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New limited partnership likely to encourage real estate investors

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HM Treasury published a revised draft legislative reform order on the proposed amendments to the Limited Partnership Act 1907 on 16 January 2017.

Paul Chases Alex Wright Herbert Smith Freehills

This is the result of the government’s consultation into the legal framework governing limited partnerships in the UK in the second half of 2016.

The draft order differs to the initial draft legislative reform order, published with the consultation paper in July 2015. However, it maintains the proposal to establish the ‘private fund limited partnership’ (PFLP) as a new form of limited partnership for investment funds.

The PFLP will be a more flexible and less burdensome limited partnership directly benefiting those investing in UK real estate.

It will be a form of English limited partnership, traditionally preferred by investors as they provide a tax-transparent investment option with limited liability for investors. The PFLP will still have these advantages, but will also remove certain compliance and administration burdens that investors often complain of.

Perhaps the most problematic compliance burden that exists under the current law relates to the potential for a limited partner to lose its limited liability if it takes part in the management and operation of the relevant English limited partnership.

‘White list’

While the principle remains the same for PFLPs, the new legislation includes a non-exhaustive ‘white list’ of activities and decisions that the limited partner of a PFLP may undertake without endangering its limited liability status.

This provides safe harbours that will be reassuring to investors looking to be involved in certain partnership decisions without losing their limited liability status and without having to own interests in, or act as, the general partner.

Other key changes are the removal of the need for a limited partner to make a capital contribution to the PFLP, a simplified filings procedure and the removal of certain statutory duties.

The PFLP status will be available to new and existing English limited partnerships that qualify as a ‘collective investment scheme’ but are not an ‘authorised contractual scheme’, and are subject to a written agreement.

This new partnership, with its flexibility and administrative improvements, is likely to prove attractive to many investors.

Paul Chases is a senior associate and head of corporate real estate and Alex Wright is an associate in corporate real estate at Herbert Smith Freehills

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