Joint venture oppotunity
A joint venture (JV) refers to a business arrangement under which two or more parties come
together to undertake a project by pooling their resources together. In their most distinctive
form, real estate joint ventures combine the real estate development expertise and financing
capability of a developer with the landowner’s contribution in the form of land.
The Joint Venture Process
The following are the steps involved in a joint venture;
Project Appraisal - The first step always involves appraisal and usually begins with a site visit
by the developer to identify the location of the property, its accessibility, the availability of
infrastructure, the soil type, the terrain and other factors that affect development. The developer
will then conduct a feasibility study to establish the best use of the property, project costs,
revenues and the resulting potential returns from such an investment,
Project Proposal - The developer will then come up with proposal for the landowner
showcasing the proposed concept, the budget, the revenues and the profit-sharing between the
two parties,
Legal Due Diligence - When the landowner accepts the developer’s proposal, they are
required to avail copies of the land title deed and deed plans for verification by the developer’s
advocate. The advocate will conduct a search to establish the authenticity of the title deed, true
ownership and that the land is free of any encumbrances. A surveyor will then be engaged to
verify the beacons on the ground and confirm acreage on the title compares with the one on
ground,
Signing of Agreements - Once due diligence is complete and is satisfactory the developer
drafts a Joint Venture Agreement (JVA) and sends to the landowner’s advocate. Of the many
challenges inherent to a JV, an agreement outlines all possible scenarios that might be a source
of conflict and forges a path forward in the event that anything does not go according to plan.
The following are some of the common clauses found in a JVA:
The capital obligations of each party,
The partnership management structure,
The rights and responsibilities of each party,
Exit rights and transfer rights with respect to the sale or transfer of membership interests in the
JV,
The downside protection for the land value contributed by the landowner, and
The profit sharing mechanism.
Both parties sign the Agreement once they agree to the terms and conditions laid out.
Formation of a Special Purpose Vehicle (SPV) - Upon signing of a JVA, a special purpose
company is formed with the aim of fulfilling the objectives of the JVA. The company is then
registered as a private Limited Liability Company (LLC) or as a private Limited Liability
Partnership (LLP) by the registrar of companies.
