Real estate is an asset class that people tend to invest in for longer terms. For that reason, our biggest focus while designing the entire system is to ensure property token owners have a legal right to the underlying real estate under all circumstances, even in the event Estate Protocol goes out of business. Other areas of focus are tax optimisation, and potential dispute resolution in a cross-border environment.
For every successful fundraise, a UK non-resident, interest in possession trust is registered under the English Common Law. The United Kingdom has shown to take a progressive legislative approach to cryptoassets, with the Jurisdiction Taskforce publishing a paper on recommendations about legal structures with asset tokenization. English Common Law is the most widely accepted legal system around the world, and interest in possession trusts are the most effective and frictionless way to bridge ownership from on-chain beneficiaries to the real-world legal layer. Going into more detail, there are four aspects to the general legal structure we use.
Our legal structure staples certain rights directly into the tokens offered on Estate Protocol. By holding the assets under a trust with token owners as beneficiaries, users get all the benefits of a trust ownership. In the deed of the trust, there are clauses about legal ownership being tied to the possession of the private keys for the crypto wallet used to pass the KYC checks.
Estate Protocol uses advance consent to transfer by way of novation to establish a direct contractual relationship between us and each investor, provided as part of the terms of the security itself. Novation is a legal mechanism by which rights and obligations under a contract can be transferred, which means the tokens (and subsequently the contractual obligations) would be transferrable at the original terms. The transfers may be subject to jurisdiction restrictions.
More information about the mechanism can be found in the public statement issued here - https://lawtechuk.io/ukjt
Tokens backed by real assets are considered securities in most jurisdictions. This can come with extremely high compliance costs and cross-market friction, unless the issuer is subject to certain exemptions from registering a prospectus with the FCA. Estate Protocol uses the exemptions outlined in PRR 1.2.1 (a), (b), and (c), which exempts us from PRR's obligations.
In case of disputes arising out of the relationship among token owners, in case they cannot be solved on-chain, Estate Protocol would use the digital dispute resolution rules outlined by UK's Jurisdiction Taskforce in their 2019 statement. The Legal Statement expressed the view that cryptoassets were property and smart contracts were contracts under English law, and has been very well received in many jurisdictions. This process allows for arbitral or expert dispute resolution in very short periods of time, arbitrators to implement decisions directly on-chain using a private key, and optional anonymity of the parties.
More information about the rules can be found here - https://resources.lawtechuk.io/files/2.%20UKJT%20Digital%20Disupte%20Rules.pdf
In English Trust Law, non-resident trusts are exempt from UK taxes if the income is derived from outside the UK. Users would be subject to income taxes in their own jurisdictions, and potentially property taxes depending on where our offered properties are. All the required information would be in the deal publication, but users are advised to consult a tax advisor in the jurisdiction of their residence.