8A — August 26 - September 15, 2016 — Commercial Real Estate Law — M id A tlantic
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ou and a colleague have i den t i f i ed a cherry property to ac- By Jeffrey L. Silberman, Esquire, Kaplin Stewart Meloff Reiter & Stein, P.C. So you want to be partners? The short-list of issues to consider Y
of the Company, but certain major decisions require the approval of all or some super majority of the partners, and (3) decisions require the con- sent of some stated percentage of the partners or percentage interests. Major decisions are typically (among others) whether to sell the asset, obtain financing, admit new partners and sign contracts for the Company over a certain dollar amount. Of course, every answer to a question leads to another, so the next question is, what happens if the partners can’t agree on a decision that re-
getting into the conflicts of interest issues, which is an ar- ticle of its own and which will be discussed very briefly at the end of this one, there are a few important points that partners need to vet before going into a joint venture. To set some pa- rameters, this article assumes a basic joint venture with part- ners contributing fairly equal dollars and services. The first question I ask the partners is, how will the com- pany be managed? The usual options are: (1) all decisions require unanimous approval, (2) one or two of the partners manage the day-to-day affairs
quires some level of consent (known as a “deadlock”). One option is the partners submit the deadlock to arbitration or mediation by a person or persons with expertise on the subject matter of the dispute. Another, more drastic, solution is the parties have a buy/sell right. One such right, known to some as a “Texas buyout” is where one partner offers to purchase the other’s interest for a stated amount, and the other partner can either ac- cept the offer and sell, or turn the tables and buy the offering partner’s interest for the same amount. The theory is the of-
fering partner will not lowball the other because, if it does, it risks being bought out at the lowball number. Another solution is the parties simply do nothing. Another sticky issue is deal- ing with the possibility that the venture needs money when loan funds are not avail- able. In that event, are part- ners obligated to come up with more money and, if so, what happens if someone does not fund their share? The usual remedies for failure to fund is that the other, funding part- ners, have the right to fund the “defaulting” partner’s share, and that amount is treated like a high interest loan. Tak- ing it one step further, in some instances the defaulting partner’s percentage share is reduced by some agreed upon formula. As with everything, there are problems inherent in this remedy (again another article). Finally, an important issue concerns the ability of part- ners to transfer their interests. Inmost partnerships, partners that are familiar with each other do not want an unrelated partner, so transferring part- nership interests is restricted. However, transfers to family members and trusts is typi- cally allowed. In the case of death of a partner, the inter- est can transfer to the estate, but the parties need to decide if the remaining partners should be stuck dealing with an estate, the trustee or repre- sentatives of which may have no experience at all with real estate, when decisions need to be made. There are a host of other is- sues that need to be resolved, but partners could have op- posing views on certain basic points, all depending on their relative financial capabili- ties, age, experience and risk tolerance. An open discussion should be had before any pen is set to paper, which brings up the last point. Two members of a joint venture, while they could be childhood buddies, each have their own interests. I would be remiss if I did not say that partners should be encouraged to have their own, separate counsel. Leave it to the lawyer to kill the party! Jeffrey L. Silberman, Es- quire is prinicpal at Kaplin Stewart Meloff Reiter & Stein, P.C. and a member of the Real Estate Transac- tions Department. n
quire and you come to your trusted attor- ney to draft a “ s imp l e ” joint venture agreement. The di sap- pointment is obvious from
Jeffrey Silberman
your voice when I tell you there some issues we need to discuss and that you and your colleague may actually have differing (aka conflicting) posi- tions on those issues. Without
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