Joint Venture in Property by Sean Tarpenning
A venture is termed a venture or a project achieved jointly or combined, a project which has been achieved by the collaboration of two or more parties. In property, a venture implies that a project is developed by two parties jointly. This generally happens where one party would have his land and also the other party would have the interest to develop a project thereon property.
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Sometimes the owner of the land couldn’t develop it due to many reasons like he doesn’t have the expertise or he doesn’t have the fund and likewise for the opposite party who want to develop won’t have landed within the prime location where he can build up a pleasant project.
So, if these two parties join together on a mutual affection they sign an agreement which is termed a venture agreement.
This agreement comprises legal understanding like will there be any advance or goodwill money be paid by the developer to the landowner? Advance is that the amount that a developer has to pay to the landowner might be refunded by the landowner after completion of the project. If any problem arises while constructing, thanks to which they couldn’t complete the project, then that advance Amount won’t be paid back.
Good-will money is that the amount that a developer has to pay to the landowner for developing the project and this can be not refundable. this can remain with the landowner even after the completion of the project.
Now when the project is completed, the property is going to be divided between the landowner and builder, the ratio is discovered between 60–40 or 50–50 which mean that the builder will keep 60% and also the owner will keep 40% or both will keep 50%. This division done is that the basis of the built-up area. Built-up area dependents on the location area and also the road width where the location is situated, for a 30ft road width one can maximum need to build up the world as 1.6 times the positioning area, following are the regularities for various roads
30ft road 1.6
40ft road 2.0
40ft-60ft road 2.5
60ft to 100ft 3
above 100ft over 3 and customarily quite 100ft won’t be there for residential purpose
So now let’s take this instance to even simplify what we’ve got said above:-
Let take a site which is 20000 sqft and therefore the road width is 40ft road, therefore, the maximum built-up area should be 40000 sqft. Let’s assume the venture agreement between owner and builder is fixed as 50–50 ratio and also the owner of the land gets 1cr as advance. Generally, the property building cost would be Rs. 1000 per sqft, so to make 40000sqft it’s 40000*1000 = Rs 40000000. After completely building the apartment, the builder would get to sell his 50% share of the overall 40000 sqft which is 20000 sqft.
Let’s assume the apartment selling rate is found out to be Rs. 2200 per sqft, then he will earn 20000*2200= Rs. 44000000, therefore the builder’s total earnings for this apartment will come to Rs 4000000 minus the interest rates for the 1cr advance. Let say construction take 2 yrs to finish, that the builder would lose the interest for 1cr for two yrs, which might come around 2400000 if he takes a rate of 12%. So finally builder’s total earning for this property would be 40l-24l=16l which isn’t good for his 2 years of labour.
Likewise, let’s take the land owner’s point of view, Let say that the land rate is Rs 2500 per sqft so by selling landowner will get 5cr and by doing a venture he will earn 4.4cr + the interest on 1cr which might be 4.66cr which is 34l but what he would have gotten without doing venture so it is not feasible. So, eventually, this deal won’t determine for both the landowner and builder.
All the above calculation goes into the paper to determine whether to travel into a venture or not. A sample copy of the venture agreement may be drafted with a help of a lawyer.
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