AT A GLANCE:

The Revised Implementing Rules and Regulations of the Real Estate Investment Trust (REIT) Act of 2009 further secures the interests of Real Estate Investment trust investors by providing for rules on who may be considered fit and proper to manage such trusts. It provides for the Fit and Proper Rule under Section 1 of its rules and enumerates the persons disqualified from such position in Section 9.

What is the Fit and Proper Rule?

Section 8.16 of Republic Act No. 9856, otherwise known as the “Real Estate Investment Trust (REIT) Act of 2009,” provides for the Fit and Proper Rule as part of the corporate governance requirements applicable to REITs.

Under Section 1, Rule 8 of the Implementing Rules and Regulations of the REIT, the Fit and Proper Rule reads: 

To maintain the quality of management of the REIT and afford better protection to REIT investors, the Commission, or the concerned regulatory agency, shall prescribe or pass upon and review the qualifications of individuals elected or appointed as directors of officers of the REIT, REIT fund managers, REIT property managers, distributors and other REIT participants and disqualify those found unfit. 

The appropriate regulatory agency may disqualify, suspend or remove any director or officer who commits or omits an act which renders him unfit for the position.

In determining whether an individual is fit and proper to hold the position, regard shall be given to his integrity, experience, education, training and competence.

Who is Disqualified from Serving as Director, Officer, or Consultant?

Rule 8, Section 2 of the Revised Implementing Rules and Regulations of R.A. No. 9856, as provided under SEC Memorandum Circular No. 1, Series of 2020, identifies persons who shall in no case be allowed to serve or act as a director, officer, or consultant of any REIT, REIT fund manager, or REIT property manager.

These include:

1. Any person convicted of any crime involving any security or financial product;
2. Any person convicted of an offense involving fraud or embezzlement, theft, estafa, or other fraudulent acts or transactions;
3. Any person who, by reason of any misconduct, is enjoined by order, judgment, or decree of any court, quasi-judicial body, or administrative agency of competent jurisdiction from acting as a director, officer, employee, consultant, or agent occupying any fiduciary position;
4. Any person found by the appropriate regulatory agency to have violated, or aided, abetted, counseled, commanded, induced, or procured the violation of the REIT Act, the Revised Corporation Code, the General Banking Law, the Insurance Code, the Securities Regulation Code, or any related laws, including rules, regulations, or orders issued thereunder;
5. Any person judicially declared to be insolvent or incapacitated to contract; and
6. Any person found guilty by a foreign court, regulatory authority, or government agency of acts or violations similar to those enumerated above.

A conviction in the first instance is considered sufficient ground for disqualification. Applicants are also required to submit the pertinent clearances relative thereto. (Rule 8, Section 2, SEC Memorandum Circular No. 1, Series of 2020)

Related article: 

• Penal Provision of the Real Estate Investment Trust (REIT) Act of 2009
• Taxes of Real Estate Investment Trust

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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