Depending on who is using the term, the scope of what is meant by “joint venture” (or “JV”) varies considerably. This variation is largely thanks to the inconsistent usage of the term in federal and provincial legislation and regulation. While all agree a JV describes a relationship rather than a distinct legal entity (though some statutes deem it to be so), the accountant and tax lawyer will be fairly certain that it refers narrowly to what we in the real estate industry know as a co‐tenancy (or co‐ownership). But our real estate law rarely uses the term JV and, when it does, rarely equates it with only a co‐tenancy. More likely, the term JV is used in our industry more broadly as an umbrella for the full menu of legally recognized business relationships between two or more parties that can facilitate their ownership, direct or indirect, of concurrent interests (not necessarily identical in nature) in the same commercial real estate asset. Thus, a real estate JV can be established not only as a co‐tenancy (co‐ownership), but also using the vehicle of a corporation, a partnership, a limited partnership, or a trust. Less common, it can also be structured in the context of a leasehold (such as a ground lease) or even a loan (such as a participating mortgage).
A JV is governed (and sometimes created) by some type of joint venture agreement (“JVA”). No matter what it is called, the JVA will typically be recognized under real estate law as either a shareholders agreement, partnership agreement, limited partnership agreement, coowners’ agreement, trust agreement, ground lease or participating loan agreement.
Each form of real estate JV has its own advantages and disadvantages in terms of control, liability, liquidity, financing, accounting and taxation. Furthermore, the law has developed quite differently for each of these legal entities. Consequently, it is seldom a good idea to try to “blend” two or more of these distinct and common legal entities into a single “hybrid” JV entity under a single JVA. However, it sometimes makes a great deal of sense to “stack” a number of the above legal entities within a single JV to achieve a combination of their respective advantages. A well structured JV may therefore have a number of interrelated but distinct JVAs.
Structuring a JV so that fulfills the parties’ respective commercial real estate investment goals can become a multi‐disciplinary exercise that requires the commercial real estate lawyers to involve their tax, corporate and commercial colleagues, as well as perhaps the parties’ accountants. Because this can cause initial delay and expense, JV parties are sometimes inclined to only “bring in the lawyers” once the form of the JV and basic terms of the JVA have been hammered out. This can backfire and ultimately cost one or more of the joint venture parties many multiples of the time and costs saved. Therefore, the lawyers should ideally be involved in the JV structuring discussions as early as possible.
Once the best JV structure is selected, the lawyers can properly paper it with one or more tailormade JVAs to best achieve the “win/win” that got the JV parties talking in the first place.