A Henry Stewart Briefing

The Documentation of Property Joint Ventures

Chairman

Julien Allen
Partner
Olswang

Speakers

Kate Binedell
Senior Associate
Berwin Leighton Paisner LLP

Jonathan Cantor
Partner
Nabarro

Amy Collins
Senior Associate, Corporate Real Estate
Olswang

Andrew Elliott
Senior Associate
Nabarro

Joseph Kagan
Senior Associate
Berwin Leighton Paisner LLP

Malcolm MacDougall
Partner
DLA Piper UK LLP

Carole Peet
Real Estate Litigation Partner
Eversheds LLP

Iain Redford
Partner
Bristows

Mark Sellers
Partner
Field Fisher Waterhouse LLP

James F Wilkinson
Partner – Europe & Middle East Corporate Group
Reed Smith Richards Butler LLP

Programme

The legal structures and documents
• Commonly used structures
- Partnerships (including limited partnerships and limited liability partnerships)
- Unit trusts
- Trusts of land
- Limited companies
- Contractual JVs
• Differences between structures, including:
- Flexibility
- Liability
- Control
- Confidentiality
- Tax treatment
- Regulation
• Considerations in choosing structure, including:
- Purpose of JV
- Nature of parties
- Funding
- Control
- Exit
- Decision-making
- Liquidity and new investors
• Core Documentation
- Partnership agreement
- Trust instrument
- Articles of association
- Co-ownership agreement
- Members’ agreement
- Management appointments

Common drafting issues and how to address them
• Consents of parties/discretion
• Deadlock
• Protection of minorities
• Investments/provision of finance
• Third party funding
• Transfer of interests and exit provisions
• Management and allocation of responsibilities
• Default events including insolvency/material breach etc.
• Protection of interests including non-compete, change of control
• Business plan/budget/fees and expenses
• Investment strategy/policy

The legal position between the JV partners: Defining and allocating roles in the JV
agreement
• Contributions to the JV – resources, expertise and funding
• Operational structure and governance – management and decision-making in a strategic and day-to-day context
• Control issues – apportionment of risk and investor protection
• Case study – a residential development JV

Effective exit mechanisms
• Important to consider the method of exit at the outset. Need to consider:
- Purpose of the joint venture
- What are the objectives of the parties
- In what time frame
- Relative economic power of the joint venture parties
• Methods of exit:
- Agreed sale of the whole
- Listing
- Pre-determined put or call option (e.g. to allow one party to exit – after a defined period)
- Sale by one party to third party (pre-emption rights, drag along, tag along)
- Russian roulette
- Texas/Mexican shoot out
- Winding-up
• Exit due to default:
- Compulsory transfer
- Put and call option
• Important mechanical considerations:
- Timing
- Sufficient notice to obtain funding
- Valuation methodology
• Other considerations:
- Restrictive covenants
- Potential regulatory filings
- Repayment of loans
- Release of guarantees

How to ensure the contractual allocation of roles and responsibilities takes place: Making certain that the JV agreement is enforceable
• Defining the nature of the project and relationship of the parties
• How to apportion risk
• Drafting considerations on the duration of the venture
• Providing for enforceable rights of pre-emption

Step-in rights, due diligence procedures and default/insolvency provisions
• Due diligence - why is it necessary?
• Choice of partner
- Financial standing
- Conflicts of interest
- Expertise
- Relative strengths
- Mutual trust and common objectives
• Understanding objectives at outset
- Risks/returns
- Structure
- Funding strategy
- Roles
- Control
- Intentions
• Documentation
- Rights and responsibilities
- All eventualities
- Step-in rights
- Exit plan
• When things go wrong – default/insolvency
- Provisions for remedy
- Scope for step-in/replacement
- Damages
- Termination
• Termination
- Consensual termination
- Transfer of interest
- Compulsory sale
- Winding-up
- No exit
• Consequences of termination
- Funding
- Guarantees
- Assets

Day-to-day running of the JV: What the agreement must cover
• Allocating the roles of the parties – regulatory issues
• The principal documents governing the management of the JV
• Defining the business and restricting the activities of the joint venture parties
• Board and shareholder representation/Veto rights
• Financial reporting and funding
• The role of the Asset Manager
- Defining the services
- Delegation
- Fees
- Termination of appointment
• Resolving disputes before it's too late

Contractual mechanisms for resolving deadlocks/dispute resolution procedures
• Pre-contractual claims – applying the principles in Banner v Luff
• Is the deadlock real or artificial?
• The uses and limits of explanatory memoranda
• Do Independent Expert and Arbitration clauses make sense?
• The relevance of mediation
• Russian roulette and Texas shoot outs
• Is litigation ever the right answer?