In the case of Financial Conduct Authority v Capital Alternatives Ltd and others (called the “African Land” case), the Court of Appeal rejected findings of the trial judge in relating to a prosecution brought by the FCA. The case related to the marketing of certain investments, including subleases of individual plots of a rice farm. The Court of Appeal found that the plots were managed as a whole, and the arrangements constituted a Collective Investment Scheme (“CIS”). The establishment and operation of a CIS are regulated functions, and there are restrictions on how they can be promoted. It is a criminal offence to establish or operate a CIS without having the relevant FCA permissions.
The case underlines the risk for developers and other property professionals of being exposed to FCA enforcement action, whether by inadvertently creating a CIS or by breaching the rules on the promotion of financial investments such as shares or loan notes.
Despite these complications, tried and tested solutions are available for property developers who want to attract acquisition or development finance from private investors. Those solutions may include one or more of the following:
LCN Property helps investors, asset managers, developers and property finders setup and maintain solid legal foundations for their projects.