Asset vehicle isolation

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paired_with: asset-vehicle-isolation.es.md
---

Each direct-hold solution is constituted as a legally separate limited partnership holding
a single commercial asset. The separation is not a contractual arrangement within a single
entity — it is a structural consequence of separate legal personhood: each LP is a distinct
legal entity with its own creditors, its own equity register, and its own balance sheet. An
obligation incurred at one asset vehicle does not become an obligation of any other asset
vehicle, regardless of common beneficial ownership at a higher level in the corporate
structure. This isolation is the primary mechanism by which the direct-hold framework
protects unit holders from cross-asset contagion.
Each Direct-Hold Solution — Canada and the United States as limited partnerships, Spain as a
SOCIMI, and Mexico as a FIBRA — is its own separate legal entity holding its own asset. In
Canada and the United States, that separation is a structural consequence of limited
partnership personhood: each LP is a distinct legal entity with its own creditors, its own
equity register, and its own balance sheet. An obligation incurred at one vehicle does not
become an obligation of any other vehicle, regardless of common beneficial ownership at a
higher level in the corporate structure. This isolation is the primary mechanism by which the
direct-hold framework protects unit holders from cross-vehicle contagion. The rest of this
article describes the mechanics as they apply to the limited-partnership-form vehicles; the
Spain SOCIMI and Mexico FIBRA achieve the same asset-level separation through their own
jurisdictions' corporate and trust law, not through limited partnership form.

## Key takeaways

- Each direct-hold solution holds a single asset in a separate legal entity; the
  creditors of that entity — mortgage lenders, trade creditors, counterparties — have
  no recourse to the assets of any other direct-hold LP in the holding structure.
- Each limited-partnership-form direct-hold vehicle holds its asset in a separate legal
  entity; the creditors of that entity — mortgage lenders, trade creditors, counterparties —
  have no recourse to the assets of any other direct-hold vehicle in the holding structure.
- The general partner's fiduciary obligations run separately to the limited partners of
  each LP; no management decision made at one LP vehicle can bind or obligate a separate LP.
- For lenders providing [[debt-service-and-financing-structure|commercial mortgage financing]] to a direct-hold LP, the loan is
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This legal personhood means the assets of the LP belong to the LP, not to its partners —
and conversely, the creditors of the LP have recourse to the LP's assets, not to the personal
assets of the limited partners (whose liability is capped at their invested capital) or to the
assets of other LPs that share the same general partner or beneficial owner.
assets of other vehicles that share the same general partner or beneficial owner.

The direct-hold structure exploits this separation deliberately. By holding each asset in a
separate LP, the default of any single asset — a lender calling a loan, a judgment creditor
obtaining a charge — is contained within the LP holding that asset. The remaining assets in
the portfolio are unaffected because they are held in separate legal entities.
separate legal entity, the default of any single asset — a lender calling a loan, a judgment
creditor obtaining a charge — is contained within the entity holding that asset. The
remaining assets in the portfolio are unaffected because they are held in separate legal
entities.

## Mortgage financing and structural subordination
## Mortgage financing

Commercial mortgages on direct-hold assets are secured against the specific property held
in the relevant LP. The mortgage lender has a first charge on the property and the LP's
other assets; it does not have recourse to properties held in other LPs, to equity held at
the parent company level, or to cash held in the portfolios of other investors.

Non-recourse or limited-recourse mortgage structures — common in institutional commercial
real estate lending — formalise this limitation: the lender explicitly agrees that its
recourse on default is limited to the property itself, and the general partner provides no
personal guarantee. In limited-recourse structures, the general partner may provide limited
"carve-out" guarantees for specific bad-act events (fraud, intentional misrepresentation,
environmental liability), which remain separate from the property-level exposure.
other assets; it does not have recourse to properties held in other vehicles, to equity held
at the parent company level, or to cash held in the portfolios of other investors.

## Income tax isolation

Because each LP is a separate entity for income tax purposes, the income and losses of each
partnership are computed separately. A loss in one LP cannot be used to offset income in a
different LP at the entity level; such losses flow through to the partners and are available
to offset income from the same partnership or other sources, subject to the at-risk rules
and other provisions of the Income Tax Act applicable to limited partners.
Because each LP is a separate entity for Canadian income tax purposes, the income and losses
of each partnership are computed separately. A loss in one LP cannot be used to offset income
in a different LP at the entity level; such losses flow through to the partners, and the tax
treatment available to a given partner depends on that partner's own circumstances and is a
matter for qualified tax counsel.

This separation prevents a cross-subsidisation of tax positions between assets: each LP's
tax position is determined by the operating results of its own asset.

## Unit register isolation

The unit register — the authoritative record of who holds equity in each direct-hold solution —
is maintained separately for each LP. An investor's ownership in LP A does not appear on the
register of LP B, even if the investor holds units in both vehicles. This register isolation
means that an encumbrance against one investor's LP A units cannot affect their holding
in LP B through the equity record.
The unit register — the authoritative record of who holds equity in each direct-hold vehicle —
is maintained separately for each vehicle. An investor's ownership in one vehicle does not
appear on the register of another, even if the investor holds units in both. This register
isolation means that an encumbrance against one investor's holding in one vehicle cannot
affect their holding in another through the equity record.

## Parent company observation rights
## Parent company oversight

The parent holding company — as the ultimate beneficial owner of the general partner — has
observation rights and can receive consolidated information about all asset vehicles through
normal holding company governance. The parent does not, however, hold the individual assets on its own balance sheet. The
financial statements of the parent and the financial statements of each direct-hold LP are
separate documents with separate audits and separate SEDAR+ filings.
The parent holding company — as the ultimate beneficial owner of each vehicle's governing
entity — can receive consolidated information about all asset vehicles through normal
holding company governance. The parent does not, however, hold the individual assets on its
own balance sheet. The financial statements of the parent and the financial statements of
each direct-hold vehicle are separate documents with separate audits.

## See also