The Role of Special Purpose Vehicles in Real Estate Tokenisation

Introduction: Tokenisation meets immovable law

Real estate tokenisation is often presented as a technological breakthrough capable of transforming how property is owned, transferred, and financed. Distributed ledgers promise fractional ownership, automated settlement, and global investor access. Tokens appear to offer a way to decompose an illiquid, local asset into digital units that can circulate freely across borders.

Yet when these structures encounter real estate law, the ambition of “putting property on-chain” quickly gives way to a more constrained reality.

Unlike many financial instruments, real estate is not defined primarily by contract. It is defined by land law. Ownership is determined by national legal systems, recorded in land registries, and enforced through formal registration requirements that are largely immune to technological innovation. A blockchain record, however robust, does not by itself create or transfer legal title to land.

This legal immovability is not a temporary regulatory gap. It reflects the fundamental role that land ownership plays in taxation, insolvency, creditor protection, zoning, and public law. As a result, tokenisation does not displace real estate law. It must work around it.

The structure that has emerged to reconcile these two worlds is not new. It is the same structure that has underpinned institutional real estate finance for decades: the special purpose vehicle (SPV).

Far from being a transitional workaround, the SPV has become the central legal mechanism that makes real estate tokenisation viable under existing law. Understanding its role is essential to understanding what is, and is not, being tokenised in practice.

The legal constraint: why real estate cannot be directly tokenised

At the heart of most misconceptions about real estate tokenisation lies a misunderstanding of how property ownership is legally constituted.

In virtually all jurisdictions, ownership of land and buildings is determined by registration in a public land register. That register recognises ownership by natural persons or legal persons. It does not recognise tokens, wallets, or decentralised ledgers as owners. Nor does it recognise rapid fractional transfers between thousands of holders.

This creates a structural incompatibility. Tokenisation is designed for divisible, high-frequency transfer of rights. Land registries are designed for stability, singular ownership, and formalised transfer processes. Attempting to directly map one system onto the other produces immediate legal friction.

From a regulatory perspective, this friction cannot be resolved by technological design alone. Unless land law itself is rewritten to recognise on-chain records as determinative of title, any attempt to tokenise property directly remains legally ineffective. The blockchain may reflect an internal allocation of interests, but it does not alter the identity of the legal owner recorded in the registry.

This is the point at which most real estate tokenisation projects confront a choice. Either they attempt to challenge the foundations of property law, an approach that has so far found little traction with legislators, or they adapt tokenisation to the existing legal architecture.

The widespread adoption of SPV-based structures reflects the outcome of that choice.

The SPV as legal anchor: separating property ownership from investor participation

In a tokenised real estate structure, the SPV functions as the legal owner of the underlying property. It is the entity whose name appears in the land register, whose directors are responsible for asset management, and whose balance sheet bears the risks associated with ownership.

Investors do not acquire direct rights in the property itself. Instead, they acquire rights in relation to the SPV.

This distinction is fundamental. It allows the ownership of the physical asset to remain stable and legally intelligible, while enabling economic participation to be divided, transferred, and automated at the level of the corporate or contractual structure.

The resulting ownership chain is straightforward in legal terms:

• the land register records the SPV as owner of the property;
• the SPV issues securities or contractual instruments;
• tokens represent those securities or contractual rights.

From the perspective of property law, nothing unusual occurs. From the perspective of capital markets law, the structure closely resembles familiar models of indirect real estate investment. Tokenisation changes the form of representation and transfer of investor rights, not the legal locus of property ownership.

What is actually being tokenised in SPV-based structures

This architecture has an important consequence that is often obscured in public discourse. In most real estate tokenisation projects, the asset being tokenised is not the property. It is the SPV’s capital structure.

Depending on the design, tokens may represent equity interests in the SPV, functionally equivalent to shares; debt instruments issued by the SPV, comparable to bonds or notes; profit-participation rights linked to rental income or disposal proceeds, or hybrid instruments combining economic exposure without full governance rights.

In all cases, the token holder’s rights are mediated through company law or contract law. They do not arise from land law. This has immediate regulatory consequences. Instruments that look like equity or debt in substance are treated as such under financial regulation, regardless of the fact that they are digitally represented.

From a legal perspective, real estate tokenisation therefore sits much closer to tokenised corporate finance than to tokenised property registries. The SPV is the point at which these two domains intersect.

Ownership recording and the limits of the blockchain

The reliance on SPVs is also directly connected to the problem of ownership recording.

Property ownership continues to be recorded exclusively in land registries. Economic ownership, by contrast, is recorded in corporate registers, contractual records, and, increasingly, on distributed ledgers. Token transfers update the allocation of rights vis-à-vis the SPV, but they do not and cannot update the land register.

This separation is not a flaw in the structure. It is what allows tokenisation to operate without destabilising the legal certainty of property ownership.

The blockchain, in this context, functions as a transaction and record-keeping layer for investor interests. It may improve transparency, settlement efficiency, and transferability. But it does not replace the legal mechanisms through which real estate ownership is constituted and enforced.

Understanding this boundary is essential. Where it is ignored, projects risk mischaracterising the nature of the rights they issue and exposing themselves to regulatory and civil liability.

Governance, control, and fiduciary responsibility in SPV-based tokenisation

Real estate is not a passive asset. Ownership carries with it a continuous stream of decisions that have legal, financial, and operational consequences. Leases must be negotiated and enforced. Maintenance must be authorised. Financing arrangements must be entered into, amended, or refinanced. Insurance must be maintained. Assets must eventually be disposed of or restructured.

Any tokenisation model that obscures where these decisions sit, or who is legally responsible for them, is structurally fragile.

The SPV provides the governance layer through which these decisions can be made in a manner that is both legally coherent and regulatorily intelligible. Directors or managers of the SPV owe fiduciary duties under company law. They are subject to duties of care, loyalty, and proper management. They are accountable to shareholders or contractual stakeholders, and ultimately to courts and regulators.

Token holders, by contrast, do not directly manage the property. Their rights are exercised through the governance mechanisms embedded in the SPV structure. Depending on the design, this may include voting rights, information rights, consent thresholds for major decisions, or purely economic participation without control.

This separation is not incidental. It reflects a long-standing legal insight: while ownership can be fragmented, management responsibility must remain concentrated. Real estate law, insolvency law, and creditor protection regimes all assume the existence of an identifiable entity that can be held accountable for decisions affecting the asset.

Attempts to replace this structure with decentralised governance mechanisms encounter immediate legal limits. Smart contracts can automate distributions or enforce transfer restrictions, but they cannot replace fiduciary responsibility. Code can execute predefined logic; it cannot discharge duties of judgement, risk assessment, or legal compliance. Where real assets are concerned, regulators and courts continue to look for human or corporate decision-makers who can be held responsible.

SPVs therefore do not merely facilitate token issuance. They anchor governance in a form that legal systems can recognise and enforce.

Regulatory classification: why SPV-based tokenisation is rarely “crypto-native”

The use of an SPV also largely determines how tokenised real estate structures are classified under financial regulation.

From a European regulatory perspective, the decisive question is not whether an instrument is issued on a blockchain, but whether it qualifies, in substance, as a financial instrument. Tokens representing equity interests, debt claims, or profit-participation rights in an SPV will, in most cases, fall squarely within the scope of traditional securities law.

This is not an accidental outcome. SPVs are designed to issue precisely the types of instruments that capital markets regulation already knows how to govern. When those instruments are tokenised, the regulatory logic follows the substance, not the technology.

As a result, many real estate tokenisation projects operate not under crypto-specific regimes, but under existing securities frameworks. Issuance, distribution, intermediation, custody, and secondary trading may all trigger regulatory obligations that are entirely familiar from traditional capital markets.

Crypto-asset regulation only becomes relevant at the margins, typically where tokens do not qualify as financial instruments or where ancillary services fall outside securities law. But the core economic exposure in SPV-based real estate tokenisation almost always sits within the perimeter of financial regulation.

This has two important implications.

First, tokenisation does not offer an escape from securities law. Projects that assume otherwise often discover, belatedly, that they have issued regulated instruments without the appropriate disclosures, authorisations, or investor protections in place.

Second, the presence of an SPV tends to stabilise regulatory classification. By mapping tokens onto well-understood legal instruments, SPV-based structures reduce ambiguity. Regulators may scrutinise them, but they rarely struggle to categorise them.

In this sense, SPVs act as a regulatory translation layer, converting novel technical representations into familiar legal forms.

Transferability, liquidity, and the illusion of frictionless markets

One of the most frequently cited advantages of real estate tokenisation is increased liquidity. Tokens, it is argued, can be transferred more easily than traditional shares or partnership interests, enabling secondary markets and fractional exit.

The SPV plays a critical role in determining whether this promise can be realised in a legally sustainable way.

From a purely technical perspective, tokens can be transferred peer-to-peer with minimal friction. From a legal perspective, however, transferability is constrained by company law, securities law, investor eligibility rules, and contractual restrictions. These constraints do not disappear when rights are represented digitally.

SPV-based structures allow these constraints to be reintroduced in a controlled manner. Transfer restrictions can be embedded in the articles of association or in token terms. Whitelisting can ensure that only eligible investors acquire interests. Consent requirements can be enforced for certain transfers. Regulatory thresholds can be monitored and respected.

Without an SPV, these constraints would have to be enforced either informally or ex post, through contractual claims after an unauthorised transfer has already occurred. That approach is rarely acceptable in regulated markets.

The result is that liquidity in tokenised real estate remains conditional. Tokens may be more easily transferable than traditional interests, but only within the boundaries set by law. The SPV provides the legal framework within which secondary trading can occur without undermining investor protection or regulatory compliance.

This again underscores a recurring theme: tokenisation accelerates processes, but it does not neutralise legal constraints. The role of the SPV is to ensure that acceleration does not result in regulatory breach.

Insolvency, enforcement, and why SPVs matter most when things go wrong

The true test of any legal structure is not how it performs when markets are rising, but how it behaves under stress.

Insolvency scenarios expose the weaknesses of poorly designed tokenisation models with particular clarity. When an issuer becomes insolvent, courts and administrators look for legally recognisable assets, claims, and ownership structures. They do not adjudicate based on white papers or smart contract logic.

SPVs provide a clear insolvency boundary. The property sits on the balance sheet of a dedicated entity. Claims against that entity are assessed under established insolvency rules. Token holders’ rights are evaluated based on their legal character: equity, debt, or contractual claim.

This clarity is essential. Without it, token holders may find themselves competing with creditors, sponsors, or other investors in ways they did not anticipate. Where token rights are poorly aligned with SPV documentation, enforcement can become uncertain or impossible.

Importantly, the blockchain record does not override insolvency law. If there is a conflict between on-chain records and legally binding off-chain documents, courts will prioritise the latter. This makes alignment between token terms and SPV documentation critical.

In practice, many of the failures observed in early real estate tokenisation projects stem not from the use of SPVs, but from their misuse. Where token economics are not fully mirrored in corporate and contractual documents, token holders are left with rights that exist technically but not legally.

Well-designed SPV structures reduce this risk. They do not eliminate insolvency risk, but they make its consequences predictable.

SPVs and the future of property registries

In recent years, a growing number of jurisdictions have explored the use of distributed ledger technology to modernise land registries. These initiatives are often cited in discussions about real estate tokenisation as evidence that direct, on-chain ownership of property is becoming legally feasible, and that intermediary ownership structures such as SPVs may eventually become redundant.

That inference overstates both the ambition and the legal effect of these projects.

Most land registry modernisation efforts are not attempts to decentralise property ownership. They are attempts to digitise administrative processes. Where blockchain technology is used, it is typically deployed as an internal infrastructure tool to improve record integrity, reconciliation, and resilience within state-controlled registries. The registry remains the authoritative source of title. Legal ownership continues to arise from registration under public law, not from possession of a cryptographic key.

Even in pilot regimes where electronic conveyancing has been enhanced or settlement timelines reduced, the fundamental legal model remains unchanged. Title transfers are still validated by public authorities. Registries continue to recognise ownership only by legally identifiable persons. Blockchain records, where they exist, either mirror the register or support it operationally. They do not replace it.

This distinction matters for tokenisation. The legal function of a land registry is not simply to store data. It is to anchor ownership within a framework of taxation, zoning, insolvency, creditor priority, and administrative enforcement. Those functions require a clearly identifiable bearer of rights and obligations. They are not neutral to the form of record-keeping.

As a result, even a fully digitised or DLT-based land registry would not, by itself, enable frictionless fractional ownership of real estate by large numbers of token holders. Collective ownership at scale continues to raise governance, enforcement, and public-law challenges that registries are not designed to resolve. These challenges are legal in nature, not technical.

The consequence is that registry modernisation may reduce transactional friction for SPV-level transfers or improve transparency around ownership, but it does not eliminate the need for an intermediate legal owner. The SPV remains the structure through which ownership responsibilities are concentrated, even if the mechanics of registration evolve.

In this sense, land registry modernisation does not displace SPV-based tokenisation models. It reinforces their logic. Tokenisation operates at the level of economic participation. Registries continue to operate at the level of legal title. The boundary between the two may become more digitally integrated, but it does not disappear

Conclusion: legal realism as the foundation of scalable tokenisation

Real estate tokenisation succeeds when it respects legal reality rather than attempting to bypass it.

The widespread use of SPVs reflects a sober recognition of how property law, company law, and financial regulation interact. Tokens do not replace these frameworks. They operate within them.

By anchoring ownership, governance, and liability in a legally recognised entity, SPVs make it possible to represent economic interests digitally without destabilising the legal certainty on which real estate markets depend.

In this sense, SPVs are not a limitation on tokenisation. They are its enabling condition.

Tokenisation, as it is currently practised in real estate, is not the tokenisation of land. It is the tokenisation of corporate and contractual claims linked to land. Until property law itself is transformed, that distinction will remain decisive.

And it is precisely by embracing that distinction, rather than obscuring it, that tokenisation can move from experimental pilots to durable market infrastructure.

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