Given the current economic climate, many developers and investors are combining forces to pursue exciting real estate opportunities. At Castle Law LLP, we have vast experience structuring complex relationships for the acquisition, development, ownership, operation, and sale of real estate throughout B.C.
Our attorneys work alongside tax advisors and the opposite parties (and their lawyers and tax advisors), to ensure your real estate partnership or joint venture is financeable and sound.
What is a joint venture agreement in real estate?
In real estate, a joint venture (JV) is an arrangement between two or more parties to combine expertise and resources to bring a land development project to fruition. Many large-scale land development projects are created as a result of joint ventures. Real estate joint ventures are mutually beneficial — they combine the expertise of real estate professionals with the resources of an investor to develop land.
Who is involved in a joint venture?
Typically, real estate joint ventures consist of two individual parties: the operating party or agent, and the capital member or beneficial owner. Daily operations and management of the real estate project is handled by the operating member. Most operating members are experienced real estate agents or professionals who have the insight and ability to locate, acquire, and manage property for land development. The capital member, on the other hand, is generally responsible for financing the entire project or a portion of it. GST and other tax remittances are also be handled by the operating member.
It is important to recognize that with joint ventures in real estate, each individual party is liable for losses and profits from a joint venture. This liability, however, extends only as far as the specific project that established the joint venture in the first place.
What are the most common real estate joint venture structures?
Partnerships, as well as many other business arrangements, can be formed to set up a joint venture in real estate. The type of arrangement chosen will ultimately determine the relationship between the capital provider and the operator.
Most of the time, however, real estate joint ventures rely on the corporation model for land development projects. Once a structure is selected, all parties involved sign the joint venture agreement which lays out the objective of the arrangement, how much the capital member contributes, the ownership rights of the project, how profits will be divided, delegation of operational responsibilities, etc.
What are the key aspects of a real estate joint venture agreement in B.C.?
In Canada, a real estate joint venture agreement involves the following considerations:
- Profit distribution — One of the most important aspects of any joint venture agreement is establishing how profits from the project will be distributed. Keep in mind that not all arrangements will result in equal profits — more active members may receive more compensation than passive parties.
- Capital contribution — Next, the joint venture agreement must detail the exact capital contribution of each member as well as when each amount is due.
- Management — A sound joint venture agreement must explain the structure of the joint venture and the obligations of each party in regard to how the project is managed.
- Exit mechanism — Lastly, the JV agreement must explain how and when the joint venture will conclude. It is imperative that the contract also explain actions or events that may let one or more parties initiate a premature dissolution of the agreement.
What are common reasons to form a joint venture?
Parties interested in real estate development projects in B.C. may wish to form a joint venture for the following reasons:
- Complements — Joint ventures work because two or more parties bring value to the table. For example, a real estate operator has the industry experience and expertise for a land development project, but may lack the funds to get started. A limited partner can provide the capital needed to break ground.
- Incentives — Managing partners are the ones on the ground, getting their hands dirty with day-to-day operations. As such, it’s common for them to receive disproportionate returns to ensure they are motivated to work on the project.
- Structures — In the event that the partnership assets are liquidated, investors possess limited liability as well as liquidation preference.
If you are interested in forming a joint venture to develop land or property in Vancouver, be sure to consult with an experienced attorney first.
Contact Castle Law LLP, for assistance with joint ventures in B.C.
At Castle Law LLP, we are committed to helping your next joint venture or partnership in real estate find success. From drafting and reviewing agreements, to vetting potential partners, our lawyers offer comprehensive legal support for complex structures like partnerships and joint ventures. To speak with an experienced attorney about real estate, joint ventures, or tax issues, call or contact us online.