Breaking up partnership

[Doug P.]

Lets say you own a piece of property 50/50 with someone and you want out but they don't. What has to happen for you to get out of it if your partner can not buy you out?

[Jon Holdman]

Is this a deal you're already in or one you're considering?

If its a deal you're already in, read the partnership agreement and do what it says.

If not, and you're just wandering what to put into the agreement, then you have lots of options. Personally, I'd go for a condition that says unanimous agreement is required to do something with the property. If one of you "wants out", which I take to mean they want to sell their interest, then both would have to agree in order to sell the property. However, that doesn't prevent one of you from selling your interest in the property. I'd put in a clause that the other person has the right of first refusal. Meaning if A want's to sell their interest, then B gets to buy it if they wish and are able to. If not, A can sell their interest to whoever they want.

The always gets into a question of valuation. There are several options:

1) Use the price you paid for the property. I have a business partner I sometimes do hard money loans with, and we have clauses that deal with the property if we have to foreclose on it. We set the "value" as the amount we loaned plus any foreclosure expenses. Either has the option to buy the other out for their fraction of that amount. The seller gives up any profits, which are only paper at that point, and could turn into losses. You could use the same strategy and use the price you paid plus expenses of buying (but not holding) the property.

2) Get BPOs or appraisals. This can lead to dueling appraisals, so you'll want some tiebreaker mechanism. For example, each pays for an appraisal, then you average them. Or, each pays for two, you throw out the high and low and average the other two. ETC.

3) Offer the interest publicly, but give partner B the option to step in and buy for the contract price, once a contract is accepted. Realize that selling half interest in a property may well net significantly less than half the value because the buyer now has to deal with partner B.

You may have to have a sequence of options.