ownership” and “institutional investor” be defined?
2. Introducing a fixed grace period for new REITs to meet the non-close company requirement. How long should the grace period last, and what should be the minimum number of shareholders at the beginning of (and during) the grace period?
3. Relaxing the listing requirement for REITs. What are the comparative commercial advantages and disadvantages of alternatives to a full listing, including a listing on AIM or other multilateral trading facilities?
4. Abolishing the conversion charge: To what extent will this incentivise new investment (rather than acquisition of existing property investment companies)?
5. Allowing cash to be a ‘good’ asset for the purpose or the REIT balance of business asset test. Should there be an absolute limit on how much cash can be held under the balance of business test, and what should the time limit be for holding cash?
6. Creating a time limit for complying with distribution requirement. What is the current administrative burden of making a dividend payment outside the regular payment cycle? and
7. Redefining “financing costs” for the REIT interest cover test. Which items should be included as a ”financing cost”?
The Chancellor’s Budget announcement on REITs was warmly welcomed by the property sector, which had encouraged the Government to open up the REITs market to new ventures. This subsequent consultation shows that the Government is now willing to relax the qualification criteria and the cost of entry in order to attract new entrants and investment.
Responses to the consultation are required by 10 June 2011. Draft legislation will then be published in autumn 2011 for inclusion in the Finance Bill 2012.