Too often persons run to an attorney to write an agreement when they could do it better and at very little expense themselves. If it is a very important legal document, then I recommend that the parties to the agreement first write out what they are agreeing to, then, after all parties say, “yes, that describes what I agree to”, then take that agreement to an attorney to refine and be sure all it complies legally. That process is much simpler, easier, less costly, more timely, and will result in a better agreement than any attorney will ever draft for you. If you were to start out by going to an attorney, you will have to give him all the information; then he will take notes; then he will give you a draft; then you will tell him corrections and what is missing; and it will take time and multiple drafts. Instead, make your own draft with all the details (see sample below) an get it to where all parties agree to what you have written. Then take that to the attorney. Make sense?
When doing any business dealings, the more you value the relationship with the person you are dealing with, the more business-like should the dealing be. That avoids misunderstandings and preserves the relationship. (Most people do the opposite—a serious mistake that is costly to relationships).
In all partnership agreements, include a cross-purchase buy sell agreement that can be triggered by either party upon disagreement between the partners.
Here are the items to include, AT A MINIMUM, IN EVERY AGREEMENT:
The parties to this agreement are:
Intentions of the parties to this agreement:
Terms of this agreement:
Here is a sample agreement:
SAMPLE JOINT VENTURE AGREEMENT
The parties to this agreement are: (Name the parties to the agreement)
Ken and Noreen Willig, hereinafter “Willig”
Jeff Berry, hereinafter “Berry”
Jeff Berry Development & Construction, hereinafter “Contractor”
Recitals (Provide all the facts surrounding this agreement)
Willig owns lot # 58 at Mirabel free and clear;
Willig and Berry have been working on the design of a house for lot 58 at Mirabel that Contractor was going to build for Willig as their residence;
Architectural plans have been drawn (but not totally completed) by Chavez & Associates under the direction of Willig and Berry;
Willig has become frustrated with the Mirabel Design Review people and process and have decided to not continue with that process;Willig has proposed and Berry has accepted the concept that Berry and Contractor and Willig would enter into this Agreement to joint venture the construction of a spec house on said lot #58 using the plans drawn by Chavez (with certain modifications agreeable to Berry and Willig);
Willig purchased Mirabel lot #58 on November 11, 2001 for $250,000 (closed escrow on February 17, 2002) and has paid all costs to date in conjunction with the ownership, design and development of said property;
For purposes of this agreement Willig and Berry agree to assign a total current value (including all costs paid by Willig to date and appreciation) to lot 58 of $400,000; and
Willig owns and pays the dues and other costs of ownership of the Mirabel golf membership that goes with lot #58.
Intentions of the parties to this agreement: (Provide all the reasons or intentions of why the parties are entering into this agreement)
The intentions of the parties to this agreement are that Berry will complete the design, development and complete construction of a spec house on Mirabel Lot #58 of approximately 4,000 to 4,500 square feet essentially like the plans developed by Berry and Willig to date;
That the cost of construction will be about $200 per square foot including pool, landscape, hardscape, totally complete, and ready to move in;
That it will sell within 6 months of completion for a selling price from $1,700,000 to $1,900,000 after real estate commissions; and
That Willig and Berry will split 50-50 the net profit (as described herein) of from $400,000 to $600,000 (or $200,000 to $300,000 each).
Terms of this agreement: (This contains the things the parties are agreeing to)
Willig agrees to pledge the value of lot 58 as collateral toward the financing, if any, by Berry to cover the costs of construction, landscaping and total completion to a “ready for occupancy and move-in” condition;
Berry will be in full charge and have the last word in the design and construction the spec house on lot 58, but that it will closely resemble the plans drawn to date by Chavez for it;
Under Berry’s personal supervision, with some complementary input from and participation by Willig, Contractor will be the General Contractor for this project;
Berry will personally direct the remaining design of the house and successfully take the project through the applicable design, review and permit requirement by Mirabel and all other legal agencies as is required by Mirabel’s Design and Review Committee and law;
Berry will assume the responsibility for all funding and financing for the entire process to completion and ready for occupancy and for sale totally landscaped and completed;
Berry will keep an accurate record of all direct costs (with no mark up) to Contractor and Berry to complete the design, permitting, development, and construction to total completion of this project. Those costs are hereinafter defined as “Total Cost”.
Should Berry finance a portion of the costs to complete this project and pledge the collateral of the lot as part of the construction loan, he agrees to do so at Compass Bank or any other bank agreeable to Willig and Berry, and at a competitive rate.
Berry will provide Willig with a budget for this project before construction begins and monthly “costs-to-date” reports during construction;
Beginning when the project nears completion, at a time and listing price acceptable to Berry and Willig, the spec house will be offered for sale. In case of a difference in opinion, Berry shall have the last word on the price.
Noreen Willig may be the listing real estate agent and/or the selling agent with a 3% to listing agent and 3% to selling agent commission structure. Or it may be listed with Mirabel’s agents to sell. Noreen Willig may hold “open house” on the property once it is offered for sale. Any commission payable to Noreen Willig or Berry, if any, will be zero when determining the net proceeds from the sale;
Neither Berry nor Willig will charge anything to the project for their personal time as part of the costs to design, develop, construct, and complete the project;
The joint venture will pay the home owner association fees and real estate taxes of the lot after the start of this agreement as part of the Total Cost; and
When the spec house is sold, from the net proceeds of the sale at the close of escrow, Willig will be reimbursed for the $400,000 value of the lot and Berry will be reimbursed for the Total Cost to Contractor (not already paid to Contractor through periodic construction payments). The remaining balance or net profit from this joint venture will then be split 50-50 between Berry and Willig. Should the net profit be a net loss, that too will be shared 50-50.
Ken Willig (Sign and Date)
Noreen Willig (Sign and Date)
Jeff Berry (Sign and Date)
Jeff Berry Development & Construction (Sign and Date)
Be sure to also include in any ownership/partnership agreement a Cross-Purchase Buy Sell Agreement.
CROSS PURCHASE BUY-SELL AGREEMENT
Offer to Purchase: Either Shareholder (or "Partner", as Is appropriate) may, by written notice, at any time after (Date), offer to purchase the other Shareholder’s stock (or Partner's Interest) in (Name of Company or Partnership). Said written notice shall specify the price and payment terms for the proposed purchase.
Offeree’s Alternatives. Upon receipt of notice offering to purchase as described above, and unless otherwise agreed, the Shareholder receiving the notice (the “Offeree”) shall, within (specify number) calendar days thereafter, elect one of the following two alternatives:
Acceptance. The Offeree may accept the purchase offer and sell the Offeree’s stock upon the terms and for the price set forth in the offer to purchase; or
Exercise of Election to Purchase. The Offeree may give written notice to the offering Shareholder that the Offeree elects to purchase the other Shareholder’s stock, for the price and under the same payment terms as contained in the offer to purchase.