Build-to-Rent and Build-to-Hold: Legal Structure for the Long Term

Finance and structure

Higher finance costs and softer off-the-plan demand have pushed more Victorian developers from build-to-sell towards holding completed projects as build-to-rent, co-living or mixed income-and-growth assets. The documents that worked for a two-year develop-and-sell project often do not suit a ten-year hold.

A build-to-sell special purpose vehicle repays debt from settlements and winds up. A held asset has to service debt from rent. Expect lenders to test income cover rather than pre-sales, and check that facility terms, covenants and security work across an operating cycle rather than a construction period.

Joint ventures, GST and regulation

JV and shareholder agreements written for a single project usually say little about the long term. Before committing to hold, document who approves budgets, capital expenditure, refinancing and a sale; reporting and information rights; deadlock and exit mechanisms; and what happens if a party wants out after a few years.

Residential rent is input taxed, so GST credits relating to residential leasing are generally not available. A change from selling to leasing can trigger GST adjustments. Victoria and the Commonwealth have both introduced build-to-rent concessions with strict eligibility conditions, so get tax advice on the structure before construction, not at completion.

If you bring in outside investors, check whether the arrangement is a managed investment scheme or needs a financial services licence. If there is any foreign ownership, review the FIRB conditions before changing from sale to lease.

Decide on the hold strategy early and document it then. Retrofitting finance, JV and tax structures after completion costs more and weakens your negotiating position. Call (03) 8658 7069.

General information only, not legal advice. For advice on your matter, call MWBL Consulting on (03) 8658 7069.