This is a two part blog series. In this, Part 1, I write about some basics of what are the important issues that make for a successful property joint venture . In Part 2, which will be published soon, there are two case studies showing some examples of what can go wrong in a property joint venture. Remember to join my mailing list or subcscribe to my RSS feed for notifcation of when Part 2 is published.

"May you live in interesting times", according to Wikipedia, “is an English expression which purports to be a translation of a traditional Chinese curse (albeit the actual Chinese curse can’t actually be found!). While seemingly a blessing, the expression is normally used ironically, with the clear implication that "uninteresting times" of peace and tranquility are more enjoyable than interesting ones, which, from a historical perspective, usually include disorder and conflict.”

As we continue to suffer the economic malaise prompted by ‘that original sin’ - the referendum on whether we should Brexit, Section 24 and the SDLT surcharge: we’re certainly living in interesting times! (There, I said the ‘B’ word right at the beginning and got it out of the way - now, can we move on? LOL!)

I have lived through the Asian Tiger crisis (of 1997/8) and the Credit Crunch (during which I launched a new law firm which kept on trading for 10 years until I merged it with my current firm, rhw Solicitors LLP). Why do bad economic times always have interesting names? Ah yes, interesting times call for interesting names! (Technically, I lived through the recession of the early 1980s too but I wasn’t even a teenager then and my younger years are a chocolate & coconut candy fueled haze so I don’t recall much of it!)

Interesting times tend to highlight the worst in humanity. This Brexit economic malaise is no different. During the Asian Tiger crisis, businessmen jumping off tall skyscrapers, having lost their fortunes in the stock market crash and an increase in crime featured in the daily news cycle. Now, I am seeing an increase in property joint ventures (“JV”) straining as the weak property market highlights the cracks in joint ventures. In this article, I cover two recent case studies.

First, some basics. I recently ran a webinar on the fundamentals of successful property joint ventures and the pitfalls to look out for. In that webinar, I highlighted quite a few issues to consider and the following is just a short extract from that:

• The chemistry, values & personality of your potential JV partner, before entering into a JV with them

• Especially important from that is your assessment of how your JV partner is likely to behave when the proverbial hits the fan - and the proverbial always hits the fan in business!

• What is your potential JV partner’s credit standing - have they given personal guarantees everywhere so that when all are tallied up and added to the liabilities part of their assets & liabilities statement, they’re actually over-extended?

• Is their personal life stable & happy? What would happen if your JV partner went through a divorce and half their assets, including their share in your joint venture was to be handed over to their ex-partner? Are you happy having a new JV partner? [(This scenario actually happened to a client-friend of mine and the fallout has been spectacular. Even a hole in the roof that is causing severe damage to the property cannot be fixed because the JV is paralysed! I may write about that in another edition.)]

• Is your JV partner in good health and have a healthy lifestyle? What if your JV partner was to kick the bucket - do they have a business will in place that will deal with their share in your JV? Did you have any say in how their business will was drafted so that you can control what happens?

• What factors do you need to consider before deciding on the right structure for the joint venture? Most property investors I come across tend to presume the Special Purpose Vehicle (‘SPV’) limited company is the best structure but I know from experience that in many property projects, this may not be the best structure to use.

(If you would like to watch the replay of that webinar on my Training Academy)

The difficulty I come across is that when the prospective client approaches me to draft a shareholders agreement or joint venture contract, a lot of time has been spent courting the JV partner, making the property deal stack and formulating a plan to turn a profit from the property deal. The JV partners are thus keen to ‘just get on with it’ but also know (sometimes in the back of their mind) they should have ‘something’ in place before they get going on the JV fully and money changes hands. There is thus some time pressure to turn this around.

At the start of the JV project, when everything is very hopeful and positive, JV partners don’t like to think about failure and the ‘when the ‘proverbial’ hits the fan’ moments. Instead, they think the solicitor tasked with drafting the JV contract is a ‘neg-head’ (to borrow the rather uncouth social media parlance) and is ‘trying to put roadblocks’ on the JV. Accordingly, despite being advised on the various due diligence matters to carry out, the JV partners just want to ‘get going’ so will usually compromise on quite a few of these, including complying with source of funds/anti-money laundering regulations or fully checking the position on mortgage account - more on that later.

Look out for Part 2 of this blog series when I write about two case studies of JVs that have gone wrong! If you’d like to be notified when that blog is published, join my mailng list.