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The “Corporate resolution” is the legal binding document uploaded and stored on IPFS that works in conjunction with a Blocksquare PropToken smart contract and creates a financial obligation by the issuer towards any and all holders of a property token.
To create a unified, standardized tokenization protocol, Blocksquare has templated a resolution and already translated it into several languages.
The base template can be found here below:
Below we highlight and comment the individual articles as of v1.2.
In the first part the token issuing legal entity with all signatories, i.e. official representatives and shareholders, is identified.
This section identifies the real estate asset subject to the corporate resolution. Below we extend on the individual fields.
Most real estate properties have an address that uniquely defines it. Based on countries it might include i.e. street, building, floor, apartment/unit number. In some rare cases, where a property might not have an actual address, other methodologies of identifying the location of a property might be used.
Real estate assets are usually built with a pre-defined purpose i.e. residential, office, retail, leisure, industrial, storage, medical... Although a property might change in purpose over time, in this section the asset's type and purpose should accurately indicate the most current one.
After deployment, each BSPT smart contract receives a unique address on the Ethereum network. Both the address and smart contract code are fixed and can't be changed or altered.
As per Blocksquare's BSPT token standard, the total possible emission of tokens for each tokenization is set to 100,000 tokens. BSPT tokens are ERC-20 backwards compatible, meaning they have 18 decimals and thus are devisable into smaller units of account.
As per Blocksquare's BSPT token standard, the share of economic rights (resale and recurring revenues) that a single token represents is always fixed at 1:100,000 meaning 1,000 tokens give its holder 1% of the economic rights as defined by set parameters in the corporate resolution.
For simplicity purposes of monitoring individual investment portfolios with large amounts of different tokenized real estate assets, the corporate resolution lays claim to revenues over profits (see here why). For instance, renting out an apartment might append all costs to the tenant and thus the issuer could direct 90-100% of revenues towards token holders, while an office building could have a more complex cost structure with legal, maintenance, financing and other costs stacking up and thus only 60% of revenues would be directed to the token holders.
The “buyback threshold” is expressed in percentages (%) and relates to Article 5 of the Corporate resolution. The higher the threshold, the less token holders need to accept the issuer's buyback offer for it to become valid i.e. officially accepted.
A 10% threshold would mean that holders of 90% of all issued tokens would need to accept an issuer's buyback offer for the issuer to be able to withdraw the resolution e.g. when an issuer wants to sell the property to a 3rd party. A 90% threshold would mean the holders of just 10% of tokens need to accept it. A 100% threshold would mean that any offer has already been accepted at issuance, but bear in mind the issuer's minimal obligation is always par with the highest price the issuer ever sold tokens for, as stated in Article 4.
Various jurisdictions rely on different real estate registration methodologies and systems. Usually, what they have in common, is a practical way to clearly identify land, buildings and/or building parts. In this section, the issuer enters the required information so that investors can clearly understand, what properties are subject to the resolution.
The Shareholders agree to warrant that the Companya) holds sole ownership of b) shall exercise an option/right to purchase c) ____________________________________________the real estate property referred to in Chapter I hereof (hereinafter “Real Estate”).
In the first article, the issuer i.e. owner of the real estate property defines its own relation to the real estate asset. In v1.2. two standard options are offered, while the third option enables the issuer to define other forms that possibly haven't been identified yet by our legal team.
A portion of any and all revenues (Net After Taxes) that the Company generates within the scope of its commercial and trading activity with the Real Estate property, shall be transferred to the individual digital token holder of the smart contract with a public address referred to in Chapter I hereof, in proportion to the number of digital tokens of the individual holder, where 1 digital token represents 1:100.000 of any and all revenues multiplied by the percentage of revenues (royalties).
Here the proportion of economic rights deriving asset ownership is defined. As it is based on the amount of tokens held, the article applies to all partial and full tokenizations and survives even in cases when tokens are brought to the public in multiple stages over time.
If a shareholding of either an individual shareholder or of all shareholders is sold or otherwise transferred (e.g. via inheritance), the new shareholder or new shareholders shall, jointly and simultaneously with the purchase or other form of acquisition, fully adopt and abide by the relevant resolution.
The article establishes that any obligations as well as any rights created by the execution of this corporate resolution are automatically accepted by new shareholders of the issuer legal entity. In short, old shareholders are required to inform any new shareholders about the entirety of this resolution.
In the absence of legal provisions and/or prohibitions the resolution may only be withdrawn insofar as all the active (existing) shareholders agree therewith and provided that the special condition precedent is met, namely that in case of a resolution withdrawal, the Company shall irrevocably be bound to repurchase any and all digital tokens in circulation, related to the Real Estate (according to the “Squeeze out” principle or mutatis mutandis thereof). The minimum repurchase price for each token shall be equal or higher than the highest price of a token at which the Company has ever offered or sold tokens.
After issuance of tokens to any number of third parties, the issuer becomes legally bound to buy back these tokens prior to any legal dealings with the real estate asset (sale, transfer, mortgage...).
Additionally, a buy back floor price is defined as the price at which tokens have ever been sold on the primary market i.e. directly transferred by the issuer to token holders. This somewhat protects investors and incentivises issuers to use more accurate asset valuations at primary offerings.
Where the Shareholders opt for the withdrawal of the Resolution, the Company shall communicate an offer for the repurchase (“Buyback”) of digital tokens to holders through appropriate communication means, whereby it shall determine the lowest and highest purchase price of the digital token – tranche purchase/sale. The final repurchase offer/price shall be deemed publicly accepted by any and all digital token holders when no more than the Buyback Threshold percentage as defined in Chapter I of all issued digital tokens or less remain in circulation. The Company is bound to a repurchase (“Buyback”) of digital tokens prior to any transactions involving the Real Estate.
The issuer is bound to properly inform token holders of their intention to withdraw from the obligations set forth when the resolution was first executed. In this communication the issuer should disclose the price at which it intends to buy back tokens from the market. The "buyback" might be executed at different prices (e.g. to incentivise early participation), but the minimum price should never be lower than as specified in the last sentence of article 4 of the resolution.
In practice, the process is streamlined through a buyback smart contract that uses parameters like the "buyback threshold" to determine if consensus has been achieved. There might be more complex mechanics in place, offering various price tranches and time-sensitive bonuses. The simplest of smart contract workflows goes follows:
- 1.Issuer declares an intention to buyback tokens at price X DAI or USDC per token.
- 2.Token holders signal their support by locking their BSPT tokens into the buyback contract.
- 3.If amount of signalled BSPT reaches required threshold:
- then issuer deposits the total amount of DAI/USDC,
- while token holders subsequently execute a swap of their BSPT.
- 4.If, however, the threshold is not met, the issuer can either increase their buyback offer, or cancel it.
The Company shall maintain a valuation report not older than 12 months for the Real Estate property and make it accessible whenever requested to any existing token holder. The report should be executed by a licensed valuator registered with IVSC, RICS or equivalent organization.
Valuation reports are a standard practice within the real estate industry and represent the very basis of any real estate transaction. The burden and costs of hiring an appraisal falls onto the property owner, similar to how banks impose this when drafting mortgage agreements.
This resolution shall terminate any and all previous and/or future resolutions (decisions) that would be in conflict with this resolution and might in any way interfere with the content of this resolution by directly or indirectly attempting to challenge or invalidate it. The provisions of any other resolution (decision) that indicates the invalidity of this resolution shall become invalid as soon as this resolution comes into effect. This resolution is limited exclusively for the Real Estate as identified in Chapter I.
To facilitate legal due diligence, any previous resolutions that might contradict it get automatically terminated as soon as the resolution is executed (i.e. signed). The token investor also receive protection against any future decisions that the company might accept, should these involve the real estate asset that is subject of the tokenization.