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Home-Made Joint Venture Agreement Leads to Disaster

Tower Block HousingBudding property developers tempted to dispense with legal assistance in drawing up contracts should take note of a High Court case in which a businessman paid a crushing price for signing his name on a ‘home-made’ joint venture agreement.

Businessman A had agreed that he would provide the building expertise needed for the renovation of a sheltered housing block whilst businessman B would finance the project. The men had worked together before on previous developments and drafted their joint venture agreement without the benefit of legal advice.

The venture met with planning and other difficulties and, following the property’s sale for £900,000, a dispute arose as to how the profits should be divided. Businessman A insisted that he was entitled to approximately £160,000; however, businessman B was equally adamant that he was not due a penny.

In dismissing businessman A’s claim, the Court noted that he had himself drafted a ‘high risk’ clause in the agreement which stated that the joint venture would come to an end on a particular date and that, thereafter, he would have no vested interest in the property.

The property was not sold until after the relevant date and the Court found that, by operation of the ‘penal’ clause, businessman A was not entitled to a share of the profits. Businessman A had ‘freely agreed’ to be bound by the clause and businessman B was entitled to stand on the letter of the agreement.