Introduction
Unit trusts are a common investment structure in Australia and can provide a simple way for parties to pool money and invest together. In particular, investing via a unit trust is a popular way for SMSFs to gain real estate exposure and is often used where real estate is being developed.
While the terms of a unit trust deed alone may be sufficient for basic circumstances, there are situations where a unitholders’ agreement would assist the parties in avoiding costly disputes or by removing uncertainty.
This article explains where things can go wrong in a unit trust and how a unitholders deed can help.
What can go wrong?
There are many things that can happen to a unitholder (or the person controlling a unitholder entity, often called a ‘Principal’) that can cause problems for other unitholders. This includes such things as:
- unitholders or Principals dying or losing capacity;
- unitholders or Principals becoming bankrupt or otherwise facing financial difficulties;
- changes in family circumstances such as divorce;
- a change in control of unitholders or Principals; or
- a party simply wanting to divest their unitholding.
While an investor may initially know and get along with all of their fellow unitholders, many events can result in another person controlling a unitholder entity which may not be desirable for the remaining unitholders.
Further, unitholders may simply be experiencing an irresolvable dispute over the management or course of an investment and require some mechanism for one or more unitholders to divest their unitholding.
Types of provisions to consider
A unitholders deed will typically outline the parties’ rights and obligations relating to:
- how units can be sold and to who;
- rights of first refusal offered to other unitholders;
- what decisions require unanimous consent;
- who has a right to be a director of the trustee company;
- what will constitute a default by a party;
- when will a unitholder be forced to sell their units;
- methods of valuing real estate or units and disputing any valuations;
- for SMSF unitholders, control restrictions in respect of superannuation law and other SMSF related issues; and
- dispute resolution procedures.
Unit trusts and real estate
Many SMSFs invest in unit trusts for the purpose of holding or developing real estate. The management of these type of investments often gives rise to disputes. Having clear rules about key aspects of the investment can reduce the risks of dispute.
The DBA Lawyers unitholders deed provides that the following decisions require unanimous consent of the unitholders:
- certain decisions relating to the real estate such as when to sell or lease;
- any decision to acquire an asset above a set limit;
- any decision to incur an expense above a set limit; and
- any decision to incur an expense relating to capital expenditure for the real estate above a set limit.
SMSFs and unit trusts
For an SMSF to be a unitholder of any unit trust, relevant documents such as the trustee constitution and unit trust deed must be appropriate for SMSF investors. Advisers who provide or source documents that are not fit for purpose are at risk.
DBA Lawyers provides documents suitable for SMSF unitholders, and our unitholders deed also takes SMSFs into consideration when considering control aspects of the trustee and trust. However, any SMSF investor should seek advice if there is any doubt about their super law obligations to ensure no breaches occur.
Conclusion
A unitholders deed is a prudent way to ensure parties rights and obligations in respect of various events are considered and planned for from the commencement of their investment. Such an agreement between parties can ensure any default events or disputes are dealt with effectively and without costly delays and arguments.
Prudent advisers should discuss the option of a unitholders deed with any client investing in a unit trust with others.
Please contact us if you would like to discuss these agreements and how we might assist you.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
Note: DBA Lawyers hold SMSF CPD training at venues all around. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Shaun Backhaus, Lawyer ([email protected]) Director DBA Lawyers
DBA LAWYERS
18 July 2025
