All investments carry risks, and we summarise the key features and key risks of investing and home buying with Allbricks below. If you would like this information in a different format, please get in touch.
Contents
Purchasing Bricks (Home Buyers)
- Payments required before crowdfunding can start
Home Buyer’s right to buy more Bricks
Home Buyer’s right to buy the entire property
How money is held and the payment services provided by Modulr
Property management and maintenance arrangements
- Failure to vote and mandatory sale of Bricks
- Refunds in the event a property purchase falls through
- Ceasing to operate the Allbricks platform
Rental payments and maintenance
- Extensions and major improvements that may add value to the property
Key Features
Purchasing Bricks (Home Buyers)
By connecting potential Home Buyers with potential Investors, Allbricks helps with partial residential property ownership.
Home Buyers use their deposit to reserve ‘Bricks’ in their chosen home. Bricks are unitised beneficial interests in a trust which has been established specifically to own a single property. Owning a Brick means that the owner has a beneficial interest in the trust.
Home Buyers then launch crowdfunding campaigns on the Allbricks platform to seek Investors willing to reserve the remaining Bricks. Brick ownership is confirmed when the property purchase completes. The Home Buyer then pays rent on the portion of the property they do not own and get a rental rebate on the portion of the property they do own.
Home Buyers are not permitted to sub-let their property.
Payments required before crowdfunding can start
Before crowdfunding starts, Home Buyers must transfer the funds needed to complete their side of the purchase to their Allbricks wallet.
This includes their deposit:
- a minimum of 1% of the property value or £10,000, whichever is greater
And a series of fees and costs:
- the Allbricks fee (which is 5% + VAT of the deposit amount)
- their share of the Stamp Duty (at the higher rate)
- the cost of the survey, valuation and conveyancing
The initial crowdfunding period for each campaign is two weeks. If the property is 50% or more funded at the end of the two weeks, but not completely funded, the campaign is extended by two weeks, providing the property is still available. See the ‘Refunds’ section below for details on what gets refunded if the crowdfunding does not raise enough or the purchase has to be cancelled.
Purchasing Bricks (Investors)
Allbricks connects potential Investors with Home Buyers to provide investment opportunities for Investors. The property ownership is shared between the Home Buyer and qualified third-party property Investors sourced via a crowdfunding model.
Investors will receive ‘Bricks’ in exchange for their investment. Bricks are unitised beneficial interests in a trust which has been established specifically to own a single property. Owning a Brick means that the owner has a beneficial interest in the trust. The Home Buyer pays rent to the Investors in proportion to the amount they each own. The Home Buyer then gets a rental rebate for the portion they own.
Transferring Bricks
Once a property purchase completes, Home Buyers may only purchase Bricks, not sell them. The following rules apply to Brick transfers from Investors to Home Buyers or between Investors:
- All transfers are completed via the Allbricks platform.
- When Investors list Bricks for sale, they will be offered at the price quoted on the platform using the latest market valuation.
- For the first 48 hours after Bricks are listed for sale, only the Home Buyer will be able to buy them if they wish to do so.
After the expiry of the 48-hour period, and if the Home Buyer has not purchased all of the Bricks offered for sale, other Investors may purchase the remaining Bricks. An Investor offering Bricks for sale may withdraw the offer up to the point at which the transaction is completed via the Allbricks platform.
Home Buyer’s right to buy more Bricks
The Home Buyer has the right to buy more Bricks in three different circumstances:
- When Bricks are listed for sale, as the Home Buyer has the exclusive right to buy none, some or all of these Bricks within 48 hours of being notified. After the 48-hour period, any Bricks still remaining will be made available to other Investors to buy.
- When the initial Investors have owned their Bricks for three years, at which point they will offer 5% of the Bricks they own to the Home Buyer and keep doing this annually.
- When Investors who buy Bricks from other Investors have owned those Bricks for 12 months, at which point they will offer 5% of the Bricks they own to the Home Buyer and keep doing this annually.
Where Investors have to offer 5% of their Bricks to the Home Buyer, these Bricks will be listed for sale automatically.
Whenever the Home Buyer purchases any additional Bricks from Investors, the price paid for the Bricks shall be current market value using the latest market valuation, as quoted on the platform.
Home Buyer’s right to buy the entire property
At any point after the property purchase completes, the Home Buyer has the right to buy the entire property. They can do this by purchasing all the Bricks owned by Investors, at the price quoted on the platform, in one transaction. The property would then be taken off the Allbricks platform.
All Investors in the property would receive the sale proceeds in proportion to the number of Bricks they owned. Investors can then re-invest these proceeds in any other Bricks with zero Allbricks fee charged.
How money is held and the payment services provided by Modulr
Any money that a Home Buyer or Investor has transferred from their nominated account to their wallet on the Allbricks platform and that they have not withdrawn will be held in electronic money accounts operated by Modulr. Any payment services provided, such as transfers to or from nominated accounts or wallets will be effected by Modulr and not Allbricks.
Modulr is authorised by the Financial Conduct Authority under the Electronic Money Regulations (register reference 900573) for the issuing of electronic money. Modulr has arranged for monies held by it to be segregated from its own funds, and ultimately held in an omnibus account with a major clearing bank. Modulr also retains “own funds” in accordance with the Financial Conduct Authority’s (FCA) rules.
Property management and maintenance arrangements
Allbricks’ initial Property Management Agreement provides that an initial Allbricks Property Manager is appointed for a rolling one-year term, subject to the voting obligations detailed below.
The nominees, which are the two companies that hold the property in a trust, shall be jointly responsible for the property’s management and they have delegated this responsibility to the Allbricks Property Manager. Allbricks deducts a percentage of the rent payable by the Home Buyer to cover the costs of this responsibility, which include the Maintenance Fund, the property management fee and the Allbricks administration fee.
The actual costs will vary depending on the property, and will be detailed in the relevant Participation Agreement.
Voting obligations
Certain proposals by the Home Buyer, Investors and Allbricks will be resolved by way of a vote of all the Home Buyers and Investors for that property. A vote may be initiated by:
- a Home Buyer issuing notice to Allbricks that it wishes to undertake alterations to the property;
- Allbricks, in respect of:
- the annual approval of the Property Management Agreement (initiated three months prior to the expiry date of the existing agreement);
- a proposed amendment to the participation agreement; or
- any other matter for which it wishes to assess the opinions of Brick owners, provided that it shall not be bound by the result of any such vote.
- the Property Manager, where a sale of the property is initiated;
- Investors, regarding accepting an offer for the property that is below the then current valuation of the property stated on the Platform; or
- any Home Buyer or Investor in relation to a significant property matter not specifically delegated to the Property Manager under the Property Management Agreement.
Failure to vote and mandatory sale of Bricks
If an Investor fails to cast a valid vote in three consecutive votes in respect of the same property, then they shall be required to sell their Bricks. Allbricks shall send a notice of intended sale by email to the relevant Investor (a Mandatory Sale Notice).
Key risks
Market performance
Property market
‘Bricks’ are beneficial interests in a trust which has been established specifically to own a single property. Owning a Brick means that the owner has a beneficial interest in the trust.
As the value of Bricks are in this way tied to a specific residential property in the UK, their performance as investments – both in terms of capital value and the income generated from rental payments – will fluctuate depending on the performance of UK residential property markets as well as the individual property that an Investor or Home Buyer has an interest in. In cases of market deterioration, most or all of the capital value of Bricks may be eroded, and Home Buyers may be financially unable to pay rent to Investors.
In addition to the impact from the general economic climate, the residential property markets and prevailing rental rates in the UK may also be negatively affected by factors such as excess supply, falling demand for rental property, the availability of credit and changes in law and government regulation (both domestic and international), all of which are outside of Allbricks' control.
Changes in law
Allbricks is not required to be authorised by the Financial Conduct Authority (FCA), specifically under Section 19 of the Financial Services and Markets Act 2000 (FSMA). However, it does operate in a heavily regulated sector in terms of tenancy regulation.
Allbricks is unable to predict how law and regulation may develop in the future, including the scope of the requirement to be authorised by the FCA and therefore, whether or not Allbricks requires such authorisation. It is possible that substantive changes to and/or changes in the interpretation of law or regulation by relevant regulators or the courts may impact the value of Bricks, the ability for Allbricks to provide the Bricks or to service Investors and Home Buyers via the Allbricks platform. In particular, to the extent that Allbricks is unable to provide the transfer facility, any liquidity that Bricks may have may be severely affected.
Valuation
Property is inherently difficult to value due to the individual nature of each property and because property valuation is inherently subjective. As a result, valuations on the basis of which the notional value of Bricks is calculated are subject to uncertainty and there can be no assurance that the estimates resulting from the valuation process will be realised in future sales prices.
In determining the value of properties, valuers are required to make assumptions in respect of matters including, but not limited to:
- The existence of willing buyers in uncertain market conditions
- Title
- Condition of structure and services
- Environmental matters
- Statutory requirements
- Expected future rental revenues from the property and other information
Such assumptions may prove to be inaccurate and, as a result, the value that is attributed to Bricks may be inaccurate and not reflective of the proceeds of any actual sale of the relevant property.
Purchase process
The initial purchase of the property
Subject to the limited cancellation rights set out in the Terms, Investors will not be able to withdraw funds committed to a particular crowdfunding. Home Buyers can cancel the purchase of the property at any point up until contracts are exchanged on the purchase of the property.
Refunds in the event a property purchase falls through
If any home purchase has to be cancelled before crowdfunding starts, for example because the seller pulls out, the following refund procedure applies:
- Home Buyers would receive a full refund of their deposit (the total value of their reserved Bricks plus their share of the Stamp Duty and the Allbricks fee), but anything spent on the survey, valuation and conveyancing would not be refunded.
- Investors would receive a full refund of their investment and its related costs, comprising the total value of the Bricks reserved, their share of the Stamp Duty and the Allbricks fee.
In the event that a crowdfunding campaign fails to attract enough funding, the following refund procedure applies:
- Home Buyers would receive a full refund of their deposit and its related costs, comprising the total value of the Bricks reserved, their share of the Stamp Duty and the Allbricks fee. They would also receive a full refund of their survey, valuation and conveyancing costs.
- Investors would receive a full refund of their investment and its related costs, comprising the total value of the Bricks reserved, their share of the Stamp Duty and the Allbricks fee.
If a crowdfunding campaign is successful but the purchase falls through during the conveyancing process:
- Home Buyers would receive a full refund of their deposit (the total value of their reserved Bricks plus their share of the Stamp Duty and the Allbricks fee). They would not be refunded for the survey, valuation and conveyancing costs.
- Investors would receive a full refund of their investment and its related costs, comprising the total value of the Bricks reserved, their share of the Stamp Duty and the Allbricks fee.
Neither Home Buyers nor Investors would be paid any interest on the funds in their Allbricks wallets.
Timing of any outright purchase by the Home Buyer (Investors)
A Home Buyer may choose to purchase the property outright at any point by buying all the Bricks owned by Investors at the then-current market value. This may mean that Investors realise a loss on the sale to the extent that the current market value is less than the amount initially paid for their Bricks. Investors will also not receive any further rental payments from that point on.
Customer funds
Lack of liquidity (Investors)
Liquidity is the ease with which you can sell particular investments. Bricks cannot be sold easily and, whilst you may be able to use the facilities Allbricks provides to sell Bricks to willing buyers in private transactions, Allbricks does not intend and is not permitted to itself operate a secondary market for Bricks. Allbricks cannot guarantee that any secondary market in Bricks will in any event develop.
Equally, absent any default by the Home Buyer, the decision to sell the property and realise its value will ultimately rest with the Home Buyer, and not Investors. You must therefore understand that you may not be able to realise the capital investment represented by your Bricks for an indefinite and extended time period, potentially of many years, and should not invest if there is any chance that you will require that capital investment for any specific purpose in the future.
Diversification (Investors)
Diversification involves spreading your money across different types of investments with different risks to reduce your overall risk. However, it will not lessen all types of risk. Diversification is an essential part of investing. There is detailed information to help Investors decide, including professional surveys and valuations from independent surveyors, but Investors should conduct their own research too, as these are done for Allbricks and Investors will have no legal recourse to the valuers and surveyors who prepared them.
Investors should only invest a proportion of their available funds for investment in Bricks and should balance this with safer, more liquid investments. In the context of Allbricks, whilst some diversification may be achieved by investing across different geographies within the UK, all investments in Bricks are ultimately driven in value terms by the UK residential property market, and so do not deliver diversification outside that market.
Recourse and security
Bricks are unitised beneficial interests in a trust. They are not secured against the property or any other assets. In most likely scenarios, recourse for Investors and Home Buyers that own Bricks is likely to be limited to the assets of the relevant trust, which are, in turn, likely to be solely the property plus any small amount of accumulated cash representing recent rental payments. Investors will be contractually prohibited from bringing claims against Home Buyers themselves.
Ceasing to operate the Allbricks platform
In the event that Allbricks was to close down and cease operating the platform, we intend to initiate an orderly 12-month cessation period during which the beneficial ownership of the property would remain in place.
We also intend to give the Home Buyer the option to:
- Buy the property outright at the current market value through privately-financed means, in which case Investors would receive the proceeds of the sale of their Bricks in proportion to the number they own; or
- Receive the proceeds from the property’s sale in proportion to their investment in the property, less any sale costs. Depending on the sale price, Home Buyers and Investors may receive more or less than they first paid for their Bricks.
During the cessation period, Home Buyers would in principle remain responsible for paying their rent until such time the property is sold.
No Financial Services Compensation Scheme coverage or right to complain to the Financial Ombudsman Service
Whilst cash held in Allbricks wallets, which are managed by Modulr, is safeguarded in accordance with Modulr’s terms set out in Schedule 3 of the Terms of Conditions, this cash, and investments in Bricks themselves, are not protected by the Financial Services Compensation Scheme (FSCS). In the event of the insolvency of the trust set up to hold a particular property and/or Allbricks itself, holders of Bricks will have no recourse to the FSCS for compensation for lost funds. In addition, as Allbricks is not authorised by the Financial Conduct Authority, Home Buyers and Investors will not have the right to complain to the Financial Ombudsman Service.
Rental payments and maintenance
Affordability of rental payments
To crowdfund their home with Allbricks, Home Buyers must first pass a series of checks to show they can afford the initial Bricks purchase cost and the ongoing rental payments. These include:
- A tenancy check, including an identity check
- An affordability check, which considers their gross annual income
- A right-to-rent check
- A ‘soft’ credit check, including CCJ and bankruptcy checks
Non-payment of rent
Despite the checks detailed above, issues may arise which mean the Home Buyer isn’t able or refuses to pay the rent:
- If this is a temporary issue, Allbricks will work with the Home Buyer to resume payments as soon as possible (they are not permitted to sub-let the property)
- If it’s a permanent issue, Allbricks may be forced to follow the standard legal eviction process and sell the property.
In the event of the sale of the property due to the Home Buyer not being able to pay the rent, anyone who owns Bricks would be refunded proportional to their ownership from the proceeds of the sale. This may be less than was originally paid to buy the Bricks.
Investors will not receive any rental payments that are not received by Allbricks, and will not be able to issue proceedings against a Home Buyer in respect of such rental payments. There is therefore no guarantee that Investors will receive any, or any particular, rent payment.
Property work and repairs
From time to time, Allbricks properties will need repair and maintenance work. The cost of some of these works may be covered by insurance or paid for out of the maintenance fund, the details of which are set out in the relevant Participation Agreement. A portion of the rent is set aside for this purpose. If any damage appears to be deliberate, or due to negligence, the cost is the responsibility of the Home Buyer under the relevant lease agreement. Otherwise, repair costs may be covered by insurance or, with the agreement of the Property Manager, by the maintenance fund.
Occasionally, a property may need a more significant repair which isn’t covered by insurance or the maintenance fund. The Home Buyer and Investors may be required to cover this cost. Allbricks will be entitled in such circumstances to increase the percentage of rent deducted in respect of any particular property to replenish the maintenance fund. This would therefore reduce both the rental payments made to Investors and the rebate paid to the Home Buyer, potentially to the extent that the sums available for distribution are zero for a prolonged period.
Extensions and major improvements that may add value to the property
A Home Buyer may want to extend the property or do other work to add value:
- If structural changes are required, a majority of Investors must approve this through a vote before it can go ahead.
- The cost of this work will be covered by the Home Buyer. Once the work completes, if the subsequent valuation shows that the value of the property has increased by £10,000 or more, Allbricks may award additional Bricks to the Home Buyer in recognition of this increase.
The Property Manager
The initial Property Manager will be Allbricks Property Management Ltd, a property management firm that is part of the Allbricks Group. Allbricks Property Management’s appointment is on a rolling twelve-month basis, and its continuance in that office is required to be approved annually by a vote of Investors and the Home Buyer.
To the extent that Allbricks Property Management is not retained, Allbricks is required to obtain tenders from replacement property managers it considers could discharge these duties. However, any replacement property manager is likely to have clients other than Allbricks, and may not discharge its duties in relation to Allbricks properties to the same standard as Allbricks Property Management, or at all. Whilst Allbricks may have recourse against the replacement property manager under the relevant property management agreement, Investors’ and Home Buyers’ only direct remedy in that scenario would be to dismiss the replacement property manager at the annual vote and reappoint a new one.
Insurance coverage risk and contingent liability
As legal owners of the property, the nominees will, via the Property Manager, put in place a standard buildings insurance policy that will cover the property against damage to its structure. However, it is possible that the property may suffer damage from a source not typically covered by such policies, which may include, but is not limited to:
- damage due to general wear and tear
- lack of maintenance
- wet or dry rot
- chewing, scratching or fouling by pets
- certain other highly unlikely sources of damage, such as acts of terrorism or war.
Equally, if the nominees fail to provide the insurer with all information required by it to make an underwriting decision with respect to the property, it is possible that the insurer would seek to avoid some or all of its liability in respect of a putatively insured risk. It is also possible that the Home Buyer’s illegitimate use of the property (whether or not in breach of the lease) may invalidate some or all of the nominees’ insurance cover.
Material damage for which insurance cover is unavailable
In the unlikely event that the property suffers material damage in respect of which insurance cover is unavailable, the Property Manager may have recourse to the Property Maintenance Fund to defray the expense of rectifying the damage.
If the sums in the Property Maintenance Fund are insufficient to do so, and the condition of the property is such that it is uninhabitable and/or the nominees are in breach of their obligations under the lease, the property may need to be sold. In such a scenario, the value realised for the property on sale is likely to be below the purchase price, and holders of Bricks will thereby lose money.