Collective Investment Schemes
Property Investment gone wrong?
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We are seeing increasing numbers of housing and development schemes with ‘guaranteed’ rental income, going wrong.
We know this ecosystem and how your journey is likely to have started. You receive an email offering you the perfect property investment opportunity; perhaps a well placed advert lured you in; sometimes you might have met someone at a property networking event with something of interest; or perhaps an agent or broker introduced you to a property investment with excellent returns you wouldn’t want to miss.
The look and feel of the initial approach can vary slightly but at some point the ‘sell’ will become apparent; for a modest initial reservation fee you can secure an apartment in an ‘off-plan’ development. The terms are designed to look attractive; a good quality new development (or conversion) by/from an ‘experienced’ developer in an ‘excellent’ location. Only 50% of the purchase price is payable at exchange, 50% at completion. You can rent your apartment back to the developer (or a connected company) for a ‘guaranteed’ income. Access to capital growth and a monthly ‘guaranteed’ return with a good yield. Often, combined with high confidence in our legal system, these will appear incredibly attractive investments.
Fast forward a year later and the works haven’t been completed properly; the rent hasn’t been paid; the service charges are crippling. Sometimes the property itself isnt even inhabitable and you now face an upward battle to resolve matters.
This might be a Collective Investment Scheme (“CIS”).
What is a CIS?
A Collective Investment Scheme (“CIS”) is a type of regulated investment. It is essentially classed as a financial investment that can/should only be conducted and offered by an FCA regulated entity.
Unless the scheme is run by a regulated person (a company or individual regulated by the FCA), a CIS is unlawful. It is a criminal offence to run a CIS unless you are a regulated person.
The definition of a CIS is incredibly broad.
Any arrangement with respect to property of any kind (including cash and land) the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the purchase, the holding, management or disposal of the property (or sums paid out of such profits or income), might be a CIS.
For an arrangement to be CIS it is an essential ingredient that the persons who are to participate in it, do not have day to day control over the management of the property although they might have the right to be consulted or give directions.
Further, the scheme must either be one where the contributions of participants are pooled, or the property as a whole is managed by or on behalf of the operator of the scheme or both.
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How can this help me?
Solicitors owe duties of care to clients. These will often include duties of care to identify and advise where there is a CIS.
We act for groups of people who have unwittingly been induced into investing in a CIS scheme. They had no idea. To them it looked like a property investment- purchase of a flat/unit with a guaranteed rental income, but they were miss sold and had no knowledge of the risks they were taking.
Unwitting participants in unlawful investment schemes often find themselves not receiving the return they were promised and/or risk losing their investment entirely.
If you have unwittingly become such a participant in an unlawful CIS then you may be entitled to recover all of the monies you have invested by making a claim in restitution against the scheme operator.
Importantly, if you instructed solicitors to advise or act for you in the conveyance transaction and they have failed to consider the risk that the investment might be a CIS, or that there was a significant risk that is was one, and if as a result of that negligence you have suffered loss, you might be able to claim against your former conveyance solicitor. The benefit in doing so is that the solicitors are insured whereas the developers tend to disappear, leaving owners/investors to resolve matters directly.
These are complex claims and each needs to be considered on its own facts. We are experienced in dealing with these types of issues and at any given time are running and resolving claims and disputes in this area often for tens of owners in a single development with often millions of pounds in dispute. With our niche expertise as litigation solicitors and an experienced team with strength in depth we are well placed to run multiple claims against multiple firms/conveyancers for/with owner investors, against the developers, multiple firms of solicitors, and their insurers.
If you have invested monies in a failed property investment and you think it might be a CIS then please submit an enquiry form with brief details and a member of our team will contact you to discuss your matter with you to discuss how we can help you. We are generally speaking happy to back our own advice and to share risk with you. In this type of commercial and complex property litigation we frequently work on a no win no fee, or no win discounted fee, basis subject to detailed review and often paid for initial advice.
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