A Brief Introduction About the Real Estate Joint Venture Agreement
What Is a Joint Venture?
When two parties decide to pool their resources together and share the profits or losses, income, and costs for a particular project, such an arrangement is known as a joint venture.
How does a joint venture work?
There are two parties to a joint venture, one who is the operating member and the other who is a capital member. The operating member is responsible for the acquisition and development of the property, and the capital member is responsible for providing the financial resources for it.
There are three different types of the joint venture as mentioned below:
- Co-wholesaling: One seller of real estate helps another seller find a buyer for the property and divide the profits between them
- Real Estate Fix and flips: Two parties join hands to purchase and sell or develop and sell a certain property with one partner having the necessary expertise and the other partner with the capital
- Landlord agreements: The owner of the property under this contract can lease the property before it is sold and when it is sold, the profits are shared by the two parties to the agreement
The agreement clearly states the rights and responsibilities of both parties, the profit-sharing ratio, and the notice period for termination.
Who Takes the Real Estate Joint Venture Agreement? – People Involved
There are two parties to a joint venture agreement in real estate. One party has the financial resources, and the other party has the required experience for developing and selling real estate.
Purpose of the Real Estate Joint Venture Agreement – Why Do You Need It?
There are individuals or entities with expertise in sourcing, acquisition, management, development, and reporting in the real estate industry. They require an entity to finance their projects. Some individuals or entities have the required funds to invest in such real estate projects and look for experts who can develop and sell real estate.
Without an agreement, the party funding the project might not provide the funds when required. The party responsible for the implementation of the project might delay the completion of the project leading to an increase in project costs and eventually loss of profits. The real estate joint venture agreement pdf should be carefully studied by both parties to understand all the clauses so that their interests are protected.
Contents of the Real Estate Joint Venture Agreement – Inclusions
The joint venture partnership should include information related to the project and the rights and responsibilities of both parties.
The real estate joint venture contract should contain the following information:
- The names of the parties to the agreement: The investor and the real estate developer
- Property being developed: The address of the property being developed including the nature of the project, whether it is a residential or a commercial venture
- Distribution of profits/losses: The percentage share of each partner of the joint venture about sharing of costs, income, profits and losses
- Termination clause
- Dispute resolution clause
How to Draft the Real Estate Joint Venture Agreement?
Points to Consider While Preparing the Agreement
You can refer to a simple joint venture agreement template while drafting the contract. When drafting a real estate joint venture contract, the following points should be kept in mind:
- Eligibility of both parties to participate in the contract
- Consideration of the contract: The profit-sharing ratio between both partners
- Terms of the contract: It should be fair to both the investor and the developer
- Confidentiality clause: No information should be disclosed to a third party
- Dispute resolution clause: Whether disputes will be resolved by arbitration or litigation, and jurisdiction for the resolution
- Termination of a contract clause: The notice period for premature termination of the contract
- Adherence to law: The contract should be drafted by the applicable laws of the state
- Reserving the last page of the contract for signatures and dates: The contract will not be valid without the signatures of both parties
Negotiation Strategy
The draft real estate joint venture agreement should be prepared by either the investor or the real estate developer and presented to the other party for approval. The other party should read and negotiate all the clauses before signing the agreement.
Benefits & Drawbacks of the Real Estate Joint Venture Agreement
Benefits of the Real Estate Joint Venture Agreement:
- Protection of interest of both parties: The investor is certain that the developer will complete the project on time and the developer is assured of getting funds at every stage of the project
- Sharing of profits: Both the investor and the developer understand that if the project is developed on time and keeping the quality parameters in mind, they are entitled to their share of profits as mentioned in the agreement
- Termination of contract: If either party is not satisfied with the agreement, they can terminate the agreement by providing sufficient notice
The Drawbacks of a Real Estate Joint Venture Agreement Are:
- Possibility of losses: If either party defaults in their obligation, no legal action can be taken
What Happens in Case of Violation?
In case of a real estate joint venture agreement, if one party breaches the agreement, the other party can try to resolve the matter amicably and then send a notice. If these methods don’t work, then legal remedies have to be considered. They are:
- Money Damages: The injured party will be compensated for the loss of profits
- Restitution: The party who has violated the contract has to return the money and property(1)
- Rescission: The contract will be terminated
- Reformation: The court will draw up a fresh contract to rectify any inequity
- Specific performance: The contractual obligation has to be fulfilled
Both parties should check a sample joint venture agreement and find out what clauses need to be amended. When they agree to all the terms and conditions, they can then sign the contract. This will minimize the possibility of disputes.