Joint Venture Agreement

[John White]

Good Afternoon...

I'm hoping that someone would be kind enough to point me in the right direction. I'm looking for a Joint Venture agreement that I might be able to alter some of the language on. The basic framework is that I'm entering into an agreement for a split (60/40) of the profits. The property will be acquired by my company and my company will hold title. The big stipulation for me is that the contractor (who I am partnering with) has agreed to complete the renovation within 30 days (property is already fully gutted). He has told me that he is very comfortable writing that language into the contract. I guess my question would be...what should the penalty be if the 30 day deadline isn't met? I would assume less of a split on the commission? Just trying to get some ideas and trying to keep things fair and reasonable between us and ensure both parties are happy. Are there any sites that can find the framework (perhaps in Word format) for such an agreement? Any and all feedback is most appreciated. Thank you.

John

[Dion DePaoli]

You do not need a JV agreement. The conditions can be applied within the Contractor's agreement. Simply get his standard contract and work up an addendum to it to cover how he is paid.

There are two approaches, incentive based or punishment based. To that idea, you get more bees with honey rather than vinegar but you also must protect yourself.

To gain an idea of how to structure that, think of how an extended construction timeline will affect your resale. Perhaps cost of funds (interest paid on loan or to an investor, which could be you) influences that. Finishing it late is a different idea than not finishing it at all.

Who will own the material during the process and what happens to said material if he purchase it and walks?

You can create a buyout clause for the material, where if he walks you pay him for material only, if he is paying for the material in the first place. If he is just labor, it is a moot point.

In that case a simple step down in profit share can work. Or you can also look to give an extend time, say 60 days instead of 30 to be a bit more conservative and offer an incentive for early finish. This may relieve pressure and takes on the notion of incentive instead of punishment which might make for a happier union.

Remember as you step down, as a contractor he would have charged you 10% normally, so do not reduce him to zero otherwise you will create a break line where it doesn't make sense for him to finish if it goes to long. Under the same guise, simply adding the incentive to his 10% normal fee, might be the simplest. Say you he gets 10% for 90 days or more and gets a 10% equity kicker for each early 30 day cycle. So if he finishes work within 30 days, he gets 10% of construction plus 20% of net gain. Or something to that idea.

The point is, do not look to start from scratch, since a normal idea would be normal. Look to use the normal things that are used so you are not inventing things from scratch that just creates more work.