Unit Holders Agreement in New Zealand: What It Is and How to Set One Up

If you are buying into a unit trust, investing with business partners through a trust, or moving family or founder assets into a trust structure, a unit holders agreement can save a lot of pain later. The problem is that many businesses rely on a short trust deed alone, copy an overseas precedent, or assume everyone is aligned until someone wants to sell, borrow money, or take control. That is where disputes usually start.

Three common mistakes come up again and again. First, parties do not spell out who can issue new units and on what terms. Second, they leave transfer rules vague, which creates a fight when one holder wants out. Third, they assume voting, distributions, and trustee powers are obvious when they are not.

A well-drafted unit holders agreement sets the commercial ground rules around a unit trust. It works alongside the trust deed and can deal with ownership, decision-making, exits, deadlocks, funding and default. If you are considering this structure in New Zealand, here is what the agreement does, what to check before you sign, and how to set one up properly.

Overview

A unit holders agreement is a private contract between the people or entities that hold units in a unit trust, and sometimes the trustee too. It clarifies the commercial arrangements that sit around the trust structure, especially where multiple investors, founders, or related entities are involved.

The agreement matters most when expectations differ. It can reduce uncertainty about control, money, transfers, and dispute handling before those issues become expensive.

• Confirm how the agreement interacts with the trust deed and whether the trustee is also a party.
• Set clear rules for issuing units, transferring units, pre-emptive rights, and valuation.
• Define voting thresholds for key decisions such as borrowing, major asset sales, or changing the business plan.
• Record how profits and distributions are handled, and whether reinvestment is expected.
• Deal with deadlock, default, forced sale events, and what happens if a holder becomes insolvent.
• Check whether personal guarantees, security, or related party funding arrangements also need separate documents.

What Unit Holders Agreement Means For New Zealand Businesses

A unit holders agreement gives business owners and investors a practical rulebook for how a unit trust will operate day to day. In New Zealand, that can be especially useful where a trust is being used to hold trading assets, investment property, development projects, or a business venture with more than one stakeholder.

A unit trust is not the same as a company. Instead of shares, the investors hold units. Instead of directors running a company, the trust property is held and managed by a trustee under the trust deed and general trust law principles. That difference matters, because people often assume company-style rights automatically apply. They do not.

Why businesses use a unit trust

Businesses and investors may choose a unit trust because it can be a familiar structure for pooled investments, joint ventures, or asset holding. In some cases it is used to separate ownership of assets from operating risk. In others, it is chosen for family, investor, or commercial structuring reasons.

The right structure depends on your goals, funding, tax position, and risk profile. A lawyer can help with the legal side and an accountant or tax adviser should help with tax consequences.

What the agreement usually covers

The trust deed is the foundation document for the trust, but it often does not deal with every commercial issue between unit holders. That is where the agreement usually comes in.

Common clauses include:

• who the parties are, including whether the trustee signs the agreement
• how many units are on issue and who owns them
• when new units can be issued and whether existing holders get first rights
• how decisions are made, including ordinary decisions and reserved matters
• whether unanimous approval is needed for major steps
• how contributions, loans, or further funding requests work
• how distributions are calculated and when they may be paid
• restrictions on transferring units
• tag-along, drag-along, or forced transfer rights where appropriate
• default events, including insolvency or breach of obligations
• valuation methods if someone exits or is bought out
• confidentiality and dispute resolution procedures

How it differs from a shareholders agreement

A unit holders agreement is similar in spirit to a shareholders agreement, but the legal structure is different. Shareholders own shares in a company governed by the Companies Act 1993 and the company constitution, if there is one. Unit holders hold beneficial interests in a trust and their rights depend on the trust deed, the agreement, and the specific structure in place.

This is where founders often get caught. They use a shareholders agreement template, change a few labels, and assume it fits a trust. That can leave major gaps, especially around trustee powers, distributions, and what happens if the trust deed says something different.

When a unit holders agreement is most useful

The agreement becomes especially valuable where there is more than one decision-maker or source of money. For example:

• two founders use a unit trust to hold business assets
• a family trust structure includes multiple unit holders with different expectations
• investors fund a property or development project through a unit trust
• a trading business separates asset ownership from operations
• joint venture participants want clearer exit and control rules before they commit funds

In each of these situations, verbal understandings are rarely enough. Before you sign, you want a written position on control, money, risk, and exit.

Legal Issues To Check Before You Sign

The biggest legal issue is consistency between the trust deed and the unit holders agreement. If the documents pull in different directions, the parties may think they have rights that do not actually work when tested.

Check the trust deed first

Before you sign the agreement, review the trust deed carefully. It should support the ownership and governance arrangement you want. If the deed limits transfers, trustee powers, meetings, distributions, or issue of units, the agreement needs to align with those limits or the deed may need amendment.

Key deed questions include:

• who has the power to issue units
• whether different classes of units exist or can be created
• how income and capital are dealt with
• what powers the trustee has to borrow, mortgage assets, or enter contracts
• whether unit holders can remove or appoint a trustee
• what notice and approval procedures apply

Work out who should be a party

Not every agreement is signed by the same mix of parties. In some cases, only the unit holders sign. In others, the trustee is also a party because its obligations and powers need to be acknowledged directly.

This matters because an agreement is only binding on the parties who sign it. If you expect the trustee to follow funding rules, transfer procedures, or distribution processes set out in the agreement, it may need to be expressly bound.

Reserved matters and decision thresholds

Major decisions should not be left to assumption. The agreement should say which matters can be decided by a simple majority, which need a higher threshold, and which require unanimous consent.

Reserved matters often include:

• issuing new units
• borrowing above a set amount
• granting security over trust assets
• buying or selling significant assets
• changing the nature of the business or investment strategy
• amending the trust deed or the agreement
• appointing or removing the trustee or manager
• approving related party transactions

If those thresholds are not clear, a holder with less economic ownership than expected may still be able to block key steps, or a controlling holder may push through decisions the others thought were protected.

Funding obligations and cash calls

Many disputes start when the trust needs more money. If one holder expects everyone to contribute and another refuses, the document needs an answer.

The agreement should cover:

• whether future contributions are mandatory or optional
• what happens if a holder does not contribute
• whether unpaid amounts dilute that holder's units
• whether extra funding is treated as debt or equity
• whether interest is payable on holder loans
• who can approve external borrowing

Before you rely on a verbal promise that everyone will tip in later, get the mechanics in writing.

Transfer rules and exit rights

Unit transfers are one of the first areas to become contentious. A unit holder may want liquidity, a change in family circumstances may force a sale, or a strategic investor may want in. Without a process, even a straightforward exit can turn messy.

Transfer clauses often deal with:

• pre-emptive rights in favour of existing holders
• permitted transfers to related entities or family vehicles
• restrictions on transfers to competitors or unsuitable buyers
• how a sale price is set if the parties disagree
• tag-along rights for minority holders
• drag-along rights where a full sale is proposed
• forced transfers on death, incapacity, insolvency, or serious breach

Valuation provisions deserve special care. If the agreement says units are valued at market value, define how that market value is determined. If you leave it vague, the dispute just shifts from whether someone can exit to what the exit price should be.

Default and dispute handling

A good agreement plans for the relationship going wrong. That does not make the structure pessimistic. It makes it usable.

Default clauses may cover non-payment, material breach, insolvency, unauthorised transfers, or serious misconduct. The agreement can then set out the consequences, such as suspension of voting rights, compulsory sale, discount on valuation, or indemnity rights.

Dispute clauses should also be practical. For SMEs, that usually means an escalation path, then mediation, and only then court or arbitration if needed. The best clause is one that gives the parties a clear route to solve a problem before legal costs spiral.

Consider related documents too

The unit holders agreement may not be enough on its own. Depending on the deal, you may also need:

• a revised trust deed
• subscription or investment documents
• loan agreements
• personal guarantees
• security documents
• management or service agreements
• restraint or confidentiality terms if key people are involved operationally

Before you accept the provider's standard terms from a lender, manager, or project partner, consider a contract review to check that those documents do not cut across the unit holders agreement.

Common Mistakes With Unit Holders Agreement

The most common mistake is treating the document like a formality after the commercial deal is already done. Once money has gone in and positions have hardened, parties are less willing to negotiate sensible protections.

Using the trust deed as if it is enough

Some trust deeds are detailed, but many are not designed to handle every commercial issue between co-investors or business partners. If the deed says little about deadlock, funding, or transfer rights, then the gap will be filled by uncertainty and leverage.

A founder might assume they can stop a transfer to an outsider, only to find there is no clear restriction. Another may assume a non-paying holder can be diluted, but there is no mechanism to do it.

Copying an Australian or generic precedent

Cross-border templates are risky. New Zealand structures, terminology, governing law, dispute practice, and surrounding documents may differ. A precedent drafted for Australian law can create confusion or rely on assumptions that do not fit your trust deed or local legal framework.

Even a New Zealand precedent needs tailoring. The right contract drafting depends on the asset being held, the parties involved, who manages the venture, and what an exit is supposed to look like.

Not defining decision-making clearly

Many agreements say parties will act reasonably or decide major matters together, but stop there. That sounds fine until there is pressure. What counts as a major matter? Is unanimity required? Can one party block refinancing? Does the trustee need instructions in writing?

Ambiguity creates delay at the exact moment the business needs speed.

Ignoring deadlock until it happens

Equal ownership can feel fair at the beginning, but 50:50 structures often stall if there is no deadlock process. If the parties disagree on raising funds, selling assets, or changing strategy, the trust may be unable to act.

A deadlock clause can include escalation, expert determination on narrow issues, buy-sell mechanisms, or a forced sale process. The right model depends on whether the trust is holding a long-term asset, an active business, or a single project.

Leaving value and distributions too vague

Unit holders often focus on ownership percentages and overlook economic mechanics. But the real disagreement may be about who gets paid, when, and on what basis.

The agreement should be clear about:

• whether distributions are discretionary or formula-based
• whether cash is retained for working capital or debt servicing
• how management fees or reimbursements are handled
• whether some holders get priority returns
• how exit value is calculated

If the venture is tied to a property, project, or seasonal business cycle, those details matter even more.

Forgetting practical signing and record issues

Execution points can sound minor, but they matter. Make sure the correct entities sign, the trustee signs in the right capacity, and unit holdings are accurately recorded. Keep signed copies with the trust records and align the register of unit holders, issue documents, and any board or trustee resolutions.

If you later seek finance, sell assets, or bring in another investor, poor records can slow the deal down and raise avoidable legal questions.

FAQs

Is a unit holders agreement legally required in New Zealand?

No. There is no general rule saying every unit trust must have one. But if there is more than one unit holder, or if control, funding, and exit rights matter, it is often the document that prevents expensive disputes.

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

The trust deed creates and governs the trust itself. The unit holders agreement is a separate contract that sets out the commercial arrangements between the holders, and sometimes the trustee, in more detail.

Can unit holders remove the trustee?

Sometimes, but only if the trust deed and related documents allow it. The agreement can support a removal process, but it should not assume a power that the deed does not give.

Can a unit holder sell their units whenever they want?

Not necessarily. Most well-drafted agreements restrict transfers and give existing holders first rights or approval rights. The exact answer depends on the trust deed and the agreement.

Should a small business joint venture use a unit holders agreement?

If a trust structure is being used and more than one party is contributing money, assets, or management input, usually yes. Even for a small venture, clear rules around decisions, funding, and exits are worth having before you sign.

Key Takeaways

• A unit holders agreement is a contract that sets the commercial rules for people or entities holding units in a unit trust.
• It should work with the trust deed, not contradict it, especially on trustee powers, unit issues, distributions, and transfers.
• The key areas to cover are decision-making, reserved matters, funding obligations, transfer restrictions, valuation, defaults, and dispute resolution.
• Founders and investors often get caught by vague exit rights, unclear cash call provisions, and generic precedents that do not fit the New Zealand structure.
• The best time to sort the agreement is before you sign, before funds are committed, and before you rely on assumptions about control or future contributions.
• If you are reviewing or negotiating a unit holders agreement and want help with trust deed alignment, transfer and exit clauses, funding obligations, and dispute resolution terms, you can reach us on 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.