Crowdfunding - Could it save the village pub?

Crowdfunding typically involves a large volume of small donations in exchange for something, such as a prototype product (known as donation or reward crowdfunding).  But can crowdfunding be used to fund property purchases and, if so, what are the implications?

As well as generating donations, crowdfunding can offer repayment to the investor, with or without interest (debt crowdfunding) or shares in the recipient company (equity crowdfunding).  The latter opens up the possibility of tax relief for the donor, depending on the nature of the investment.

The first case of online crowdfunding is believed to date back to 1997, when US fans of a British rock band raised $60,000 for the band to tour America.  Since then it has been used in a number of sectors including film, wearable technology, gaming and even a live public participation version of the Channel 4 television show, The Crystal Maze.

But what about property?  There is no reason why revenue generated from crowdfunding could not be invested in property, as long as the purpose was made clear.  Similarly there is no reason why the donation need be trivial in size, as long as it is clear what, if anything, a donor can expect to receive back.

One wider application could be in the leisure and tourism sector, in particular public houses.  Such properties can already be classified as assets of community value, allowing a group of like-minded individuals to save them from closure.  Crowdfunding could allow such individuals to reach a wider audience and reduce the number of members (and opinions) in a community interest company. 

“The site of Nikola Tesla’s laboratory in New York was purchased by crowdfunding, to preserve it as a science centre and museum.”

What is required is an incentive that is enough to draw people away from rival projects on this ever growing funding platform.

Wider still, is investment in a buy-to-let company for those who do not have the resources to buy alone, or who are able to buy a single property but want to spread the risk.  This would fall into either the debt or equity category, and would require due diligence by each investor, or confidence that due diligence has been carried out on behalf of the company.  There would, of course, be further considerations regarding identity of occupiers, rent levels, ongoing management and when the property is sold.

Crowdfunding is still in its infancy.  Only the future will tell how it may affect our lives. 

If you would like to discus this further then please speak to one of our legal specialists, Suzanne Bradbury on 01245 453873 or alternatively you can email him on [email protected].