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By default, the buyback obligation is triggered by either the sale of the property to a 3rd party buyer or by sale of shares of the issuing company (title owner).
Note: The buyback is not required if the new shareholders fully adopt and abide by the relevant resolution.
When a buyback offer to token holders is placed, the buyback smart contract requires the input of a date and time until token holders need to engage to reach the buyback threshold. If the threshold is not reached within the defined period of time, the offer is not deemed accepted and the issuer's buyback is unsuccessful.
The process can be restarted and will likely require additional price negotiations between issuer and token holders.
In general, it is initiated by the issuer before the buyback obligation is triggered according to the terms defined at token issuance.
There is a “buyback threshold” that defines the quorum for the buyback process to be successfully accepted by the token holders. This threshold gives some power of negotiation to the issuers and is defined by the issuer when structuring the tokenization deal.
If the issuer’s buyback offer is accepted by the required amount of token holders, then the issuer can proceed with the transaction and deposit required funds in the buyback smart contract.
However, if the threshold quorum is not reached, the tokens get released back to the token holders and the issuer is legally in the same situation as before the buyback process was started.
The issuer can then decide to reattempt with a better offer or not pursue the buyback.
The issuer is legally bound to buyback tokens prior to any legal dealings with the real estate asset (sale, transfer, mortgage...).
This means, if there is a mortgage already present at time of token offering, that is perfectly fine as the token buyers will be informed about it before making the decision to invest.
However, if any new mortgaging or remortgaging happens, the deal structure changes and token holders need to be able to exit before the change takes place.
Is it possible that a property token sustains for 20, 30 year or more if the issuer decides not to transfer title to a 3rd party?
In theory, yes, the lifecycle of a tokenized property can last indefinitely just like equity in a company can. In practice, however, the lifecycle will be probably shorter as the title owner will probably find good opportunities on the market to sell the property and create a liquidity event for all parties, token holders included.
That being said, there is also potential for a new shareholder to fully adopt the resolution and acquire the property holding company in its entirety alongside its liability towards token holders, as per Article 3 of the resolution.