Balancing Flexibility and Protection: Joint Venture Transfers in Commercial Real Estate

In today’s commercial real estate market, parties increasingly require flexibility when transferring their joint venture interests. Well-crafted transfer provisions can be critical to protecting liquidity, aligning diverging partner objectives and safeguarding the long-term performance of a project.

Here are five considerations for parties negotiating transfer provisions in joint venture agreements:

1. Related Party Transfers. Attention to detail is key when negotiating these provisions. Parties should consider all of the various permutations of related party transfers that they may need to undertake in connection with a particular joint venture.
2. Third-Party Acquisitions and Dispositions. Exit rights should be fully considered in light of evolving market conditions and the diverging interests of joint venture partners. When utilized in joint venture agreements, rights of first offer and rights of first refusal should strive to balance liquidity rights of the joint venture partners against the performance of the project. Break fees and lockup periods should also be considered to minimize project risk.
3. Transfers Among Joint Venture Partners. Although fairly common, buy/sell or “shotgun” clauses are among the more complex provisions to negotiate in a joint venture agreement. Considerations like disparities in financial strength, differing interests in the joint venture, number of joint venture partners and timing for exercising these rights will all need to be factored in by the joint venture partners when shaping buy/sell rights.
4. Negotiated Exit. Although joint venture agreements often contain detailed transfer provisions, rapidly evolving market conditions may necessitate an exit on terms not contemplated in the original agreement. Parties should be prepared to negotiate such outcomes.
5. Flexibility and Future-Proofing. As an overarching consideration, parties should spend considerable time and effort thinking through the various exit rights that they want to contemplate within their joint venture agreements. It is important to ensure that there are realistic options available even in turbulent market conditions.

Have more than five minutes? Contact Graham Fulton or any other member of our Commercial Real Estate group to learn more.