Joint Ventures for Real Estate

It seems like everyone is talking about joint venture partnering for real estate.
It is a great strategy for property ventures because two heads are better than one.

Why?

Because everyone is different!

No one is good at everything.

Some people know how to spot a property bargain. Others know how to add value to a property.

Some people know how to find finance to buy property. Others know how to sell a property for top dollar.

Some people know how to renovate a property cheaply and effectively. Others know how to obtain owners permission to renovate straight away.

If two people combine their knowledge and their money in a property venture, they will often achieve more as partners than they would achieve on their own.

These two people are joint venture partners in a property joint venture.

Video: How do Joint Ventures work for real estate

The Investor’s Guide to Joint Ventures for Real Estate.

Click here for the Guide

It covers

Four situations where property joint ventures will lead to better real estate profits than going it alone
The bones of a joint venture agreement
Where are the contributions made and the profits taken in a joint venture?
Which is the best legal structure for a joint venture?

Did you know that joint ventures started in the coffee houses of London in the 1750s?

Video: How Joint Ventures Began

Joint adventures flourished in the London coffee houses in the 1750s.

Picture the scene in Edward Lloyd’s coffee house - merchants, shipowners, bankers and insurers are earnestly planning an expedition to trade textiles, slaves and sugar. They sip their coffee. They agree to risk their funds and use their skills to make a trading profit. It is an adventure, which as Dr Samuel Johnson defines in his 1755 dictionary - is an enterprise where something is left to hazard.

The English common law called these trading enterprises joint adventures.

The ship might set sail from Liverpool with a cargo of English textiles and arms. First port of call might be in the Niger Delta in Africa. From there, the ship might sail across the Atlantic Ocean on the trade winds, with a cargo of African slaves for the sugar plantation owners in the West Indies.

The ship might sail home to the West India Dock in London with its precious cargo of Jamaican rum and sugar, taking care to avoid the ruthless pirates of the Caribbean.

The joint adventurers would share the profits, and as a bonus, would use the sugar to sweeten their coffee, or the new sensation from the Orient – tea.

Above – the gate to the West India Import Dock, Docklands, London – which opened for business 1st September 1802

Right – a joint adventure being planned in a scene from a London Coffee House in the 1750s

These days, joint ventures continue to flourish, but usually with a little less adventure.

Merchant bankers use capital markets to raise ‘seed capital’ from ‘angel investors’ to invest in businesses ventures. The joint business ventures could be mining projects, research projects or start-up businesses.

But some things never change – it is still possible to plan property ventures over a latté in your local café! And it is still possible to make sweet profits by investing in a property joint venture.

Is a caveat good security for an investor in a property development?

Investors can make good profits by investing in a property development. A common situation is a land owner who owns land which is ripe for subdivision. But they are missing one vital ingredient - the money - to obtain the approvals and to carry out the site work. Click here for more

What happens when a purchaser caveats the property they are buying?

Property vendors are anxious to know what happens when a purchaser registers a Caveat over the property they are selling under a Contract for Sale.

They ask: Will the Caveat derail the sale and what should I do? This is a guide.

First: Why has the purchaser registered a Caveat? If it is because they have released the deposit to the vendor or if settlement is deferred beyond the standard time, then it is perfectly justifiable for a purchaser to register a Caveat, provided they have been granted a 'caveatable interest' in the Contract for Sale.

Second: How does the Caveat affect the vendor? Anyone searching the title will see the Caveat - if they are a lender, they will not lend more money to the vendor; if they are another purchaser, they will not enter into a Contract of Sale with the vendor; unless the Caveat is removed. So a Caveat restricts the vendor in refinancing or re-selling the property.

Third: Is there a dispute with the purchaser? If there is no dispute, then the purchaser is using the Caveat to legitimately protect their interests, and will come to settlement with a Withdrawal of Caveat. But if there is a dispute, the purchaser is using the Caveat as a bargaining chip against the vendor. If so, the vendor needs to take action.

Fourth: What action can a vendor take to remove the caveat? The process is called lapsing the caveat. The vendor serves a lapsing notice which gives the purchaser 21 days (in NSW) (14 days in Qld) to apply to the Supreme Court to maintain the Caveat on the title. If the purchaser does nothing, the Caveat will be removed from the title by the Lands Registry.

Fifth: What happens if the purchaser goes to Court? For a vendor, the most significant part is that the purchaser must 'proffer an undertaking as to damages' which means that they accept responsibility to compensate the vendor for all losses, if the court agrees to maintain the caveat on the title until the dispute with the vendor is determined by the court.

In a recent case before the Supreme Court of NSW, the purchaser applied to maintain their caveat. But when the moment came, they refused to accept responsibility for losses the vendor might suffer. As a result, the Court ordered the Caveat be removed and the purchaser pay the vendor's legal costs of going to court.

For my case note click Will a purchaser's caveat stand without an undertaking as to damages?