High-net-worth individuals (HNWIs) may have the ownership of
their personal realty held in a private trust structure so that
either their trustees directly own the realty or, as has
historically been more common, the realty is owned by an underlying
company owned by the trustees. HNWIs also look to invest in
commercial real estate ventures and, again, a trust structure is
frequently used for that purpose. In Jersey, these structures are
known as Jersey property unit trusts (JPUTs).
Like any other trust, a JPUT will often come into existence on
the execution of a trust instrument made by a trustee and on the
transfer to the trustee of the property. However, those persons
transferring property (i.e. the trust fund) to the trustee will be
known as unitholders rather than benefi ciaries. In addition, the
unitholders' names will be entered into a register of
unitholders and they will be issued with units in the JPUT.
The units will represent an undivided share of the underlying
trust fund and carry those rights set out in the trust instrument.
It is possible to have di. erent classes of units, each class
carrying di. erent rights.
If further capital is required to purchase investment property,
then either a subscription for additional units can be used to
raise equity, and/or debt fi nancing can be raised and secured
against the investment property and/or the units.
While professional, regulated trustees can serve as trustees,
usually a special purpose vehicle (SPV) is appointed to act as
trustee, because it provides unitholders with greater control over
the JPUT in terms of both nominating directors and moving the
administration of the JPUT (should the need arise) without
disturbing the legal ownership of the underlying property.
The shares of the SPV are usually held by a foundation or
purpose trust for desired commerciality. In most jurisdictions, it
is now not a requirement to have more than one trustee of a trust.
However, if the underlying property is, for example, located in
England, then the doctrine of overreaching needs to be considered,
and so it may be desirable to have two trustees appointed.
DUTIES OF TRUSTEES
Trustees of a JPUT have the same obligations as other trustees:
to act with due diligence, as would a prudent person, to the best
of their ability and skill, in accordance with the terms of the
trust instrument; to observe the utmost good faith; and to exercise
powers for the benefi t of the unitholders.
The trustees may appoint a property manager to deal with the
day-to-day management of the property, depending on the nature of
the investment property and whether such a move is commercially
viable. If it is known at the outset that a manager is required,
then the manager will be likely to be a party to the trust
instrument, agreeing to undertake the management responsibilities
while the trustees undertake a custodian role.
Generally speaking, unitholders' rights are determined by
the trust instrument, but general trust principles also apply. It
is not uncommon for a trust instrument to stipulate that certain
actions – i.e. removing a trustee or terminating the trust
– will require the consent of all unitholders or a majority
The level of fi nancial regulation of a property unit trust will
entirely depend on the jurisdiction and structure. By way of
example, a JPUT with no more than 15 investors, not o. ering or
marketing units, will be treated as a private structure and will
only be subject to obtaining the consent of the Jersey Financial
Services Commission to raise fi nance by the issue of units. If
there are more than 15 investors and/or marketing interests, Jersey
regulatory consent will be required.
Subject to the terms of the trust instrument, there is usually
no requirement for a liquidator. Once the property has been
distributed, the JPUT will come to a natural end as per usual trust
A JPUT can be an attractive vehicle for those seeking a return
on investments in commercial real estate ventures. They are fl
exible and are a tried and tested method of making such
Originally published in STEP Journal in July 2016
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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