A Joint Venture is a collaboration between two or more parties who unite by combining their resources and expertise to achieve a mutual goal. Joint Ventures have become a very popular mode of collaboration in Kenya, especially in the Real Estate Sector, which we shall focus on in this article.

In Real Estate, Joint ventures are usually between Investors and Land Owners, for the purpose of undertaking a Real Estate development project. Most land owners and investors lack the required funds to actualize  real estate projects, for the investors specifically, the high cost of land especially in major cities around the country is a challenge and for the land owners it is usually the lack of expertise and resources, hence necessitating the collaboration.

The investor will provide the capital and expertise while the land owner provides the land.

1. Site visit and due diligence- This is the first stage, where the investor visits the land to determine its viability for development. The investor will look at various factors such as the neighborhood, amenities nearby the land, zoning among other things.
2. Proposal by the Investor- Once the investor finalizes on the site visit, they then come up with a proposal to the Land owner which usually provides for the type of project to be undertaken by the investor i.e. residential apartments, office suites, town houses etc., the proposed number of units, grounds, proposed mode of sharing, expenditure, project duration, commission agents among other items. If the land owner agrees to the proposal, then they provide a copy of the title to the investor where , they proceed with due diligence, where the investor’s advocate will  undertake a search, to confirm ownership, if there are any encumbrances registered against the title for instance charges, cautions among other and also look into the history of ownership of the property as well including any court cases(if any). It is advisable for the land owner to also undertake due diligence on the investor to ensure that they have a good source of income to undertake the project and look into the history of the projects they have undertaken and completed.
3. Drafting of the Joint Venture Agreement- After the due diligence process has been finalized by the investor’s advocates, they then share a draft copy of the Joint Venture Agreement with the land owner who usually engages an advocate to review the same to ensure that their interest is well catered for and protected. Once both parties agree on the final agreement, then the Agreement is executed, stamped and registered under the Registry of Documents. The Joint Venture Agreement needs to be well drafted and must contain the profit sharing mechanisms, rights and obligations of both parties, warranties, project completion date, agreed quality of finishings, force majeure events and consequences, project financing, taxation and costs, insurance, events of breach, termination and consequences therein, dispute resolution, boilerplate clauses, among others.
4. Incorporation of the Special Purpose Vehicle (SPV)- Once the Joint Venture Agreement is finalized, the next stage would be the incorporation of the SPV which can take the form of an LLC or LLP, but most opt for the LLC option registered under the Companies Act No. 17 of 2015, Kenya. This incorporation is usually done by the investor’s advocates.
5. Drafting and execution of a Shareholders Agreement- The parties need to enter into a Shareholders Agreement to deal with the project management issues in the Company. The shareholders agreement usually has clauses to with dispute resolution, reserved matters and how they should be decided either by a special majority or unanimity, chairperson, directors and management, dividend policy, decision making etc.
6. Transfer of Land to the SPV- After incorporation of the SPV, the next step would be to transfer the land to the SPV.
7. Getting approvals for the project and  commencement- The investor will at this point prepare a plan which has to be approved by the land owner prior to the same being submitted to the relevant authorities. Once all the approvals have been obtained by the investor, then the construction commences.
8. Completion of the project and profit sharing- Once the project is completed, then the profit sharing mechanisms provided under the Joint Venture Agreement are implemented, where the units belonging to the landowner are handed over and they can exercise their rights to sell, rent etc.