Legal aspects of deals
How to structure joint purchase agreements among unrelated investors to define exit strategies governance and capital calls.
This evergreen guide outlines practical, legally sound approaches for structuring joint real estate purchases among unrelated investors, detailing governance, exit strategies, capital calls, risk allocation, documentation, dispute resolution, and ongoing compliance considerations to protect all parties involved.
August 07, 2025 - 3 min Read
In practice, a well-constructed joint purchase agreement among unrelated investors begins with a clear definition of the project, the financial model, and the alignment of objectives. The agreement should establish who contributes capital, the timing of those contributions, and how profits and losses will be allocated. It also needs a detailed governance framework that sets responsibilities, decision thresholds, and voting rights that reflect each member’s stake and risk exposure. Clear definitions prevent ambiguity that could otherwise lead to disputes later. Importantly, the document should contemplate common scenarios, from refinancing to sale, and specify how outcomes will be measured, reported, and reviewed by all participants.
Beyond economics, the contract should articulate governance mechanisms that create predictable decision-making while preserving flexibility. This includes appointing a managing member or an operating committee with a defined scope, enabling routine decisions to bypass full consensus when appropriate, yet reserving major actions for broader consent. To reduce deadlock, consider tie-breaker provisions, sunset clauses, and escalation procedures that move disputes toward mediation or arbitration. Risk allocation must be explicit—who bears what, under which conditions, and how liabilities may be capped or insured. Finally, the agreement should require thorough recordkeeping, with regular financial reporting and independent audits to maintain transparency.
Exit strategies must be practical, enforceable, and fair.
Exit strategies are the heartbeat of a joint purchase arrangement because they determine timing, price, and method of withdrawal for each investor. A robust agreement specifies multiple exits, such as a pre-negotiated sale, a put/ccall option, or a voluntary buyout after a defined hold period. It should set objective criteria for evaluating the asset’s performance, including net operating income, capitalization rates, and debt service coverage. Importantly, exit provisions must balance liquidity with preservation of asset value, offering orderly transitions that minimize disruption to operations. The document should outline sequencing rules, notice periods, and appraisal standards to ensure fairness during a sale or transfer.
When drafting exit provisions, it is essential to address sequencing of liquidity events and potential tax implications. Investors should understand whether exits are pro rata or preferential, and how preferred returns are honored in a sale or refinance. The agreement ought to specify how outstanding capital contributions are treated on exit, and whether any termination fees or wrap-around terms apply. Additionally, consider a buy-sell mechanism that activates upon certain triggers, such as a capital shortfall, misalignment in strategy, or a breach of fiduciary duties. A well-structured exit plan includes dispute resolution steps if parties disagree on valuation or timing.
Capital calls benefits depend on clarity and foresight in drafting.
Capital calls are a frequent source of tension in co-investments, and the partnership agreement should provide a transparent framework for them. Start with a clear notice protocol, including timing, required capital, and consequences for non-payment. Tie capital calls to a defined budget, approved by the governance body, with explicit purposes—capital improvements, debt service, reserves, or working capital. To avoid punitive results, describe grace periods, penalties, and potential conversions of debt into equity if a member cannot meet a request. The document should also include a cap on total capital calls and a process for reallocating unused funds if certain line items are underfunded. Crystal clarity reduces friction and preserves relationships.
The capital call framework should also address dilution protections and remedies. Investors should understand how missed contributions affect ownership interests, voting rights, and priority of distributions. Consider mechanisms such as defaulting member loans, interest accruals on overdue amounts, or temporary waivers in exchange for longer hold periods. To maintain liquidity, the agreement could authorize a bridge facility or external lending options that support operations while protecting the majority’s interests. Data-driven governance, with real-time dashboards and quarterly forecasts, helps all participants anticipate needs and avoid coercive calls.
Dispute resolution should be efficient, predictable, and fair.
A cornerstone of governance is fiduciary duty and conflict management. Each investor should be confident that decisions reflect the group’s shared objectives rather than individual gain. The agreement should codify fiduciary standards, require disclosure of related-party transactions, and establish a formal process for recusal when conflicts arise. It should also create a framework for independent decision-makers or third-party advisors in situations where concerns about bias emerge. By setting these expectations upfront, the group mitigates the risk of improper influence and fosters a culture of accountability that supports long-term value creation.
Dispute resolution must be practical and cost-conscious. The document should require that disagreements first move to mediation within a defined period, followed by arbitration or litigation only if unresolved. Clarify who bears the costs of dispute resolution and whether an emergency arbitrator can be appointed for time-sensitive matters. The agreement should reserve remedies that are proportionate to the issue at hand, avoiding punitive measures that could destabilize the venture. Finally, consider a framework for interim relief to protect assets during disputes, preserving value while the conflict is addressed.
Documentation, compliance, and ongoing reviews sustain trust.
Compliance and documentation are foundational to the integrity of any joint purchase. The agreement should obligate ongoing legal and regulatory compliance, including securities laws, state corporate requirements, and reporting standards. A robust housekeeping protocol includes execution of official resolutions, approval records, and a centralized document repository accessible to all members. Regular reviews of the agreement, at defined anniversaries or upon material changes in the project, help ensure it remains aligned with evolving market conditions and investor expectations. Documentation should also cover insurance, risk mitigation measures, and succession planning for key roles to guard against operational disruption.
As part of governance, establish a formal record of decisions with rationale, payoff structures, and audit trails. The operating framework should clearly delineate authority boundaries: who can approve budget changes, capital expenditures, refis, or dispositions. The agreement should also specify what constitutes a material change in strategy, and how such changes are voted upon or approved by a smaller committee. Regular board or investor meetings, with minutes and action items, reinforce transparency and enable participants to monitor performance, address concerns promptly, and hold leadership accountable for results.
Risk management in joint purchases requires thoughtful allocation of exposures. The agreement should detail how risks are shared, including market risk, capital risk, and operational risk. Consider requiring reserve accounts with defined thresholds, catastrophe planning, and insurance programs that cover property, liability, and title issues. The contract should outline how risk will be quantified and monitored, including key performance indicators and stress-testing scenarios. By predefining risk tolerance levels and escalation paths, the group can respond quickly to adverse events, preserving capital and protecting each investor’s interests against unforeseen downturns.
The closing elements tie governance to practical execution. The joint purchase agreement should include a schedule of events leading to the closing, conditions precedent, and post-closing obligations. Title diligence, due diligence on tenants, and contingency planning for unexpected vacancies are essential considerations. The agreement must address transfer mechanics if an investor exits, including custody of leverage, assignment rights, and consent requirements of lenders. Finally, a robust integration plan ensures seamless transfer of governance control and capital responsibilities, minimizing disruption during the transition and safeguarding long-term asset value for all parties involved.
