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Why is a single legal entity needed?
DEFRA has confirmed that the Landscape Recovery Scheme requires a single legal entity to be the applicant and recipient of funding for each project.
The idea is that if a project which receives funding proceeds, the implementation agreement (project development agreement) will be between Natural England or the Environment Agency and a single legal entity representing the project. The rationale is that using a single legal entity will ensure that grant funding is managed effectively.
Who can be the single legal entity (or SLE)?
The Government has said that the single legal entity could be a land manager or organisation representing the project, and as part of the workstreams for successful projects, a form of single legal entity needs to be selected and a governance structure and plan put in place.
A single legal entity can be an existing organisation, or a new organisation can be created specifically for the role (commonly referred to as a SPV or special purpose vehicle).
What form does the single legal entity need to take?
The question is – what sort of legal structure should be used for the single legal entity?
The answer is – whichever is best suited to the particular project.
As the projects from round one and round two are moving through their workstreams, we are increasingly advising on the structure to best meet the anticipated needs of the project. The choice of legal entity to be the single legal entity and counterparty to the implementation agreement is very much dependent on the circumstances and specific requirements of the scheme.
We find the best way to approach advising on the appropriate structures is to ask the following preliminary questions:
- What does your financial model look like? What are the money flows in and out of the SLE? Who will be providing funding (other than DEFRA)? Will there be private investors? Will there be debt?
- How will landowners participate and paid for their participation? Will they be shareholders and if so, for what reason?
- How will decisions to be made? Will there be a difference between day-to-day decisions and big strategic decisions as to who has a say in them?
- Will all the landowners participate and share the risk and responsibility for delivering the full scheme as a collective or will each landowner be responsible for their own land, and only benefit from their own land?
- What is the appetite for the directors to take on risk?
- Is there any appetite to move land (whether by granting leases or other methods) to move land into the ownership of the SLE, or will this remain in the name of the landowner?
The answer to the above questions will help us narrow down the options to give those leading the project a choice of entities which could potentially work best to achieve the needs of the project.
Should you wish to discuss any of the issues raised in this article, please contact Alexandra Watson.
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