On 9 November 2017, the Act of 22 October 2017 amending the Act of 12 May 2014 regarding Regulated Real Estate Companies (the "B-REIT Act") entered into force.
This amendment of the B-REIT Act introduces the long-awaited relaxation of the regulatory framework in which Regulated Real Estate Companies (REITs) perform their activities. The Act has three priorities. First of all, the intention is to encourage collaborations between REITs as well as collaborations between REITs and other market players. Secondly, the authorised activities (and thus the asset classes in which REITs can invest) are expanded to include both the infrastructure sector (e.g. through PPP – Public-Private Partnership) and the energy sector (e.g. renewable energy). Finally, a new type of REIT is introduced, the "social REIT", which puts real estate at the disposal of the education and healthcare sectors.
The Act abolishes the requirements that a public REIT must hold at least 50% in and must further have joint or exclusive control over its subsidiaries. From now on, it is sufficient that a public REIT has a participation of more than 25% in "perimeter companies".
The Act also repeals some of the limitations that have, until today, refrained the success of the status of “institutional REIT”. The functioning of an institutional REIT, which benefits from a transparent tax regime, is simplified, since the management structure, the internal organisation and the control functions no longer need to be organised on the level of the institutional REIT itself. From now on, this can be organised by the public REIT. As from today, a participation of 25% + 1 share in an institutional REIT is sufficient and (joint or exclusive) control is no longer required. Amendments are also expected to the Royal Decree regarding Regulated Real Estate Companies (the "B-REIT RD"). For example, the overly rigid "deadlock"-regulation, imposing on the public REIT to have a put or call option at a price determined by experts, in case of a deadlock between shareholders of a jointly controlled subsidiary, will be abolished.
An important innovation is that, from now on, natural persons can also be shareholders of an institutional REIT. This could be a solution to activate substantial family real estate portfolios, whereby these real estate portfolios can be further developed in a tax transparent regime (with related mandatory pay-out ratio) through a partnership with a public REIT. The minimum participation of a natural person in an institutional REIT will be determined in the B-REIT RD.
Increased scope of authorised activities
From now on, public REITs can systematically invest in "infrastructure" (through PPP) and in installations for (renewable and non-renewable) energy.
The Act provides for more flexible financing rules for public REITs, which should allow them to actually develop activities in a "project finance" context. For example, the constraint that an asset can only be encumbered with securities up to a maximum of 75% of the value of that asset is not applicable to the financing of PPP projects and projects in the (renewable) energy sector if the risk in these projects is ring-fenced and is limited to the patrimony of the perimeter company in which the relevant assets are held.
Finally, the Act creates a new type of REIT – the social REIT, which must take the form of a non-listed cooperative company with limited liability ("coöperatieve vennootschap met beperkte aansprakelijkheid"/"société coopérative à responsabilité limitée") with a social purpose. This status is aimed at companies that put real estate at the disposal of the education and healthcare sectors. For these companies, a new regulatory framework is created in which they can benefit from a fiscally transparent regime similar to that of REITs. In this way, the legislator aims to create a framework, which allows to make additional means available to these sectors.
Because of the introduction of the new B-REIT Act, REITs will be able to expand their activities intensively: the authorised scope of their activities is significantly extended and flexible partnerships with other market players are encouraged. Undoubtedly this will significantly promote activities on the real estate market.
Should you have any questions about this amendment of the law, please do not hesitate to contact us.