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The legal benefits and risks of joint ventures in commercial property

Joint ventures have become a key tool for businesses and investors looking to develop or acquire commercial property.

They offer opportunities to share financial risk, access new markets, and combine expertise.

However, without the right legal structures in place, joint ventures can quickly become a source of disputes, regulatory issues, and financial losses.

Before entering a commercial property joint venture, it is important to understand both the benefits and the legal risks.

The way a joint venture is set up can affect everything from liability and tax to decision-making and dispute resolution.

With the right legal structure and agreements in place, a joint venture can run smoothly, but without them, problems can arise.

Legal benefits of joint ventures in commercial property

One of the major advantages of a joint venture is its flexibility.

Businesses can structure the arrangement in several ways, including as a contractual agreement, a limited liability company, or a partnership.

Under the Companies Act 2006 (the Act), setting up a joint venture as a limited company can protect parties from personal liability while ensuring a clear governance structure.

Similarly, using a Limited Liability Partnership (LLP) under the Limited Liability Partnerships Act 2000 (the Act) allows for tax efficiencies while maintaining some liability protections.

Another key benefit is the ability to pool resources and share financial risk.

Commercial property projects are often capital-intensive, and a joint venture can make large-scale developments more viable.

This structure also provides tax efficiencies, particularly in relation to Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT).

The Finance Act 2023 (the Act) and the Taxation of Chargeable Gains Act 1992 (the Act) set out key provisions affecting property transactions within joint ventures and understanding these is important for structuring deals in a tax-efficient manner.

Legal compliance is another area where a joint venture can add value.

Partnering with an experienced investor or developer ensures greater compliance with planning laws, such as the Town and Country Planning Act 1990 (the Act), particularly in navigating development permissions and land use restrictions.

When a joint venture involves leasehold property, the Landlord and Tenant Act 1954 (the Act) also plays a role in determining security of tenure and renewal rights.

Legal risks and challenges of commercial property joint ventures

Although joint ventures offer many advantages, they also pose significant risks.

One of the biggest challenges is control and decision-making.

Without clear governance structures, disputes can arise over everything from profit distribution to day-to-day property management.

A well-drafted Shareholders’ Agreement or Joint Venture Agreement will help outline voting rights, exit strategies, and profit allocation, ensuring that all parties are aware of their legal position from the beginning.

Exit strategies are another potential legal obstacle.

If one party wishes to leave the joint venture, how is this handled?

Without a clear legal mechanism in place, disputes can lead to costly litigation.

The Arbitration Act 1996 (the Act) provides a framework for resolving disagreements efficiently, and many joint venture agreements include arbitration clauses to prevent protracted court battles.

Regulatory compliance is also a key consideration.

The Competition Act 1998 (the Act) can come into play if the joint venture results in market dominance that could be seen as anti-competitive.

Additionally, tax liabilities can become an issue if property is transferred between JV partners. SDLT may apply under the Finance Act 2023 (the Act), and CGT obligations under the Taxation of Chargeable Gains Act 1992 (the Act) must also be factored into any exit or restructuring plan.

Without legal agreements and compliance with UK property laws, joint ventures can quickly become problematic.

If you are entering a joint venture for a commercial property project, contact our commercial property solicitors for legal advice that will keep your interests protected.

Carl Jones

Managing Director

I qualified as a Solicitor having completed my training with Mander Hadley in 1992 and am a member of the Law Society Property Section and The Warwickshire Law Society.