Australia: Joint Ventures And The Economic Downturn: Things To Consider

Last Updated: 3 December 2008
Article by Brendan Peet and Brian Noble

Joint Ventures And The Economic Downturn: Things To Consider

Key Point

  • Joint ventures are an efficient way of bringing new investors into an existing project, but only if carefully planned and documented.

In the current economic downturn a number of property developers are faced with having to either sell projects or bring on board a new participant to steady a project's finances and help fund completion of the project.

With billions of dollars of property currently on the market and prices falling, developers are of course reluctant to put their projects up for sale in this softening market.

Other developers may wish to share the risks associated with a project or link with a cashed-up investor who see opportunities in the current market.

These scenarios are leading to new joint ventures of existing property development projects. However, each joint venture should be structured to take account factors such as ownership of project assets, finance requirements, tax/stamp duty and pricing and profit share mechanisms.

Ownership of project assets

In a neat perfect world the developer would be able to transfer the agreed share of the project assets to the new participant in exchange for an agreed price, and the parties would agree to jointly develop the project going forward. In practice this is rarely feasible. In most case it would trigger income/capital gains tax (CGT) and stamp duty liabilities too soon, wasting much needed cashflow. It would also hand a degree of control to the new participant before the new participant has delivered on its side of the bargain.

Further, in many projects the developer does not yet own the relevant land, but has secured it by way of contract (option or conditional contract). Particular care must be taken in attempting to transfer such contractual rights. If the contract or contracts are well drafted a transfer can be straightforward, but if the contract does not readily allow the developer to transfer some or all of the developer's rights then a transfer may be impossible without the consent of the other party to the contract. Each contract needs to be carefully reviewed to ensure any transfer or it complies with the contract terms.

It is important to note that under the applicable State's stamp duty legislation an contract to buy land is generally treated as a land asset. This means contracts cannot be transferred without considering the stamp duty implications.

Establishing a new incorporated joint venture

For an incorporated joint venture the new participant will receive securities (most commonly shares) in either the existing project vehicle or a new corporate structure overlaid on the existing structure. Key issues in designing such an arrangement include establishing an appropriate management structure and designing the structure so that taxes are not unnecessarily incurred.

The company management structures under the Corporations Act 2001 generally do not provide each participant with the control mechanisms and protection the participant requires. A well drafted shareholders' agreement is the most common solution to this issue.

If an existing project vehicle holds assets then it might be difficult for the new participant to take shares in that project vehicle without triggering CGT, land rich/corporate trustee duty or both.

Essentially land rich duty is designed to impose stamp duty on corporate transactions where the corporate transaction (eg. transfer of shares) effectively transfers control of land assets to a new shareholder and the land assets are worth more than a certain threshold (for example in Queensland it is $1 million). The land rich duty regimes have important differences from State to State, but generally it applies where the land assets comprise a large portion of the company's assets (for example 60 percent in Queensland) and the new shareholder takes a major interest (for example in Queensland it is 50 percent or more) in the relevant company. There are similar rules relating to changing control of corporate trustees.

It is useful to note that the test for an interest for land rich purposes is that a person has an entitlement to a distribution on the winding up of the company. Subject to the general anti-avoidance provisions, this means that land rich duty is not triggered merely because a shareholders' agreement or development services agreement gives an economic interest in the company's land to a particular shareholder or joint venture party.

In many cases these issues are addressed by establishing a new joint venture company where the shareholding of the new company reflects the new joint venture holdings, and the new company has an agreement under which the existing project vehicle gives an economic interest in the project land to the new joint venture company. This can defer the triggering of taxes until such time as the project profits are realised and distributed.

Establishing a new unincorporated joint venture

When using an unincorporated joint venture to bring a new participant into a project, project control and tax issues are also relevant.

Transferring a share of the ownership of project assets to the new participant is often inefficient, because it may trigger income tax/CGT liabilities and payment of stamp duty. Generally the parties do not wish to incur these taxes until after the project profits have been realised and distributed.

A common solution is for the existing project vehicle to enter into a development management agreement with the new joint venture company under which the new joint venture company is engaged to complete the development. The appropriate clauses allocating profits and losses can be included in this agreement. However, a development management agreement must usually be accompanied by suitable financing arrangements (see below) and a mechanism which prevents the owner of the land from dealing with it contrary to the joint venture requirements. This mechanism may be for example a caveat, mortgage or lease registered over the title.

Finance arrangements

If a bank or other financier has or will fund the project, then the project land will almost certainly be used as security. Quite often there will already be prime and mezzanine lenders with mortgages over the project land and charges over the other project assets. If further funding is required then the issues relating to the bank's securities can be complex. This is particularly the case where the developer has questions regarding its solvency. The new participant will not want its investment in the joint venture taken by existing mortgagees, particularly to meet other debts of the developer not related to the project. The finance and security arrangements need to be carefully considered on a project by project basis.

Divorce clauses

Sometimes the relationship between joint venture parties may break down. In other cases one of the joint venturers may go broke. Every joint venture should be structured with mechanisms setting out the ways and means of ending the joint venture.

There are a number of mechanisms which can be used in these circumstances. A "roulette clause" is a common solution. A roulette clause enables a party (first party) to offer up its share to the other party (second party) at the price it is prepared to sell for. If the second party does not take up the offer then the first party can buy second party's interest using the price it was prepared to sell for. This type of clause may be inappropriate where one party does not have the resources to buy out the other party's interest. A right of first refusal or option to purchase can also be also useful, however the difficult part is valuing the share of the project being sold, particularly if the share sold is a minority stake. In that case a comprehensive methodology for the valuation needs to be included. For example, to avoid a minority stake being discounted, the valuer might be instructed to value the project as a whole, and then determine a party's interest as a proportion of that.


Joint ventures are an efficient way of bringing new investors into an existing project, but only if carefully planned and documented. Taxes and other costs can be minimised or deferred if the joint venture is structured properly. There are a number of critical elements which need to be weighed up to determine the best structure. These include the existing project structure, the risks the parties are each prepared to take on, the way in which the project will be controlled and managed going forward and the requirements of existing and incoming financiers.

When the joint venture is being established, in many cases there is a degree of urgency to sign up the deal. Also there is a lot of goodwill at the start of the joint venture. These factors can lead to a tendency to assume that the joint venture parties can work things out as they go along. This is a dangerous practice which more often than not exposes participants to unnecessary risks and additional expense. The key is to structure and document the joint venture the best way when the joint venture is first established.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.