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Limited Liability Partnerships (LLPs) are increasingly being adopted as alternatives to conventional leasehold arrangements for renewable energy sites. Colin Lawrie and Jim Hillan of Dundas & Wilson look at some key implications of that choice.
WHAT ARE LLPS?
LLPs are corporate entities which combine many of the decision-making and tax transparent characteristics of traditional partnerships with a limited liability status more akin to limited companies. As such, the adoption of an LLP allows participants a greater degree of involvement in a project than might otherwise be available, while affording them protection from the commercial risks of a failed venture.
WHY CHOOSE AN LLP? The choice of an LLP begins with a conscious decision of landowner and developer to reject more traditional models of engagement (such as a landlord/ tenant relationship). Such a joint venturing approach may unlock sites not otherwise available for the developer and overcome landowner concerns about how its voice will be heard as a project develops. The LLP changes the way profits are enjoyed, while facilitating the landowner contributing land and site specific knowledge and the developer contributing project management expertise.
ARE THERE ANY GROUND-RULES? LLPs allow a high degree of flexibility; however, the following points should be borne in mind…
• There are exceptions to the limited liability status of members of an LLP, notably a potential clawback on distributions made within 2 years prior to insolvency. Landowners in particular need to both appreciate and mitigate the risks involved in being a member and not a landlord
• Restrictions under Financial Services legislation dictate that members need either to maintain a significant degree of day-to-day involvement in the LLP’s business, or be capable of demonstrating that their involvement in the LLP is part of a wider business (e.g. ownership of a wider estate)
• Members of a LLP are subject to Class II and Class IV national insurance contributions. Note must also be taken of recent anti-avoidance provisions, which target LLP members that should properly be regarded as employees and so liable to (the more expensive) Class I national insurance contributions
• The landowner’s holding in the LLP may potentially be structured to attract inheritance tax business property relief (a potential 40% saving)
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STAMP DUTY LAND TAX (SDLT) The SDLT regime applicable to partnerships will apply to the transfer of land to the LLP. Compared to the situation of a landlord granting a lease, this is likely to result in some of the SDLT at 4% being borne by the landowner. However, compared to a transfer of land to a company, the partnership regime can actually be advantageous.
STRONG FENCES, GOOD NEIGHBOURS? The LLP structure can mean that the landowner needs to maintain greater involvement in a project than the developer might instinctively desire. However, while this could be seen as a negative, greater landowner involvement may be a positive factor which it is desirable to harness. Finding the right balance and expressing this in the partnership agreement, is what puts the ‘art’ into any successful partnership.
Colin Lawrie and Jim Hillan Partners
Dundas & Wilson Click to view more info
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