In real estate, Joint Venture (JV) means a project developed by two parties mutually. Here, two parties in the sense, one will be the landowners and the other will be the builders. For a joint venture, the landowner will contribute their lands to a potential builder to develop the project/building and the revenue yielded will be divided by the two parties.

Basically, the Joint venture can be highly beneficial to both the parties. Even though land joint venture is not a legal organization, there should be a joint venture agreement between both the parties. It includes the details of construction, profit percentage, and time frame.

There are some main factors to be reviewed before drafting the agreement.

Capital Contributions

Generally, in the term of a joint venture. The two involved parties must have contributed their investment. The capital provided by all the participants should be clearly specified in the agreement to avoid conflicts in the future.

So, in this agreement, there should be a clear specification of the initial capital which has contributed by the parties and also how the future contribution going to happen.

Profit Sharing

Profit – this is the bull's eye for the joint venture scheme in the first place. So, the participant must share the profit percentage to their possession interests (i.e.) the proper percentage share between the landowners and builders according to their capital contribution.

The ratio of sharing taxable income and capital gain will also be based on the proportion of distribution of annual cash flow.

Risk Sharing

Like the profit, the risk sharing is also very imperative for both the parties. While joint venture, participants might face some issues and conflicts concerning finance or legal or something else. These kinds of risks should also be shared amicably by the participants for the successful joint venture.

Both parties must share the legal, operational or financial risks according to their ownership possession.  When the risk is shared the individual impact will be reduced.

Share in cash flows

In Joint Venture there are two types of cash flow, one is from operating the property which is annual cash and the other one is the cash which has received from the sale of the property.

Here, the type of cash flow used by the participants should be specified in the agreement.

Management and Control

Well, known factor is that joint venture is accomplished by two or more participants. In this case, the work process should be divided among the participants. Here, who manages and controls the property plays the vital role since the core of the business is based on “property”.

The participant who controls the operation of the property must be specified, he/she is the who is going get involved in the management decisions associated to leasing, financing, capital of the property which should also be specified in the joint venture agreement.

From the above basic tips, the landowner can understand the process of a joint venture and both parties can safeguard themselves by creating a proper joint venture agreement to avoid the future conflicts.