Unit Holders Agreement in the UK: What It Is and How to Set One Up

If you are buying into a unit trust or using one as part of an investment or commercial structure, a vague understanding of “how the trust works” is not enough. Founders and investors often make the same mistakes, they assume the trust deed covers everything, they rely on side conversations about voting or exits, or they sign without checking how units can be transferred if the relationship changes. Those are exactly the points that tend to cause disputes later.

A well-drafted unit holders agreement fills the gaps between the trust deed, the practical commercial deal and the expectations of the people holding units. It can deal with governance, information rights, distributions, transfer restrictions, deadlock and what happens if one holder wants out. Here, we explain what a unit holders agreement is in the UK, when it matters, the legal issues to check before you sign, and the common drafting mistakes that can create expensive problems later.

Overview

A unit holders agreement is a private contract between some or all of the holders of units in a trust, and sometimes the trustee or manager as well, setting out how their relationship will work in practice. In the UK, it usually sits alongside the trust deed rather than replacing it, and it is most useful where multiple investors, founders or business stakeholders need clear rules beyond the basic trust structure.

• Check how the agreement works with the trust deed and whether there is any conflict between them.
• Confirm who the parties are, including whether the trustee, manager or investment adviser should sign.
• Decide how voting, reserved matters and day to day decision making will work.
• Set clear rules for transfers, pre-emption rights, compulsory transfers and exit events.
• Spell out information rights, distributions, funding obligations and what happens if someone defaults.
• Include dispute resolution and deadlock procedures before relationships become strained.

What Unit Holders Agreement Means For UK Businesses

A unit holders agreement gives commercial certainty where a trust has more than one interested party and the trust deed alone does not deal with the real-world relationship.

In plain English, units represent interests in a trust. The trust deed usually establishes the trust, the powers of the trustee, and the basic rights attached to units. But many practical business issues sit outside the deed or are not detailed enough for the people putting money in. That is where a separate agreement can help.

What is a unit trust?

A unit trust is a trust where beneficial interests are divided into units. Those units can be held by investors, related companies, founders, family offices or joint venture participants, depending on the structure. In a business context, unit trusts are often used for investment arrangements, property holdings, managed investment style structures, and some private commercial ventures.

Unlike shareholders in a company, unit holders do not automatically operate under the Companies Act framework for internal governance. Their rights mainly come from the trust deed, general trust law and any contract they enter into with each other. That is why documenting the commercial arrangement properly matters.

Why use a separate agreement?

The short answer is clarity. A unit holders agreement can cover the points that become contentious once money is committed and expectations diverge.

For example, one holder may expect regular financial reports, another may assume they can transfer units to an affiliate at any time, and a third may think major decisions require unanimous approval. If none of that is written down in clear written terms, the parties are left arguing about what was intended.

A separate agreement can also be more flexible than amending the trust deed every time the parties want to refine their commercial bargain. It is often used to record side arrangements that are central to the deal but not suitable for the deed itself.

When do UK businesses commonly need one?

A unit holders agreement is especially useful where there is a business or investment relationship behind the trust, not just a passive holding structure.

• Two or more businesses invest through a unit trust and want clear voting and exit rights.
• A property or asset holding structure uses a trust and the parties want to regulate funding, distributions and sale decisions.
• Founders or related entities hold units through a trust vehicle and need rules on transfers and control.
• An investment manager or trustee has practical responsibilities that need to be matched with reporting and approval rights.

What does the agreement usually cover?

A strong unit holders agreement should match the actual commercial deal, not a template copied from a shareholders agreement without adjustment.

Common clauses include:

• who the parties are and what each party is contributing
• how voting works and which decisions are reserved
• meetings, notices and consent thresholds
• information rights and reporting obligations
• distribution policy and timing
• further funding obligations and dilution mechanisms, if relevant
• restrictions on transfers, including pre-emption rights
• drag-along, tag-along or other exit provisions, where commercially relevant
• default events and compulsory transfer rights
• confidentiality, restraint style protections where appropriate, and dispute resolution

The right content depends on the structure. A property unit trust with a small number of sophisticated investors may need very different terms from a private investment structure used by a founder group.

How is it different from a shareholders agreement?

The idea is similar, but the legal framework is different. A shareholders agreement deals with shares in a company. A unit holders agreement deals with units in a trust.

This distinction matters because rights under a trust depend heavily on the trust deed and the trustee’s powers. If you simply adapt a shareholders agreement and leave company law language in place, the document may not fit the trust structure properly. This is where founders often get caught, especially before they sign a contract circulated by another party who has used a generic precedent.

Legal Issues To Check Before You Sign

The main legal question is not whether the agreement sounds fair, it is whether it actually works with the trust structure you are investing in.

Does it match the trust deed?

This is the first issue to test. If the trust deed says the trustee has sole discretion over certain matters, but the unit holders agreement says unit holders can direct those same matters, you may have a conflict.

That conflict can create uncertainty about which document governs in practice and whether some promises are enforceable. Before you sign, compare the documents clause by clause on:

• issue and redemption of units
• voting rights
• distribution powers
• trustee discretions
• transfer procedures
• winding up or termination events

Who should be a party?

The agreement only binds the parties who sign it, unless another legal mechanism applies. If the trustee is expected to follow certain governance or reporting rules, the trustee may need to be a party. The same applies to a manager, adviser or corporate vehicle with a real role in the arrangement.

Businesses sometimes assume they can impose obligations on a non-signing trustee through a unit holders agreement between investors alone. Usually, that is risky. Before you rely on a verbal promise that “the trustee will go along with it”, make sure the right parties are included.

How are decisions made?

Decision making should be drafted with real commercial moments in mind, not abstract governance language.

Think about what happens before you approve a sale, appoint a new manager, commit further capital or change the investment strategy. The agreement should set out:

• which decisions need unanimous consent
• which decisions need a simple majority or special majority
• whether some holders have weighted voting rights
• what information must be given before a vote
• what happens if there is deadlock

If the trust is part of a broader group structure, you may also need to consider whether consents are required from lenders, landlords, regulators or other counterparties under separate contracts.

What are the transfer and exit rules?

Transfer provisions are often the most negotiated part of a unit holders agreement because they decide who can come in, who can get out and on what terms.

Key issues include:

• whether units can be transferred freely or only with consent
• pre-emption rights if a holder wants to sell
• permitted transfers to affiliates or group companies
• compulsory transfer events, such as insolvency or serious breach
• valuation methodology if a price cannot be agreed
• drag-along and tag-along rights on a wider sale

If these points are vague, parties can become stuck in a trust together long after the relationship has broken down.

How will money flow?

Do not assume the trust deed or accounting practice will answer commercial questions about cash. The agreement should make clear how distributions are decided, whether holders must contribute further funding, and what happens if one party does not pay when required.

Before you sign, check whether the document covers:

• timing and priority of distributions
• working capital or reserve requirements
• further capital calls or loan funding
• default consequences for non-payment
• whether a defaulting holder can be diluted or compelled to transfer units

This is especially important where the trust holds income-producing assets or requires ongoing expenditure.

Are there regulatory or financial promotion issues?

Some unit trust arrangements raise regulated activity questions, especially if units are being offered more widely, managed collectively or promoted as investments. The exact position depends on the structure and who is involved.

Not every private unit trust will trigger a regulatory issue, but businesses should pause before circulating investment materials or accepting the provider's standard terms. If the arrangement crosses into regulated territory, the drafting, disclosure and marketing approach may need extra care.

What dispute process applies?

Disputes are easier to manage if the process is set before relationships deteriorate. A good clause can require escalation to senior decision makers, mediation, expert determination for valuation issues, or another agreed process before court proceedings.

The aim is not to eliminate all conflict. The aim is to reduce paralysis when the parties disagree over price, control or breach.

Common Mistakes With Unit Holders Agreement

The most common mistake is treating a unit holders agreement like a standard form document when it should be tailored to the trust deed and the actual deal.

Copying a shareholders agreement without adapting it

This happens all the time. Parties lift company law concepts and insert the word “units” instead of “shares”, but the underlying structure is still wrong.

That can lead to clauses that refer to directors where there are none, share capital concepts that do not fit the trust, or consent rights that conflict with trustee powers. Before you sign a contract that started life as a company precedent, check that the legal mechanics match a trust arrangement.

Leaving the trust deed out of the review

Some businesses negotiate the commercial agreement first and only skim the deed later. That is backwards. The deed sets the legal architecture of the trust.

If the deed and agreement pull in different directions, the parties may spend time negotiating terms that cannot work cleanly. The safer approach is to review both together from the start as part of a proper contract review.

Using vague language on key commercial rights

Words like “reasonable consent”, “material decision” or “fair value” can be useful, but only if the surrounding drafting gives them context. If those phrases are left open ended, each party may read them differently.

For example, if the agreement says units must be offered at fair value on an exit, but there is no valuation method, no valuer appointment mechanism and no timetable, the clause may create an argument rather than solve one.

Ignoring deadlock

Equal ownership can look neat at the start and become unworkable when priorities change. If two key holders each have blocking rights and there is no deadlock process, important decisions can freeze.

That can be especially damaging where the trust needs a quick response, such as refinancing a property, approving urgent expenditure or dealing with a buyer. A deadlock clause should reflect the commercial reality of the asset and the relationship.

Failing to deal with default properly

Default clauses are uncomfortable to negotiate, so parties often keep them high level. That is risky.

Think about what happens if a holder breaches confidentiality, fails to fund its share, becomes insolvent, or transfers units in breach of the agreement. The document should define default events, notice periods, remedies and any compulsory transfer mechanism with enough precision to be usable.

Assuming side promises will be honoured

If a key point matters, put it in the agreement. Verbal assurances about future funding, board style consultation, sale timing or minimum returns are a weak substitute for proper drafting.

Before you spend money on setup or commit funds into the structure, make sure the deal terms you are relying on are actually documented.

Overlooking related documents and business realities

A unit holders agreement does not operate in isolation. The trust may sit alongside finance documents, management agreements, asset purchase documents, leases or service contracts.

If one document gives broad freedom but another imposes consent requirements or restrictions, the arrangement can break down in practice. The legal review should follow the entire structure, not just the headline agreement.

FAQs

Is a unit holders agreement legally required in the UK?

No. Many unit trusts operate without a separate unit holders agreement. But where multiple parties need clear governance, transfer and exit rules, relying on the trust deed alone can leave important gaps.

What is the difference between a trust deed and a unit holders agreement?

The trust deed creates and governs the trust itself, including the trustee’s powers and the basic rights attached to units. A unit holders agreement is a separate contract that usually adds practical commercial rules between the relevant parties.

Can unit holders change the agreement later?

Usually yes, if the agreement includes a variation mechanism and the required parties consent. You also need to check whether the proposed change affects the trust deed or requires trustee approval.

Should the trustee sign the unit holders agreement?

Often, yes, if the trustee is expected to comply with reporting, approval, distribution or procedural obligations under the agreement. If the trustee is not a party, some parts of the arrangement may be harder to enforce in practice.

What happens if the unit holders agreement conflicts with the trust deed?

That depends on the drafting and the nature of the conflict, but it can create uncertainty and disputes. The better approach is to identify inconsistencies before you sign and amend the documents so they work together clearly.

Key Takeaways

• A unit holders agreement is a private contract used to regulate the commercial relationship between holders of units in a trust, and sometimes the trustee or manager.
• It should be drafted to work with the trust deed, not copied from a shareholders agreement without proper changes.
• The most important issues are usually governance, reserved matters, information rights, distributions, funding, transfer restrictions, exit rights and default consequences.
• Before you sign, confirm the right parties are included and that the agreement reflects how decisions and money flows will actually work in the trust.
• Vague drafting on valuation, transfers, deadlock or default can cause serious disputes once the relationship is under pressure.
• Founders and SMEs should review the wider structure as well, including related finance, management or asset documents that may affect the trust arrangement.

If you want help with trust deed alignment, transfer and exit clauses, governance rights, or dispute and default provisions, you can reach us on 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.