Recently, there have been a number of high-profile proxy fights involving trusts, particularly real estate investment trusts (REITs). In contrast to corporations, a trust is predominately governed by its declaration of trust (DOT). While a shareholder of a corporation is entitled to certain rights under corporate law, a unitholder of a trust generally only enjoys the rights that are specified in the DOT. As a result, there are a few key differences to consider when waging or defending against a proxy fight in relation to a trust.
Right to Call a Meeting
It is critical to review the DOT to understand the rights of unitholders to requisition a meeting and the terms and conditions for the exercise of those rights. Unlike requisition entitlements prescribed by most corporate statutes for corporations, these rights can vary significantly from trust to trust. It is not unusual to see provisions in a DOT requiring a unitholder to hold a greater percentage of outstanding units to requisition a meeting as compared to the thresholds typically found in corporate statutes. In some cases, a DOT may prohibit a requisitioning unitholder from voting on the matters raised in their requisition.
Access to Information
It is also critical to review the DOT to determine information rights. Corporate statutes typically prescribe a list of documents and information that a shareholder is entitled to. Similar to requisitions, while DOTs usually prescribe information that is available to unitholders in a similar fashion — sometimes with reference to a corporate statute — there may be differences in how those rights may be exercised and the nature of the information available.
Other Rights and Protections
As opposed to traditional corporate shareholders, unitholders generally are not automatically provided with rights and remedies protecting minority investors and safeguarding against oppression, unless those protections are included in the DOT. While there is a growing approach to expressly include those rights and remedies in a REIT’s DOT, most REITs still do not contain these unitholder safeguards.
When silent in a particular respect, courts can read in principles of corporate law to resolve ambiguities within a DOT or assess the reasonableness of its management’s decisions. For example, in Sandpiper Real Estate Fund 4 Limited Partnership v. First Capital Real Estate Investment Trust, 2023 ONSC 794, the Ontario Superior Court made it clear that “[c]ourts look to both the provisions of a trust declaration granting unitholders’ requisition rights as well as principles of corporate law that help define those rights in exercising its supervisory function over unitholder meetings”.
Key Takeaway
Trusts differ from corporations in some fundamental ways. It is crucial to review the DOT to understand the rights of unitholders when navigating a proxy fight. While corporate statutes may not apply to trusts, the principles underlying corporate law are important when interpreting a unitholder’s rights.
The authors would like to thank Joey Ahmadi for his significant contribution to this article.