Default Provisions in Real Estate Joint Ventures: Bankruptcy, Distressed Property, Removal of Manager

Description

The term of a joint venture agreement might extend through up and down real estate cycles. Counsel must include provisions that contemplate contingencies such as manager defaults or "bad boy" acts under the JV agreement, defaults on a mortgage or other financing, and bankruptcy. If the property is perceived to be underperforming or mismanaged, the investor will want the right to act swiftly to protect its investment, particularly in connection with removing the real estate operator from its role as the manager.

In addition to removing the operator as manager, investor protection may include minimizing or extinguishing the operator's right to promote and other income and terminating third-party contracts entered into by and benefitting the operator. Conversely, the operator will want to protect its position by seeking notice and cure rights, restricting the definition of removal events, and negotiating the degree of loss of promote and other rights after removal.

Listen as our authoritative panel discusses provisions which should be included in real estate joint ventures to address the potential downside to the transaction, the rights of the parties in the event the investors seek to remove the operator, and the impact of removal on distributions, buy-sell provisions, and third-party arrangements.