Joint Venture In Property Development Guide

Are joint ventures (JVs) a good option for your next development? Usually a partner brings something you need, such as access to finance, or experience of a type or scale of scheme you have not done before. In return, they get the opportunity to make a profit, and both sides may build a longer-term relationship. The right JV partner can create a collaboration that benefits everyone.

When is a JV the right option?

If your next development is beyond your financial capacity, or you want to grow into larger schemes where you don’t yet have a track record, a JV is worth exploring.

Example 1: access to finance

A developer wants to build a block of 9 apartments. Cash flow and current projects limit their ability to fund it, but they have a track record of similar schemes.

Potential partners:

• An investor with local market knowledge who wants to invest in the area
• A finance company providing equity to developers
• A funder seeking a higher return through a share of profits

Benefits:

• Greater access to funding and a larger pool of investors
• Equity from a finance company
• The funder funds and the builder builds
• Shared risk and shared profit
• Security for the funder, first in the land and then in the buildings
• The potential for future schemes together once trust is built

Example 2: stepping up in scale

A developer that usually builds blocks of around 6 apartments wants to deliver a scheme of 15 houses, but cannot yet show experience of that type and scale.

Potential partners:

• A building contractor with a track record in this type of construction
• An architect or project manager with the right expertise
• Another developer bringing the missing skills

Benefits:

• Access to the right skills for the specification
• Reduced perceived risk for funders
• Shared risk
• Profit sharing
• The potential for future schemes together

In practice, many JVs combine several parties, such as developers, architects, builders and finance houses, each bringing a different skill set.

Things you might not have thought about

Take legal advice before signing a JV agreement, which is a legally binding contract. It should set out who is responsible for what, how expenses are agreed and deducted, and how profits are shared. Also consider:

Confidentiality: a confidentiality agreement protects shared information, with non-competition provisions for when the JV ends.

Data protection: decide what personal data the JV will process and whether each party processes data separately, given UK GDPR obligations.

Copyright licence: make sure the parties who need it have a licence to use the project designs and a contractual link to the designers.

Services to the JV: if one party provides services to the JV, record the terms and obligations clearly and transparently.

What could go wrong: discuss worst-case scenarios and agree in advance how you would deal with them.

Tax: take advice from an accountant or tax specialist on the right structure for your circumstances.

Early exit: set clear rules on valuing and transferring shares if a party wants to leave early, to avoid disputes.

How to structure a JV

All JVs share the same principle: two or more partners pool their expertise (finance, design, build) to deliver a project efficiently. The common structures are:

• Development agreement
• Limited company (SPV)
• Partnership
• Limited liability partnership (LLP)

Development agreement

A contract, typically between developers, landowners, purchasers and funders.

• The agreement should set out how debt liability is shared and in what proportions, which are not always equal.
• It does not create a legal entity, so it can be harder to raise funds, and the parties cannot collectively own assets.
• Profits are taxed individually.

Limited company (SPV)

The most common JV structure is a private limited company set up for a single development, often called a Special Purpose Vehicle (SPV).

• All parties become shareholders.
• It is a legal entity that can own and sell assets, and shares can be sold when the project completes.
• There are compliance responsibilities and administrative costs, and guarantees may be required for further funding.
• Corporation Tax is payable by the company, and individuals are also taxed on what they receive.

Partnership

Two or more parties agree to undertake a development together. It is less formal than other structures.

• General partners usually have unlimited liability for the whole project.
• Limited partners are usually not allowed to take part in management.
• Raising additional funding can be difficult.
• Profits are taxed on an individual basis only.

Limited liability partnership (LLP)

A mix of a company and a partnership: a separate legal entity with limited liability for each member, but profits taxed individually. There are administrative requirements, but it combines benefits of both.

Before you go ahead

• Do you trust your prospective partner?
• Have you spent time getting to know them?
• Do you want your involvement kept confidential?
• Who is liable for what?
• Have you fully assessed and discussed the risks?
• Do you have a contingency plan?
• Have you taken legal advice?
• How binding is the agreement?
• How would losses be divided?
• Might you need further investment part way through?
• Who manages the project day to day?
• How is profit split?
• Have you taken tax advice?
• What is the exit strategy?

Final thoughts

For developers, a JV can unlock finance and let them run more schemes side by side. For investors and landowners, it offers involvement in development without managing construction day to day. Well structured, it is a collaboration that benefits everyone.

This article is general guidance only and does not constitute legal, tax or financial advice. Take professional advice before relying on it.