First splitter deal with joint venture

Hi Experts,

I am currently been offered to joint venture in a 1 to 2 splitter deal(with existing DA approval) where we will be selling one block after renovating the existing dwelling and on the other block, looking to put a relocatable home which we would renovate and then sell again. We anticipate to make some profit here, as I have been given numbers and upon my research. I have known the developer only as a facebook friend and met her a few times. Will be doing my first development with her.

Would like to know what would be the best structure to safeguard our interests and have it work flawlessly covering all the aspects of risks. After talking to my accountant, he suggested one of the following in the same order of preference :
1) Unit Trust
2) Partnerships as it's a legal entity
3) Joint Venture Agreement

Her solicitor guided me that having the deal signed in both the names should be covering us and it by default means that we both are 50% partners each(Signing as 50% share of each as tenant in common) and I may not need anything extra. I am very confused and need advice from the experts here.

Appreciate your help!!

 

This question is something you need legal advice on - in addition to an 'accountant'.

A partnership is not a legal entity!

Probably consider 2 trustees of 2 separate discretionary trusts, each controlled separately, but deeds drafted in such a way that you can benefit from each. Get legal advice on the structure of the trusts and trustees, especially default beneficiaries.

The 2 trustees can be tenant in common owners of the properties.

what on earth does this even mean? What does your solicitor advise?

You also have to consider the lending side.

 

Thanks @Terry_w . This was helpful.

When we go with the joint signing as tenant in common, I'll be using my existing discretionary with corporate trustee and other party will be using their Pty Ltd. Does that safeguard our interest or we need a separate JV/Partnership deed prepared in addition?

For lending, we will be going for private mortgages who don't need serviceability and credit checks and will lend on the basis of our project proposal, so should be okay in that front.

 

why would you use an existing trust?
And what do you mean by 'safeguard'? 2 separate buyers should always have a separate agreement as to joint ownership and who is going to do what, what happens if xx happens etc.

At the very least you would want to consider the asset protection side of this - recourse to borrowers assets, limiting guarantees etc.

 

This seems like so many alarm bells/red flags etc.

 

Yeah, to me as well. Hence, being over-cautioned and trying to understand how to protect myself from the unknowns legally. Tried calling accountant and he helped to a level, but need to get in touch with solicitor tomorrow too.

 

If you wanted to be over-cautious, then I would be running away quick smart.

Why would you even consider something like this compared to doing a project yourself?

 

As I do not have experience, and also, the tradesperson available in the regional city where I am doing this. Her partner is a tradie who does the renovation job himself. As first deal, would like to leverage someone's skills but being cautious that it shouldn't come with significant risk involved.

 

This sounds even worse!

Then pay them - don't try and partner with them if you're not an equal partner knowledge wise.

 

No offense, but what do you bring to the table? We've got a developer and a tradie, so I'm guessing they're after you for the money?

 

It sounds like a joint venture to me. One offers $ and the other offers skills. How do you value contributions? What is the actual agreement? What’s the option for dispute resolution like? What are the actual terms of the joint venture? Too many questions and too much risk it seems. Way too many of such cases turning up in the courts. Sometimes good deal can turn out bad.

 

This was my thoughts as well.

I'm not saying don't do it, but tread very, very carefully.

 

Have you priced up the costs with plumbing electricity and local authorities bond costs for the second property as there is so many variables in that side of the deal alone apart from a family member on the payroll..
I would be very careful with this as the turn around time's could go into years,and then walk away with nothing.

 

Everything about this deal smells bad
Smells as you probably have all the info not us - not actually is

Few factors
1) Regional - not always bad and not always low value but usually the case. Less threshold for costs to go up and the project to be overcapitilized
2) Relocatable houses - These usually seem cheap on paper but end up costing way over what a new dwelling costs and in the end provide poor value. Only place this usually works is extreme regional where building is not an option or for particular era housing which isnt usually on the cheap but has a value of its own. There was a member here that did a thread about their own PPOR and it wasn't cheap
4) Main question - has your jv partner ever done a development like this. Buying/subdividing/reno might not be a major deal as it is common and easy to cost up within reason but putting a relocatable is huge factor (quotes 99k and ends up being 200k on a 300k project is big deal).
3) Your JV partner's partner is a tradie. Probably not an issue for the reno assuming its not too major. For the relocatable you need a builder, especially if you plan to sell. I wouldnt be suprised if the tradie has no idea about building and completely underquoted on the estimate of the new relocatable

I would be using independent solicitors/accountants and possibly talking to external trades (even if on the higher for estimates)

 

And depending on the tradie, they might prioritise "paying" work and just work on this to fill in the gaps.

 

Sounds very professional. She cant raise money and begs on facelookbook for lender of last resort money. Iand you think you will make money. See the issue ? Tell me how she may be different to a scammer or a begger at a railway station ? Oh...she has a solicitor.

Her solicitor isnt your solicitor. You are not the client. "Her solicitor guided me " sounds like a significant concern. Ethcal issues ? Sure is. You are jointly and severally liable. She racks up debt (already has ??) . Bank siezes property - You get zilch. ? Thats for coming. You were scammed.

If it sounds too good to be true...probably is.

 

Besides all the red flags above do you have enough skills to be able to ensure that the project feasibility they have given you is accurate. Does it account for GST, private lending (it's expensive!! especially if you go over time), how will the partner/tradie be paid for their work (are they licensed?) etc etc

You need so much advice. I do recall a member on here being taken for a ride by a Facebook friend/developer. I wonder if I can find the link