Due to changing investment strategies and difficulties experienced by first home buyers trying to enter the market, joint venture arrangements are becoming more common. You might be purchasing a property with a family member, a friend, a colleague or with someone you’ve been introduced to by a financial adviser. In all circumstances – no matter how good the relationship – we recommend that you enter into a joint venture agreement with the other party (or parties, if there’s more than two of you) to limit the possibility of arguments arising in the future that can often only be resolved by expensive and time consuming litigation.
We often hear clients say, “It’s fine, we’ve already said we’ll sell if one of us wants out, we don’t need a formal agreement.” We invariably tell those clients that we disagree. You need an exit strategy. What if one of you is injured or becomes unemployed and can’t pay your share of the mortgage? What if one of you needs to sell to free up money to buy another property with a new partner or spouse? What if one of you just decides it’s no longer an investment you want to keep? What if? What if? Unless you’ve got a joint venture agreement or something similar in place, the only option you have if you want to force a sale is to seek those orders from the Supreme Court under section 66G of the Conveyancing Act 1919 (NSW).
What happens if one of you wants to buy out the other’s share instead of selling? How will you agree on a value? What timeframe will be allowed to refinance? Again, if these matters aren’t agreed upfront, any disagreements can only be resolved by an application to the Supreme Court.
And it’s not just the exit strategy that should be considered. Who will be living in the property? Who pays the outgoings and in what shares? What if you both aren’t living in the property? Who receives any rental proceeds and in what shares? What is the procedure for deciding whether the property will be rented and to whom? What happens if one of you decides to manage the renting and cleaning of the property – will you receive remuneration or reimbursement?
These are all questions that, in our experience, are far easier to answer and agree at the outset when everyone is happy and looking forward to a fruitful future investment. That’s why we always recommend that our clients take the time to formalise these, and a range of other, issues in a joint venture agreement to ensure that everyone’s expectations are clear and can be more easily managed within known boundaries going forward.
The above is not intended as legal advice. You should obtain legal advice in relation to your own specific circumstances.