On July 9, 2024, SEBI introduced a Second Amendment to the Securities and Exchange Board of India (Real Estate Investment Trusts) (Second Amendment) Regulations, 2014, laying down the ‘Framework for Unit-Based Employment Benefit Scheme’ (Scheme), which refers to a scheme under which the REIT manager grants unit options to employees via an employee benefit trust. Features of this framework are like those in place for listed companies under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.
Some key features of the Scheme are as follows:
- The implementation of the Scheme is to be done through a separate Employee Benefit Trust (Trust) which can be established by the manager of a REIT (Manager).
- REIT units transferred to the Trust are to be locked in by the depository and released only for transfer to employees.
- The minimum vesting period of units under the Scheme is one year.
- The Manager is responsible for the overall administration and superintendence of the Scheme. The REIT, its HoldCo or SPV are not permitted to incur additional costs on the offer of the Scheme.
- The Manager may receive (in full or part) the units of the REIT in lieu of management fees.
- Secondary acquisition of units by the Trust in a financial year is permitted up to 2% of the total outstanding units of the REIT. However, at any given time, the Trust is not permitted to acquire over 5% of the total outstanding units of the REIT through secondary acquisitions (calculated as at the end of the previous financial year).
- Any new units issued under the Scheme are required to be immediately listed on all recognized stock exchanges where the existing units are listed.
- Compliances such as SEBI (Prohibition of Insider Trading) Regulations, 2015 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003, will apply to the Manager as well as its directors, the sponsor, recipients of units under the Scheme, and the Trust.
Subsequently, on September 26, 2024, SEBI further notified a third set of amendments to the SEBI’s (Real Estate Investment Trusts) Regulations, 2014 with the aim to enhance the transparency and efficiency of the REIT regime by addressing deficiencies in unit holder meetings and aligning them with established market practices.
Key features of this amendment include:
- Reduction in the timeline for payment distribution to unit holders from 15 days to 5 days.
- Voting thresholds to be calculated based on total votes cast rather than votes against, to facilitate smoother unit holder meetings.
- Approval from unit holders shall be required for any instance under the regulations and the votes in favour of the resolution should be more than 50% of the total votes cast.
- Video conferencing options for meetings and remote electronic voting to be made mandatory.
- The manager and trustee to ensure that adequate backup systems and data integrity measures are in place for electronically maintained records
- The manager and trustee ensure the presence of a business continuity plan and a disaster recovery site so that data and transaction integrity are maintained.