Navigating the Belgian REIT landscape: the conflict of interest procedure with a person under article 37 of the Belgian Act on REITs
16 Oct 2024
Article 37 of the Belgian Act on REITs applies to operations entered into between a public BE-REIT (or one of its perimeter companies) and certain related persons directly or indirectly involved in the public BE-REIT’s management or decision-making processes. This regulation is designed to prevent conflicts of interest and ensure transparency. The law stipulates that any operation between the public BE-REIT and specified related persons must be conducted at market conditions.
The law identifies several categories of persons whose transactions are subject to special scrutiny (article 37, §1 of the Belgian Act on REITs):
Controllers and significant shareholders : individuals or entities that control the public BE-REIT or hold a significant participation as defined by the Belgian company and associations code;
Related parties : persons or entities with which the public BE-REIT or its perimeter companies, its managing entity, or its promoter are linked or have a participation link;
Managing entities : the managing entity of the public BE-REIT or any of its perimeter companies if structured as a “société en commandite par actions”;
Promoters of the public BE-REIT;
Other shareholders of any perimeter company of the public BE-REIT;
Key individuals : administrators, managers, members of the executive committee, delegates for daily management, effective managers, or agents of the public BE-REIT or its perimeter companies.
The regulation governs a broad range of transactions, including, but no limited to, the purchase or sale of real estate, movable transactions or service agreements (for example: loan agreements between the public BE-REIT and a credit institution or a lease agreement with a company controlled by a director of the public BE-REIT). Specifically, in a real estate transaction, the “fair value” of the property must be determined by an independent real estate expert to set a minimum or maximum price for the planned transaction.
However, four situations are exempt from these requirements (article 38 of the Belgian Act on REITs):
- Small transactions amounting to less than the smaller of (i) 1% of the public BE-REIT’s consolidated assets or (ii) EUR 2,500,000;
- Public offerings: acquisition of movable securities in a public offering where a related party acts as an intermediary within the meaning of article 2, 10° of the law of 2 August 2002;
- Share subscriptions following a decision of the general assembly: the acquisition or subscription of shares of the public BE-REIT by the individuals mentioned in article 37, §1, issued after a general assembly decision; and
- Liquid assets transactions: transactions involving the public BE-REIT’s liquid assets with an intermediary within the definition of article 2, 10° of the law of 2 August 2002, provided that these operations are carried out under market-consistent conditions.
The public BE-REIT must notify the FSMA before proceeding with a transaction falling in the scope of article 37 of the Belgian Act on REITs to the extent one or more of the persons under article 37 of the Belgian Act on REITs act directly or indirectly as counterparties or obtain a financial advantage in connection with the transaction. The public BE-REIT must demonstrate that the transaction is aligned with its normal business strategy and is in its interest. The FSMA will review the transaction and might deliver recommendations for adjustments that must be taken into account.
In such a case, the public BE-REIT must also publicly, through a press release, disclose details on the transaction, including comments from financial statements and the auditor. This ensures transparency and allows shareholders and the public to be informed about potential conflicts of interest and the measures taken to mitigate them.
Failure to comply with these requirements can lead to sanctions from the FSMA, including public censure, fines, or even the revocation of the BE-REIT license.
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