Partnership Agreement - Who Can Decide When To Sell?

Question

If I have a real estate partnership, how do we decide when to sell the property? Is it true that under the Uniform Partnership Act, anyone in the partnership can request out of the deal pretty much when they want? Basically, at least from what I read, they can force the other partners to buy them out of the deal at any time (based on current appraisal), and if they can't afford it, they can actually force liquidation.

Douglas Peterson · Answer

You are just bumping into the tip of the iceberg of partnerships.  Having clear exit plans is a start.  You now must address the reasons why the exits happen.  Almost always it's due to partners fighting.  One major issue is not having clear expectations of who is going to do what in the business and how decisions will be made.

Jeff S. · Answer

You certainly want the first right to purchase when one dies too. Having heirs as partners not a good thing.

Tom Juhn · Answer

I had a situation where I wanted to sell the property when my "partner" did not. I threatened him with a partition lawsuit to sell it.   Any owner of the property can force the sale as the first right of refusal goes to the other owners. Nobody can make own a building when you do not want to own it.

Dale Osborn · Answer

You would need to hire an appraiser to set a value on the property. Whether it is fair or not depends on the individual conducting the appraisal as well as the data or comps it is based on.

Matt Liu · Answer

Thanks for the advice!
So how about if I do a 4 year time frame. Plus I can say anyone can technically force dissolution at any time (since the Act I mentioned makes it so anyway) but I guess we will each just acknowledge the fact that such dissolution will cause some headache over appraisal and legal fees  - and therefore we prefer to stick to the 4 year plan.

By the way, how do you get a fair appraisal in the case of dissolution?

Dale Osborn · Answer

The time for answering this type of question is when you are drawing up your partnership agreement. Everything needs to be covered so there is no fighting, bickering or finger pointing at a later date.

Jeff S. · Answer

Matt, with any contract you want an ending date. If you did a buy and hold you could say 5 yrs. at which time you liquidate. Obviously, if you both, or however many, wanted to renew the partnership you can. If one wants out then the other would have an option (first right of refusal) to purchase it at whatever price the market would bare at that time if placed on the market, or for an appraised value if that is what you agree on.

James Vermillion · Answer

This is really going to depend on what type of partnership you form and for what purposes.  For instance, I have a partnership where we formed a business and work multiple projects out of that business, meaning any dissolution could get complex since we could have multiple projects going on simultaneously.  Knowing this, we tailored our operating agreement to include rules to work within this structure.

The dissolution should be clear and understood by all partners and defined in the operating agreement. We do not have a set time for when a partner can opt out, but we do have rules and guidelines for how to proceed if and when a partner decides to dissolve the partnership.

J Scott · Answer

All my partnerships have been project specific, and relating to a project that has a pretty well-defined end time (like a rehab/flip).  Everyone stays in until the project is over.

Sorry if that doesn't help much...

Matt Liu · Answer

I see. So how do you handle the exit issue in your partnerships? Do you make the rules such that the person who is managing the asset controls the deal and when it will be sold period? Or do you set dates for partners to have the option to get out, like "anytime after 3 years", or "every two years", something like that?

Partnership Agreement - Who Can Decide When To Sell?

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