Summary: English limited partnerships (ELPs) are commonly encountered in real estate holding structures; they offer particular benefits to investors. There are however points to be aware of in their use. Mistakes can be costly, as a recent case shows.
ELPs – basics
An ELP is a partnership set up under the Limited Partnerships Act 1907. It comprises:
- a general partner (GP). The GP manages the ELP and has unlimited liability for its debts and obligations; and
- one or more limited partners – LPs (companies or individuals). Their liability is limited to their capital contribution so long as they take no active part in managing the business of the ELP.
An ELP has no legal personality. That means the GP must contract as agent on behalf of the ELP in contracts it enters into on the partnership’s behalf.
ELPs – benefits
There are various benefits in using an ELP to hold real estate, so this vehicle type appeals to a wide range of investors. For example:
- it is transparent for UK income tax and CGT purposes;
- there are no gearing restrictions at ELP level;
- limited partners have limited liability (provided they take no active part in management);
- there are few public disclosure requirements.
ELPs are also a common element in real estate funds structures, into which investors and other feeder vehicles can invest. Such a structure might include a JPUT as sole limited partner to the ELP with the JPUT units held by the investors. This structure allows the property to be conveniently managed onshore by the general partner of the ELP with the flexibility of the property either being sold by way of an asset sale by the ELP or by way of a corporate sale of the JPUT units with the SDLT saving on the latter. This is a common structure allowing JV partners to invest into a single asset.
However, principals, and their advisers, need to be cognisant of how real estate structures using ELPs work, to ensure that the benefits in using an ELP in the structure are not inadvertently jeopardised. A recent case illustrates what can go wrong.
Vanquish case – the facts
The tenant, Brook Street, occupied premises under a lease which contained a landlord’s break right.
The landlord, the City Corporation, later granted an overriding lease to an ELP, so that the ELP became Brook Street’s landlord. That lease was put in place to facilitate redevelopment of the property. The ELP was described in the lease as “Vanquish Properties (UK) Limited Partnership acting by its general partner Vanquish Properties GP Ltd” .
Immediately following the grant of the new lease, Vanquish’ solicitors served a break notice and s25 notice on Brook Street. The notices wrongly described the landlord simply as ‘Vanquish Properties (UK) Limited Partnership’. Brook Street challenged the validity of the notices. It succeeded. The notices were found to be invalid, with obvious implication for the redevelopment scheme.
One of the arguments put forward in the case was that the lease to the Vanquish ELP should be construed as a lease to each of the partners. Had that argument succeeded it would not probably be welcome news to the four limited partners in the Vanquish partnership, with the potential loss of their limited liability status.
Given the prevalence in the use of ELPs now for UK real estate, the case is a timely reminder of the need to understand how they work not just when a holding structure is put together but also in relation to ongoing asset management and other matters.
Case: Vanquish Properties (UK) Limited Partnership v Brook Street (UK) Ltd  EWHC 1508 (Ch)