Always get a ‘joint venture’ agreement in writing

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Always get a ‘joint venture’ agreement in writing

May sound obvious, but sometimes action outruns discussion, and you may find your small business starting down a course in good faith that ends in disappointment.

A recent ICAEW Legal Alert highlighted a case where a developer – acting apparently in good faith, after discussions with a supermarket chain – felt let down when the chain reneged on what the developer believed had been a firm agreement – but it was not an agreement signed off in writing.

The Legal Alert suggests: don’t proceed into any joint venture without one.

Subject to contract

Here’s what happened in this case.

‘A local developer and a large supermarket chain were interested in acquiring the same development site. The developer approached the supermarket to discuss a joint venture’, says the account.

‘An offer was made to buy the site – expressed to be made by the developer and ‘our joint venture partners’ – while they continued to discuss the potential joint venture.’

The plan was that the supermarket would buy the site; the developer apply for planning permission; the supermarket would then transfer the site to the developer who’d ‘build a store and lease it back to the supermarket’.

But this was never signed off. The ‘drafts were marked ‘subject to contract’. A joint venture agreement was never signed. The supermarket then found another developer to work with.’

Constructive trust

The developer still hoped it had a case to argue – that there had been a ‘constructive trust’ – where ‘one party acquires property under an understanding (which need not be enforceable as a contract) that the other will have an interest in it’ – but the court decided against.

It ruled ‘that the developer’s negotiations with the supermarket, including the possibility of transferring the site to the developer at some stage, had never amounted to an ‘understanding’ for these purposes – they were merely discussions.’

The moral of the tale seems to be complete the one process before embarking on the next.

‘The documentation showed that a number of key points had not yet been agreed, indicating a lack of agreement rather than a common understanding.’

And the Legal Alert ‘Recommendation’ is clear:

‘Parties negotiating a potential joint venture should ensure their discussions are completed, and preferably committed to writing, before they take any action to carry out their joint venture, or risk the court finding there was no ‘understanding’ between them.’


Read the full Legal Alert here.

Photo by Kelly Sikkema on Unsplash

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