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Bring a Shotgun to the Wedding

A bit extreme to settle differences with your real estate partner through the use of a “shotgun buy/sell” provision? You‘ll be relieved you negotiated this in your joint venture agreement: It gives you the option to either purchase your partner’s interest for a set price, or sell your interest to your partner at that same price. So, if you decide to exercise this right, you better be prudent in coming up with a neutral price – because you will either be buying or selling at a price that you’ll need to live with.

(i) Price control (you’ll know what the proceeds will be or how much capital you’ll need to raise)
(ii) Timing certainty (you’ll know upfront in the agreement how long this process will take – generally 30 to 90 days)
(iii) Closing efficiency (there is little to negotiate, and less chance the market will move against you to introduce significant market or competitive pricing risk)
(iv) Ability to exit the relationship (or introduce a new like-minded partner)

(i) Outcome uncertainty (you have no control over whether you will be the buyer or seller)
(ii) Reputation risk (some partners don’t appreciate surprises – you may be viewed as unnecessarily forcing your partner’s hand)
(iii) Lack of Cooperation (from the “shot-gunned” partner)

Here’s the Point:  You think you know your partner now.  But without a buy/sell provision in your joint venture agreement, you may have difficulty unwinding your partnership – at a time when you may need to raise liquidity.