A real estate joint venture (JV) is a business arrangement between two or more parties to work together and gather their resources and skills to develop a real estate project. The large majority of real estate projects are financed and developed as a result of real estate joint ventures. This legal structure allows the parties to work together: the operating members and the capital members.
The Players in a Real Estate Joint Venture
As mentioned above, most real estate joint ventures are comprised of two parties: the operating member and the capital member. The operating member is an expert on real estate projects and will be responsible for the daily operations and management of the project. The capital member will usually be the party responsible for the financing of the real estate project.
The legal structure of a Real Estate Joint Venture
In most cases, we can see that the operating member and the capital member of the real estate joint venture will together set up the Real Estate project as an independent company which can have the form of a Limited Liability Company (LLC), a corporation, or a partnership or any other business vehicle deemed to be suitable in your jurisdiction. Then the parties will execute the JV agreement which shall stipulate a certain number of key aspects.
Key Aspects of a Real Estate JV Agreement
A real estate JV agreement shall cover the following key points:
1. Profits:
How the members will distribute profits generated from the projects? This aspect should clearly state the compensation distributed to each party.
2. Capital contribution
The JV agreement must specify the exact amount and date of capital contribution expected from each member.
3. Responsibilities and control
The JV agreement must specify in detail the responsibilities of both parties in relation to the management of the Real Estate JV project.
4. Exit mechanism
Finally, it is paramount for a JV agreement to cover the termination of the JV and the dissolution of the company.
