Buy/Sell Clause
(Joint Venture Agreement)

Summary

This buy/sell clause may be included in a joint venture agreement for real estate. This clause is a useful resolution mechanism if the members and managers in a joint venture are unable to make a decision on a critical business issue. This clause includes practical guidance and drafting notes. If a joint venture is controlled by an even number of members or managers (usually two), a buy/sell can be a useful resolution mechanism if the members/managers are unable to make a decision on a critical business issue. A buy/sell clause allows one member to exit the joint venture, while the other member remains and takes sole control of the venture. This clause is a commonly used type of buy/sell provision. The member triggering the buy/sell sends an offer that simultaneously acts as an offer either (1) to buy the other member's interest in the joint venture or, (2) sell its interest in the joint venture, in each case, for the consideration set forth in the offer. Note that this clause assumes that all members have sufficient capital and liquidity to buy out the others. Counsel must consider the advisability of including a buy/sell clause in a joint venture agreement if one member has significant constraints in acquiring the capital needed to buy out the others. Further, if one member is not involved in the day-to-day operations of the business and lacks the information necessary to craft or assess an accurate offer, information rights should be addressed. The capitalized terms used in this buy/sell clause should be conformed to the defined terms in the relevant joint venture agreement. For a full listing of key content covering real estate joint ventures (90/10 ownership split), see Real Estate Joint Venture Resource Kit (90/10 Real Estate Joint Venture). For a full listing of key content covering commercial real estate, see First Year Associate Resource Kit: Real Estate. For more on joint ventures in real estate transactions, see Real Estate Joint Ventures.