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Unit trusts are the usual vehicle when unrelated parties own property together: two families buying a warehouse, a syndicate buying a development site, business partners holding their premises. Hybrid trusts are less common and were often set up for tax reasons. Both can borrow. Both need more paperwork than a family trust.
How they differ
| Discretionary trust | Unit trust | Hybrid trust | |
|---|---|---|---|
| Entitlements | At the trustee’s discretion | Fixed, by units held | Part fixed, part discretionary |
| Typical owners | One family | Unrelated parties or a joint venture | One family, sometimes with outside unit holders |
| Control | Appointor and trustee | Unit holders, by vote | Varies by deed |
| Lender’s focus | Deed powers, appointor | Deed powers, unit register, unit holder consent | All of the above, plus who benefits |
What the lender asks for
- The trust deed and every variation.
- The unit register and unit certificates, showing who holds what.
- Any unit holders’ agreement, which often sets rules on borrowing, security and decision making.
- A trustee resolution approving the loan, and a unit holder resolution where the deed or agreement requires one.
- Company extracts for a corporate trustee and any corporate unit holders.
- The trust deeds of any unit holders that are themselves trusts.
Guarantees
Directors of the trustee usually guarantee. Lenders often also ask for guarantees from unit holders, or the individuals behind them, in proportion to their holdings or jointly. Where unit holders are unrelated, each will want its exposure limited to its share. That can be negotiated, and it is easier where the loan to value ratio is low.
Points that cause delays
- One party wants out. A unit holder dispute is a common reason a unit trust borrows, to pay out a departing party. The lender will want the exit documents agreed. See shareholder buyout funding.
- Unit holders that are super funds. Extra rules apply, and some structures cannot give security at all.
- Old hybrid deeds. Some have narrow or unclear powers. A solicitor’s review before applying saves time.
- Registers not kept. If units were transferred informally, fix the records first.
Purpose and products
Borrowing must be for the trust’s business or investment purposes and permitted by the deed. The products are the same as for any trust: second mortgages, caveat loans, first mortgages and development facilities. General guidance on trustee borrowing is in can a trust borrow against property, and the funding for trusts page sets out how trusts are assessed. This is general information, not legal advice.
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Get matched with a funderFAQ
Do all unit holders have to agree?
It depends on the deed and any unit holders' agreement. Many require a resolution for borrowing above a threshold. Lenders commonly ask for all unit holders to consent even where the deed does not.
What if one unit holder is an SMSF?
Take advice first. A fund's investment in a unit trust that borrows or charges its assets can breach the superannuation rules, depending on the structure.
Is a hybrid trust harder to fund?
It takes longer to review. Once the lender is clear on control and entitlements, the loan itself is no different.