Legal Conditions for Joint Venture Property Development

Developing a property is quite difficult and may exert a lot of pressure on a person’s financial capabilities if not thought carefully beforehand. This is because an owner has to identify and pay for a builder, monitor the whole developing process and ensure all the associated formalities are followed. That is why most developers opt for a joint venture property development to save on all these requirements. However, there are some legal formalities both parties must undertake that guide them through the whole process.

Financing

Most real estate projects require financial intervention of a third party. Such lenders usually require payment guarantees before striking a deal. This means that both parties must provide certain resources as leverage for the loans offered. In this case, a joint venture agreement should ensure that the guarantor’s obligations associated with financing is addressed appropriately. Any obligation associated with future financing, guarantor requirements and treatment of payments should also be cleared in the process.

Share of Ownership

A portion of the site is initially marked for the owner. He has the right to dispose the constructed property set aside for him during the agreement without the consent of the builder. Concurrently, the builder has the privilege of utilizing the land without having to raise money for purchase. The site owner gets a 30% to 40% share of the projects undertaken while the remaining share goes to the builder.

The General Power of Attorney (GPA)

Joint venture real estate requires a site owner to execute an irrevocable GPA for the builder as a procedural aspect. The GPA should be registered and recognized by the relevant authorities in order to be legally binding. There is usually a stamp duty payable in almost every state for this type of GPA.

In the event the builder violates any terms of the agreement covered, the site owner has the right to revoke the GPA. This is because the site owner has the legal obligation to ensure the project is protected, completed and presented on the stipulated time-frame.

Allocation Agreement

After the approval of the construction plan by the relevant authorities, the site owner must get an allocation agreement that covers his share and that of the builder. Once the allocation agreement is in check, the deed of declaration which reflects the area constructed under the agreement is executed.

Management Obligations

The builder is tasked with overseeing the construction process and monitoring other day to day activities of the site. He also has an obligation of ensuring that a third party company involved in the project does its operations according to the agreement. However, the builder should consult with the site owner when executing processes such as admission of new affiliates, re-investing of the profits, refinancing and budget approvals.

Removal of Managing Member

A builder is a managing member in most agreements. However, builders usually cut links after the project is completed and the construction loan guarantees are released in the process. As a result, the owner carries the greatest risk of loss. Therefore, real estate development ventures should provide a clause that clearly defines the circumstances under which an individual can leave the agreement and the conditions that come along with it.

Dealing with Disputes

In real estate development agreements, disputes are sometimes inevitable. In such scenarios, the joint venture agreement must provide clear ways of solving disputes such as arbitration, mediation or formation of a jurisdiction body.

The Bottom Line

In order to satisfy the increasing market demand in real estate industry, both small scale and large scale investors have made joint venture agreements to control the supply-demand deficit. Regardless whether someone ventures in real estate private equity or any other form of real estate investment, the legal bindings discussed above will help avert all the problems and seal all the loopholes.