Whose name goes on the seller contract in a JV?

Question

Underwriting a partnership is the same problem as underwriting a deal. You look for where the value goes when things break. In a JV wholesale the contract with the seller is where it goes, and I've watched the room argue this four different ways.

Case for the acquisition partner holding it: they built the seller relationship, they're the one the seller will call at day 20, and if the disposition partner ghosts, they still control the asset and can bring in someone else. Their downside is capped at their own earnest money.

Case for the experienced partner holding it: they know what their state requires of them, their title company already knows them, and a newcomer holding a contract they can't perform on is the fastest way to a seller complaint. In several states the question of who can market a contract they hold, and how, turns on local licensing law, so this one genuinely varies and needs a lawyer in the relevant state rather than a forum consensus.

Case for whoever funds the close: if a double close is likely, the entity that puts up the money usually wants to be on the paper it's funding.

Case for a single purpose entity both parties sign into: clean on paper, slower to form, and now you own an entity together after the deal ends.

I don't think the newcomer usually gets a vote, which is part of what interests me. Where do you land?

devon_pierce · Answer

Still building a list and haven't signed a seller yet, so take this as an outsider view. The acquisition partner holding it seems obviously right until you ask what happens if they can't perform. Then the seller is the one paying for the arrangement, and the seller had no idea there were two of us.

wendy_park48 · Answer

The name on the contract matters less than the assignment language and the default language, and almost nobody reads either. I've read JV agreements that carefully split a fee 50/50 and said nothing about who has authority to grant an extension. Guess what the argument is about on day 32.

The version I'd want: acquisition partner on the seller contract, with a written side agreement giving the disposition partner a defined interest in the fee, a stated deadline for producing a buyer, and one named person with authority to sign extensions. @sextant your single purpose entity option is the cleanest on paper and I've seen it slow a signing by a week, which on a motivated seller is the whole deal.

diane_kowalski · Answer

I voted for the acquisition partner because of my own bad month. Mine was on my paper and the only reason I could go hunting for another buyer at day 45 was that the contract was mine. If my partner had held it I'd have had no asset and no leverage, just a claim on a fee that never existed.

aaron_fitz10 · Answer

Reading this thread I realize I've been treating the split as the main term and it isn't. @fathom the extension authority point is the kind of thing I'd have found out the expensive way. Voted for the acquisition partner, mostly on @arbor's reasoning.

luis_carrera · Answer

I keep going back and forth and it comes down to what a newcomer is actually able to do at day 20 when the seller calls upset. If the answer is nothing, the contract sitting in their name is a comfort more than a control. I voted for the experienced partner and I'm not confident about it.

Whose name goes on the seller contract in a JV?

5 replies