Property problems: Syndicates must comply with Securities Act

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Monday 6 September 2004

Q. What is the difference between the interests in a property syndicate which are offered under the Securities Act Exemption for Proportionate Ownership Schemes and apartments in a unit title development being sold to investors which are marketed by the developer?

In particular, why do promoters of these syndicates have to comply with the requirements of the Securities Act when

By The Landlord

apartment developers do not?

A. The position of the developer of an apartment building selling individual apartments on a unit title-based scheme is different to offering interests in a property syndicate.

Typically, ownership of an apartment in such a development does not entitle the apartment owner to any sort of proportionate entitlement to the income or any other return from the development as a whole.

Instead the apartment owner obtains rights of ownership to their specific apartment, coupled with rights in common with other apartment owners to use certain common facilities in conjunction with ownership of the apartment.

Essentially, the buyer is not participating in any form of communal investment scheme in which they stand to gain a proportionate interest in the investment return enjoyed by the entire development. As a consequence, such an interest is not a "security" for the purposes of the Securities Act.

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