How to successfully deliver housing through an investment partnership

The typical basis is that the parties form a limited liability partnership (LLP) as the investment partnership vehicle. The LLP will in effect be a 50:50 vehicle with the investment partners holding 50:50 voting rights and the right to share equally in the profits of the LLP.

The structure can be flexible, allowing for the incorporation of additional vehicles in respect of particular sites if required (for example, if third-party funding is to be included). Indeed, there are a range of options and models.

The parties will generally provide 50:50 member loans to the LLP on matching terms. However, they may agree that contributions are unmatched (for example, with one party providing senior loan finance in addition to member loans) or that the parties’ financial contributions are provided by routes other than loans, eg by providing services up to an agreed value to the investment partnership.

“An investment partnership may be created between a number of different entities, for example between a registered provider and a developer, between a local authority and a developer, or a registered provider and a local authority”

An investment partnership may be created between a number of different entities, for example between a registered provider and a developer, between a local authority and a developer, or a registered provider and a local authority. Depending on the entities involved, the investment partnership may have a particular focus, such as within a locality, affordable housing, regeneration and/or profit-making.

There are some key considerations: the parties will need to decide the extent to which they want to place obligations on each other, dedicate site-finding resources and propose sites of which they are aware to the investment partnership.

Typically, an investment partnership will require unanimous approval of each site before it is brought within the investment partnership. Alternatively, the parties may agree that there is a requirement for the investment partnership to move forward with sites that meet certain pre-agreed parameters (eg number of units, type of development, viability).

An investment partnership allows the parties to agree the scope of flexibility to be applied at each stage of the site approval and development process. The investment partnership may include pre-agreed development strategies and documentation, or this may be considered and agreed afresh as part of the approval process for each site.

As “contracting authorities” for the purposes of the Procurement Act 2023, local authorities and not-for-profit registered providers will need to consider whether the act applies to the formation of the investment partnership and to any development projects that may be delivered through it.

It is unlikely that the act will apply to the mere formation of the investment partnership in accordance with the terms of the LLP agreement, on the assumption that the terms of the LLP agreement itself do not place any party under an obligation to carry out any works or services.

The extent to which the act will apply to individual development projects that may be undertaken through the partnership will depend on the precise terms and structure of the particular project and the arrangements between the parties. 

“Setting up an investment partnership in the right way should lead to a useful and meaningful framework within which partners can work strategically in a locality”

As a general principle, where the project will involve the construction of affordable housing on a site owned by the local authority/registered provider to standards specified by the authority/registered provider, it is likely that the project will be caught by the act. In that case, the authority/registered provider will need to consider and take advice on how best to ensure compliance with the act in delivering the project.

As part of the ongoing management of an investment partnership, the parties will need to ensure their officers monitor the board agendas, papers and progress of the sites to ensure any concerns can be identified early.

We are already seeing good regional examples of success in investment partnerships. Setting up an investment partnership in the right way should lead to a useful and meaningful framework within which partners can work strategically in a locality.

In this way, collaboration can flourish by pooling expertise and increasing the chances of successful delivery of development, ultimately facilitating the delivery of a pipeline of development projects responding to local needs.

Joanna Bouloux and Caroline Mostowfi, partners, Devonshires