Do I Really Need a Joint Venture Agreement?

There are many reasons to enter into a joint real estate venture. Getting an agreement can be very important. Many people try to save money by skipping this important step. But, before you do, consider these reasons why you should get a legally binding agreement.

You are entering into a joint venture for a reason. You are spreading out the cost of the project, sharing responsibilities and risks, and dividing the profits. The joint venture agreement is the structure on which you will build your business plan. Everything needs to be outlined, reviewed and agreed upon before you start or the whole project could be a disaster.

Here are some common things that people hear when they enter into a joint venture without an agreement:

“You didn’t tell me that before.”
“I’m not responsible for that cost because you are the one that was supposed to have this figured out.”
“I’m doing a lot more work than you are.”
“I should get a larger share of the profits because I contributed more assets and expertise than you did.”
“My profit margin should go up because the value of the land I provided went up significantly.”
“Your company contributed more, so you should be the one to go down when the bad press hits.”
“If you want to do things that way, then you can pay for it yourself.”

A thorough development of the ideas is necessary before a successful venture can be executed. One of the reasons to enter into an agreement is to lighten the load of responsibility. It is a lot to handle and if all parties involved do not completely understand a single part of it, then it can only lead to problems. Do your research, try to anticipate problems that may arise, and make sure that all parties are thoroughly educated before you decide to begin.

All objectives need to be outlined in the agreement. The contributions made by each party should be determined. Financial responsibility needs to be concisely written. Who will do what type of work needs to be clearly determined. You need to agree upon how you will settle disputes. Additionally, you should decide under what circumstances the joint venture will be terminated and who is liable for what costs in that event.

Going through this process together will help you to realize different expectations, attitudes, strengths and weaknesses, and management styles. Tackling these important issues will help you to determine if the joint venture is a profitable idea or not. You will most likely need many meetings before an agreement is met. Be patient and be sure that the agreement is profitable and manageable for everyone.

If you are unsure as to whether or not you want to enter into a joint venture agreement, consider all of the arguments and time-consuming altercations that can be avoided by simply talking about it and putting it down in a legally binding document before you begin. A real estate investment consultant can assist you in developing your joint venture agreement.