BY ISHI KALSI
Development in property is booming in Nairobi. While outrightly selling a property to a developer is the best option, it is not the only option. A land owner and a developer can get into a joint venture to develop the property with a win-win situation for both parties.
A Joint Venture (JV) in real estate is a kind of a partnership which involves two or more parties pooling their resources, expertise, and capital to develop a property.
There are two kinds of Joint Ventures:
1. Contractual – This is where parties enter into a contract to work together and document their working relationship.
2. Corporate – This is where the parties form a corporate entity, such as a company or a limited liability partnership, to pursue their common interest.
The advantages of a joint venture agreement include:
1. Risk sharing in high-capital industries –
Joint ventures allow for shared risk and access to diverse expertise, leading to more successful projects.
2. Enhanced capital pool and financing credibility – Pooling resources enables larger-scale projects and diversifies investment portfolios.
3. Expertise and knowledge – With joint ventures, the expertise and knowledge is professional sought out and paid through the pool of joint ventures rather than one person paying for the cost of experts.
A joint venture agreement should essentially contain the following:
1. Description of the parties – Just like any other agreement, a joint venture agreement must have a description of the contracting parties.
2. Objectives and scope of the agreement – The agreement should contain the reasons for entering into a joint venture, that is, what the parties intend to achieve by the joint venture.
3. Inclusion of consultants – It is important to name and define expert consultants that are required within the joint venture for example architects, contractors, valuers, engineers, surveyors, et cetera.
4. Transfer of land to the development company – Ordinarily, the title of the land is transferred to the developer or the joint valuation company. In such an instance, it is important to ensure that the status of the transfer is captured in the agreement.
5. Capital contributions – The agreement should contain the capital contribution of each party.
6. The resources to be shared – The agreement should contain the capital or resources that each party is investing and how the pool of resources will be shared between the parties.
7. Profit and loss sharing – The agreement should contain the arrangement of how profit and loss would be shared between the parties.
8. Project financing – The agreement should contain clauses of financing especially if the project is being financed by a bank or a third-party financier.
9. Rights and duties of each party – This is a crucial clause which should contain all the rights, duties and obligations of each party.
10. Dispute resolution – Parties must also include a clause on dispute resolution in the event of conflict.
The views expressed in this column are of the columnist and do not necessarily represent the views of The Asian Weekly, its management or staff.
*The views expressed in this column are of the columnist and do not necessarily represent the views of The Asian Weekly, its management or staff.*