Joint Ventures

From: Buzz .

A lot of property guru's talk about joint venture
partnerships. It all sounds good in theory. Hence it
seems a good idea - grab a few people together and do
what needs to be done. We have had very good reno,
refinance and hold experiences so far and have been
approached by many family and friends wanting to jump
on the wagon. Obviously there would need to be
contracts and negotiations to do this.

Now to the question - has anyone done this
successfully? If so our lawyer contacts have little
idea how to start with this so I am wondering if those
who have ventured there know of solicitors who have
set up such an agreement and can make recommendations?

Sorry guys for ammended post.

"To Infinity and Beyond" Buzz Lightyear
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Reply: 1
From: Dale Gatherum-Goss

Hiya Buzz!

Be careful. Joint ventures worry me because of the possible legal implications if the debt is not paid. To me, they are similar to Partnerships . . . so, get good advice (as you are looking for here) and structure the purchase properly.

Have fun and good luck

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Reply: 1.1
From: Mike .

Hi Buzz,

Followers of Henry Kaye's methods usually form a syndicate and purchase in bulk. Some of them subscribe to this forum and may offer suggestions.

My preferred option is to find a local law firm that is qualified to do what you want. So go to the NSW Law Society website and use their search engine to locate a firm in your area. If you click this humungous link you should get a list of Sydney city firms who are qualified in business structures and commercial real estate.

When you meet them, show them this article and tell them you don't want this or anything like it happening to you.

HAVING TO PAY STAMP DUTY CAN CAUSE headaches and financial pain for our clients. It is guaranteed to create very real problems for solicitors when they advise clients that they will only be liable to pay nominal stamp duty and the Commissioner of State Revenue subsequently determines otherwise.

The recent experience of a solicitor who prepared a joint venture agreement for a corporate client is a salutary reminder about the need to carefully draft documents to avoid unnecessary disputes about stamp duty with the Office of State Revenue. Fortunately, LawCover was notified as soon as the solicitor was informed that his client would have to pay a substantial amount in ad valorem duty. With the prompt assistance of a stamp duty specialist in one of our panel firms the issue was successfully resolved and LawCover's client was very happy with the outcome.

Let's briefly review the facts.

Under a deed of settlement dated 30 January 1998 the company became a trustee of a unit trust. As trustee it entered into a contract to purchase a commercial property for almost $5 million and normal ad valorem duty was paid on the agreement.

After entering into the purchase agreement the company entered into a joint venture agreement and joint venture management agreement. The client was informed that the joint venture agreement would be subject only to nominal stamp duty of $10. Working on this assumption, the solicitor did not ask the client to return the documentation without delay.

Eventually on 25 May the joint venture agreement was taken to the Office of State Revenue which assessed that it was a declaration of trust and therefore attracted a liability to pay ad valorem duty of approximately $258,000 based on the value of the property. A penalty of 25 per cent was also imposed for delay and the Office advised that a further penalty of 100 per cent would be payable if the duty was not paid by 29 May.

LawCover was immediately notified and our stamp duty specialist was able to negotiate an extension of time without penalty to enable submissions to be prepared as to why the claim for ad valorem duty should be reassessed.

The clause in the joint venture agreement which created the dispute stated: "The Trustee will purchase the Property for the Purchase Price and will hold the Property as trustee of the Trust."

The New South Wales stamp duties legislation requires duty to be paid on declarations of trust. It is calculated at ad valorem conveyance rates and is imposed on the value of the land. The following three key requirements must be satisfied for liability of ad valorem declaration of trust stamp duty to arise:

There must be a "declaration of trust".
The property the subject of the declaration of trust needs to be identified.
The declaration of trust needs to be in favour of a person or persons or purpose or purposes.
Fortunately, the Commissioner accepted the submissions made on behalf of the company that the agreement was one between the joint venturers to regulate their relationship between themselves and other unit holders in the trust. The "declaration of trust" simply stated that the property was to be held by the trustee as trustee of "the trust" and did not identify any person or persons for whom the property was to be held on trust.

The claim for ad valorem duty was withdrawn and the documents were duly stamped and returned to the solicitor.

The risk management messages?

A reference in a document to property being held on trust can raise significant stamp duty concerns.
Take particular care when drafting the terms of joint venture agreements to avoid disputes with the Commissioner of State Revenue.
Contact LawCover without delay when you become aware of a circumstance that could give rise to a professional negligence claim. In many cases we will be able to help you rectify the problem before it becomes a disaster.
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Reply: 1.1.1
From: Tibor Bode

Hi Buzz,

It is vitally important to go into a JV only with people you can trust. I am currently doing one JV (50% share) on a property with my best friend for over 22 years, but would be very careful if I have to deal with someone I do not know and would not trust.
Even in a very trusting (needs people with integrity above greed) relationship, it is very important to agree the details, like entry, ongoing and future exit strategy (all preferably in writing and signed for future reference)to ensure that the JV will work and friendships will not be demolished. The JV is a business and has to be treated as one.

This is only my personal opinion.

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From: Michael Yardney

HI Buzz
You are right. There is strength in numbers and joint ventures will allow you to get involved in different type of deals that you wouldn't be able to do on your own.
It's a different market place when you are buying groups of units or development sites worth over $1million compared to the first investors type market.
As Dale explained a joint venture IS really a partnership in the eyes of the law and the tax man and you can each be liable for each others debts, definitely in the joint venture and possibly even outside it (but please get advice on that aspect.)
We project manage property developments for quite a number of joint ventures. Some of what we do may give you a starting point-
Our JV's are run by a large legal firm and each joint venturer must sign a 30+ page joint venture agreement that protects them from each other. This costs us tens of thousands of dollars to get right so that it is approved by each joint venturer's solicitor and all the banks and accountants.
The agreement explains everyone's obligations and responsibilities.
We also have onerous financial checklists in place to ensure that each jv partner has the finance in place and puts all the finance required for the project plus the interest up front so as not to cause problems during the project.
So in summary, JV's work well if conducted properly, but can be expensive to set up correctly.
Even if you do set one up, an important consideration is - have the partners got the knowledge required to handle the type of project or investment you are now dealing with. These are now much bigger deals with potentially bigger rewards, which usually means bigger risks.
Michael Yardney
Metropole Properties
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From: Buzz .

Thankyou all for your very informed and wise words, I do appreciate the effort you put in to the reply and always keen to hear more.

"To Infinity and Beyond" Buzz Lightyear
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