Joint ventures are all the rage in 2015. Combining capital with expertise helps generate returns and a good J/V model can be repeated and repeated. When considering one, keep these key hints in mind:
- Use a separate new joint venture company. It will help when raising finance and limit your liability when selling on the property in the future.
- Put in place a simple shareholders agreement that everyone understands. Don’t just rely on a handshake. If there are delays or overruns, it can be a mess. Finger pointing when a site lies idle costs a lot of money.
- Make sure everyone knows what is expected of them – who does what, when and how they get paid. Is it all “sweat equity” or is the development manager to be paid a fee? Who approves overruns? Who pays for them?
- Insist on mediation to resolve problems and a timebound dispute escalation process if that does not work. It is quick and private and will help avoid everything grinding to a halt.
- Make sure everyone understands the banking requirement. Shareholder loans will be subordinated – Bank will get out first. You will need a construction finance package which will cost money. Understand it and agree it.
If you take these simple steps it will help avoid costly delays in the project and convince bankers that you have a reliable structure worthy of their support.
John Hogan advises a range of clients from developers to investors to contractors on all aspects of acquisition and development of commercial and residential property.
Contact John Hogan for more information.
This publication is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Ogier Leman for any action taken or not taken in reliance on the information set out in this publication. Professional or legal advice should be obtained before taking or refraining from any action as a result of the contents of this publication. Any and all information is subject to change.