It is becoming increasingly common, as a result of the scarcity of traditional debt finance for development projects, to look to some form of joint venture arrangement to facilitate the development of residential property projects.
A joint venture can take a variety of forms but broadly involves any arrangement where two or more parties agree to co-operate and combine resources to carry out a development. Such a project is often a new enterprise, but a joint venture may also be aimed at enhancing the operation of an existing or complementary activity. A joint venture can also spread and dilute risk where the parties typically share the initial investment (including the contribution of finance and/or assets) and share any on-going liability of a project. Typically a property joint venture may involve one party which owns the property and another party or parties which has the finance or development experience required to bring the development to fruition.
The structure used to conduct the joint venture will usually take the form of a private company, a limited liability partnership (LLP), a partnership or simply a contractual agreement between the parties which is often called a collaboration agreement.
Inevitably, a joint venture involves a sacrifice of the control and flexibility which otherwise may have applied had a party undertaken a development project independently. The various forms of joint venture reflect different degrees of integration of the interests of the parties in the joint venture.
When planning the structure of a joint venture, there are a number of issues to be considered. These include for example, identifying the underlying objectives of the parties, the period of time during which it is intended the joint venture will operate, the extraction and pooling of profits, the resources that each party will commit, requirements for employees, decision making, and accounting considerations. The parties will also need to consider whether the structure chosen for the joint venture provides the best tax treatment for each of them as well as for the joint venture itself.