Contractual Joint Venture Agreement

thejourney

Person A lives in Uk.

Person B lives in Ireland

Person B wants to purchase house with Person A in Cork.

Person A puts up 350,000 euro's and person B puts up 50,000. (400,000)

They write up a Joint Venture Agreement . In it they put the following:

They put together a Contractual Joint Venture Agreement and both parties sign.

They plan to rent and sell house in 10 years.

Person A puts up 350,000 of the money.

Person B gives up there time and local knowledge to buy property. Person B looks after the property and fixes any problems. They put up 50,000 of the money also.

The profits a shared 50/50.

Person B pays his tax in Ireland on half the rent income, and pay's CGT when the property is sold.

Person A pays his tax in Uk on half the rent income, and pay's CGT when the property is sold.


The question:

How do both parties pay the seller for the purchase house? Do they both put 200,000 into sellers lawyers account until its accepted?

Can person B sign for person A?

How do both parties split the rent ? Do they get it put into one account and both withdraw? or do they get it put into person B's account and one pays the other?

Interested to see the answer. To see if they match mine.

barneystinson

What's the basis for a 50:50 split of rents, since the property appears to be owned 87.5:12.5?

If the property isn't owned 87.5:12.5 and is registered as owned in equal shares, then there's a 150k gift at the outset, by the person putting in the 350k.

Peregrinus

No, not necessarily. Person B is doing the bulk of the legwork involved in identifying the property, negotiating the purchase, finding the tenant and then managing the tenancy on an ongoing basis, and a disproportionate share of the rent may be the agreed quid-pro-quo for that.

The OP doesn't say, though, what will happen when the house is sold in 10 years time. How will the proceeds be allocated? I'm assuming in proportion to the initial contributions. If they were divided 50:50, that would look a lot like a gift.

OP, in answer to your questions:

Jointly, A and B pay the deposit when the contract is signed, and they pay the balance when the contract is completed and ownership of teh house transferred. How they arrange their respective contributions to these payments is a matter for them; the seller doesn't care, as long as he gets the money. Logic suggests that they should contribute 87.5:12.5 to both payments, but they can agree something different if they like.

B can sign on behalf of A provided he has a duly executed, properly worded, still current power of attorney enabling him to do so. The power of attorney will have to be executed by A.

As to splitting the rent, they can handle this any way they agree to handle it. The obvious arrangement is to have the rent paid by the tenant into a joint account set up in both their names, but in practice routinely operated by B. B pays any proper expenses and outgoings out of the account and, at the end of every month/quarter/whatever period they agree pays the net rent remaining to himself and A in the agreed proportions. He also keeps accounts showing the rent received, the expenses etc paid out, and the net rent distributed and he sends these to A along with the net rent. As A is an accountholder if he thinks he's being dudded he can withdraw his mandate and have the account frozen at any time.

Which highlights an important point. This is only going to work if A and B trust one another. If they don't trust one another, or cease to trust one another, there is no legal magic want you can wave that will make this relationship functional.

thejourney

Peregrinus wrote: »

No, not necessarily. Person B is doing the bulk of the legwork involved in identifying the property, negotiating the purchase, finding the tenant and then managing the tenancy on an ongoing basis, and a disproportionate share of the rent may be the agreed quid-pro-quo for that.

The OP doesn't say, though, what will happen when the house is sold in 10 years time. How will the proceeds be allocated? I'm assuming in proportion to the initial contributions. If they were divided 50:50, that would look a lot like a gift.

OP, in answer to your questions:

Jointly, A and B pay the deposit when the contract is signed, and they pay the balance when the contract is completed and ownership of teh house transferred. How they arrange their respective contributions to these payments is a matter for them; the seller doesn't care, as long as he gets the money. Logic suggests that they should contribute 87.5:12.5 to both payments, but they can agree something different if they like.

B can sign on behalf of A provided he has a duly executed, properly worded, still current power of attorney enabling him to do so. The power of attorney will have to be executed by A.

As to splitting the rent, they can handle this any way they agree to handle it. The obvious arrangement is to have the rent paid by the tenant into a joint account set up in both their names, but in practice routinely operated by B. B pays any proper expenses and outgoings out of the account and, at the end of every month/quarter/whatever period they agree pays the net rent remaining to himself and A in the agreed proportions. He also keeps accounts showing the rent received, the expenses etc paid out, and the net rent distributed and he sends these to A along with the net rent. As A is an accountholder if he thinks he's being dudded he can withdraw his mandate and have the account frozen at any time.

Which highlights an important point. This is only going to work if A and B trust one another. If they don't trust one another, or cease to trust one another, there is no legal magic want you can wave that will make this relationship functional.

Thanks for the detailed reply.

This is a genuine question about two people trying to do business, A joint venture is not a vehicle or legal entity in itself - it refers just to an arrangement to share revenues, costs, profits or losses.

If the joint venture is going to open a bank account then either a partnership has to come into existence or one of the joint venture participants will have to open a bank account in its own name?

The problem with the above is that if Person B sends money in person A personal bank for example 300,000 euros to conduct repairs after purchase revenue is going to see its as a gift even though its going to be used for construction of joint venture.

They must have a business account or joint account. So any suggestions/ case studies of a simliar set up


IF person B is from the Uk and have no address in Ireland. Can they open an account in Ireland? Can person B open a joint account for person A?


How can Person A get power of attorney from person B? Does he just get a document to sign in Ireland written up and sent to him


Does Contractual Joint Venture Agreement exist in Ireland? Is this a legal entity?


The selling off the house in 10-15 years will be split as follows. 50

Both parties get back 350,000 and 50,000 respectively and afterwards
the profits are then split 50/50 on the remaining profits. Both parties pay CGT etc in there own country

CIARAN_BOYLE

don't forget that person a will have to file tax returns in both ireland and the UK annually for rental income and for cgt purposes.

NUTLEY BOY

Obiter, it would be wise for such a contract to incorporate two conditions ;

1. A statement of which law applies to the contract e.g. Irish law.

I think that this would be helpful where the contracting parties are from two different jurisdictions.

2. If you want to oust the jurisdiction of the courts - in so far as you can - incorporate a condition which states how disputes under the contract will be resolved e.g. arbitration.

thejourney

I think this the future of doing business. In all walks of life there are joint ventures without forming a legal partnership

Horse racing
Playing the lotto
Buying real estate
R&D
Farming


The 1896 partnership act outlines a different agreement, is that correct?

thejourney

CIARAN_BOYLE wrote: »

don't forget that person a will have to file tax returns in both ireland and the UK annually for rental income and for cgt purposes.

Yeah, I will write that in my answer that everyone is responsible for their own tax

Peregrinus

thejourney wrote: »

Yeah, I will write that in my answer that everyone is responsible for their own tax

Not so fast! If you're paying rent to a non-resident landlord (and this is what the tenant in the house will be doing, in respect of 50% of what they pay) there's a witholding obligation - i.e. the tenant withholds 20% of the rent and accounts for it to the Revenue. The landlord can get a credit for that against his Irish tax liability, so it all comes out in the wash, but it's an administrative complication that in practice could well affect both landlords. So I don't think each can wash his hands of the other's affairs; unless they are both in order, both could be adversely affected.

There are ways to avoid the withholding obligation, and obviously you'll want to explore those.

Obviously, you're going to need a solicitor to act for you in buying the house. Ask that same solicitor to act in drawing up the agreement between you as to how you will share the cost, handle the rent, sell the house, etc, etc. (Yes, you need a clear written agreement drafted to cover all eventualities, and you definitely need a well-informed and personally-uninvolved person to assist you in drawing up that agreement.) A lot of the practical questions you have will be asked and answered in the course of drawing up that agreement.

Pat Mustard

thejourney wrote: »

I think this the future of doing business. In all walks of life there are joint ventures without forming a legal partnership

Horse racing
Playing the lotto
Buying real estate
R&D
Farming


The 1896 partnership act outlines a different agreement, is that correct?

Under certain circumstances, a court can find that a partnership exists under the Partnership Act 1890, even where the parties have drawn up no written or formal partnership agreement.

See the cautionary tale of the Smiths in Joyce v Morrissey & Ors.

thejourney

Peregrinus wrote: »

Not so fast! If you're paying rent to a non-resident landlord (and this is what the tenant in the house will be doing, in respect of 50% of what they pay) there's a witholding obligation - i.e. the tenant withholds 20% of the rent and accounts for it to the Revenue. The landlord can get a credit for that against his Irish tax liability, so it all comes out in the wash, but it's an administrative complication that in practice could well affect both landlords. So I don't think each can wash his hands of the other's affairs; unless they are both in order, both could be adversely affected.

There are ways to avoid the withholding obligation, and obviously you'll want to explore those.

Obviously, you're going to need a solicitor to act for you in buying the house. Ask that same solicitor to act in drawing up the agreement between you as to how you will share the cost, handle the rent, sell the house, etc, etc. (Yes, you need a clear written agreement drafted to cover all eventualities, and you definitely need a well-informed and personally-uninvolved person to assist you in drawing up that agreement.) A lot of the practical questions you have will be asked and answered in the course of drawing up that agreement.

What type of business structure would be most commonly used by the agreement I mentioned above ?

Have been looking through my book but can't find it

Is a joint venture agreement a more american thing? Whats the Irish legal term for that type of agreement ?

Mr. Incognito

Anti avoidance tax provisions catch this including stamp duty.

It will be looked through by Revenue

thejourney

Mr. Incognito wrote: »

Anti avoidance tax provisions catch this including stamp duty.

It will be looked through by Revenue

I don't understand you reply. In the example no one is trying to avoid tax. They just want to purchase a house. They plan to pay all the taxes due from forming a joint venture or partnership.

whichever its called

Peregrinus

thejourney wrote: »

What type of business structure would be most commonly used by the agreement I mentioned above ?

Have been looking through my book but can't find it

Is a joint venture agreement a more american thing? Whats the Irish legal term for that type of agreement ?

Basically, what you're doing here is co-owning a house, and agreeing with one another about how the house will be managed.

There's no absolute legal requirement to have a written agreement about this at all, and very commonly there is none. Spouses often own houses together, as do siblings who co-inherit.

But when you're not married, and you're acquiring this house as an investment decision, it's wise to be very clear about your shared intentions, and the easiest way to do this is to write down what you have agreed. Not only does this make for clarity in the even of a dispute later on, but it often makes for clarity in the sense that the very discipline of drawing up the agreement makes you think about, and reach agreement about, aspects of the relationship that you haven't fully thought through up to that point. (When will the house be sold? What if one co-owner wants to sell, and the other doesn't? What if one needs a quick sale, and the other wants to hold out for a better price? These are not questions you want to put off until one of you wants to sell and the other doesn't.)

There isn't a particular name for this kind of agreement. You can call it a co-ownership agreement if you like, but there's nothing magic about that. Nor do you have to register it; it's not part of the title documents to the house. And even when it's up and running, if it isn't running well for some reason of if new or unforeseen circumstances arise you can vary it (by agreement).

thejourney

Peregrinus wrote: »

Basically, what you're doing here is co-owning a house, and agreeing with one another about how the house will be managed.

There's no absolute legal requirement to have a written agreement about this at all, and very commonly there is none. Spouses often own houses together, as do siblings who co-inherit.

But when your not married, and your acquiring this house as an investment decision, it's wise to be very clear about your shared intentions, and the easiest way to do this is to write down what you have agreed. Not only does this make for clarity in the even of a dispute later own, but it often makes for clarity in the sense that the very discipline of drawing up the agreement makes you think about, and reach agreement about, aspects of the relationship that you haven't fully thought through up to that point. (When will the house be sold? What if one co-owner wants to sell, and the other doesn't? What if one needs a quick sale, and the other wants to hold out for a better price? These are not questions you want to put off until one of you wants to sell and the other doesn't.)

There isn't a particular name for this kind of agreement. You can call it a co-ownership agreement if you like, but there's nothing magic about that. Nor do you have to register it; it's not part of the title documents to the house. And even when it's up and running, if it isn't running well for some reason of if new or unforeseen circumstances arise you can vary it (by agreement).

Based on your reply: I found this

https://www.netlawman.ie/d/tenants-in-common-agreement

Here is the agreement I think thats the one you stated

I think the co ownership one below is different

https://www.netlawman.ie/d/residential-property-tenants-in-common

How would a person living outside of Ireland open an Irish bank account with a person living inside of Ireland?

Peregrinus

thejourney wrote: »

Based on your reply: I found this

https://www.netlawman.ie/d/tenants-in-common-agreement

Here is the agreement I think thats the one you stated

I think the co ownership one below is different

https://www.netlawman.ie/d/residential-property-tenants-in-common

Neither of these are spot-on. The first converts from a joint tenancy (one form of co-ownership of property) into a tenancy-in-common (another form). This is not what you will be doing. The second relates to a property in which both co-owners will live. That's not what you will be doing either.

Seriously, you're making an investment worth hundreds of thousands of euros. You do not want to be supporting this with documentation downloaded for free off the internet. You will need a lawyer to buy the house in the first place; get him to help you work out what in detail how you intend to manage the place, and to document it. It is a false economy not to pay for this.

thejourney wrote: »

How would a person living outside of Ireland open an Irish bank account with a person living inside of Ireland?

Talk to the bank. They do have "know your customer" requirements under the money-laundering legislation, so they will need to have direct contact with both customers when setting up the account, but it can be arranged so that day-to-day operation can be handled by one of them.

The account will be treated a a resident account and will suffer dirt. So you won't want to have too much money sitting around in it. Move it out quickly to the personal accounts of the two owners.

thejourney

Peregrinus wrote: »

Neither of these are spot-on. The first converts from a joint tenancy (one form of co-ownership of property) into a tenancy-in-common (another form). This is not what you will be doing. The second relates to a property in which both co-owners will live. That's not what you will be doing either.

Seriously, you're making an investment worth hundreds of thousands of euros. You do not want to be supporting this with documentation downloaded for free off the internet. You will need a lawyer to buy the house in the first place; get him to help you work out what in detail how you intend to manage the place, and to document it. It is a false economy not to pay for this.


Talk to the bank. They do have "know your customer" requirements under the money-laundering legislation, so they will need to have direct contact with both customers when setting up the account, but it can be arranged so that day-to-day operation can be handled by one of them.

The account will be treated a a resident account and will suffer dirt. So you won't want to have too much money sitting around in it. Move it out quickly to the personal accounts of the two owners.

Probably better to have it paid into one account (Person in Ireland). And have him transfer it to the other. Eg irish man get 500 per month rent into account, then sends 250 to uk man...irish man only pays his share?

As its self declare it won't be taxed at source, so tax man can't tax that person on the full sum of money

Yeah, talk to lawyer is best bet for this agreement

Also can the agreement be one person puts up all the capital and the other puts up there time managing the houses and its problems, but they both own 50%?

Peregrinus

thejourney wrote: »

Probably better to have it paid into one account (Person in Ireland). And have him transfer it to the other. Eg irish man get 500 per month rent into account, then sends 250 to uk man...irish man only pays his share?

As its self declare it won't be taxed at source, so tax man can't tax that person on the full sum of money

Yeah, talk to lawyer is best bet for this agreement

Also can the agreement be one person puts up all the capital and the other puts up there time managing the houses and its problems, but they both own 50%?

Each is liable to tax on his share of the rent; I think you said it would be split 87.5:12.5. It doesn't matter how you route this through bank accounts or who owns the accounts; that's a matter of administrative convenience, but each is taxed on the amount he is entitled to, regardless of how it gets to him. So organise the bank accounts however is convenient for you, but keep proper accounts showing what was received from the tenant, what was paid out (for repairs, insurance, etc) and what net amounts were distributed to the two co-owners.

Yes, you can have an agreement which says that A puts up the purchase money, B does all the practical work of managing the property, and split the rent 87.5:12.5 and they own the property 50:50. But that does look like a very generous reward to B for managing the property - a far bigger reward than you would have to pay a property manager in a commercial arm's-length relationship. So expect the Revenue to take the view that B is getting a substantial gift here, on which he must pay CAT. Also consider B's capital gains tax position when he comes to sell the house; if A puts up all the money then B's acquisition cost for his half-share is nil, so his entire share of the proceeds is a gain, and will be taxed accordingly.

Marcusm

Peregrinus wrote: »

Each is liable to tax on his share of the rent; I think you said it would be split 87.5:12.5. It doesn't matter how you route this through bank accounts or who owns the accounts; that's a matter of administrative convenience, but each is taxed on the amount he is entitled to, regardless of how it gets to him. So organise the bank accounts however is convenient for you, but keep proper accounts showing what was received from the tenant, what was paid out (for repairs, insurance, etc) and what net amounts were distributed to the two co-owners.

Yes, you can have an agreement which says that A puts up the purchase money, B does all the practical work of managing the property, and split the rent 87.5:12.5 and they own the property 50:50. But that does look like a very generous reward to B for managing the property - a far bigger reward than you would have to pay a property manager in a commercial arm's-length relationship. So expect the Revenue to take the view that B is getting a substantial gift here, on which he must pay CAT. Also consider B's capital gains tax position when he comes to sell the house; if A puts up all the money then B's acquisition cost for his half-share is nil, so his entire share of the proceeds is a gain, and will be taxed accordingly.

Surely you have that split the wrong way around be; I understood it to be a 50:50 split of the rents and of any profits arising on sale. Separately one would expect each of the co-owners to recover their capital in the ratio in which it was contributed, is 7:1.

Peregrinus

Yes, you're right, I have got it wrong. The original proposal was that they would contribute the purchase moneys 87.5:12.5, but split the net rents and the proceeds of sale equally. That's still very unbalanced, though; it's hard to avoid concluding that there's a substantial gift being made.

thejourney

Peregrinus wrote: »

Yes, you're right, I have got it wrong. The original proposal was that they would contribute the purchase moneys 87.5:12.5, but split the net rents and the proceeds of sale equally. That's still very unbalanced, though; it's hard to avoid concluding that there's a substantial gift being made.

No. the guy from the uk will also get his original investment back

So to make it clear as your advice is top class so far!!

Uk guy puts up 200.000 (all the capital)
Irish guy put up time to fix and rent it, all paper workon the property over 15 years

Each year they split the profits 50:50 on the rent

In 15 years they sell for 300,000

uk guy gets his investment back 200,000 plus 50,000 from the sale

Irish guy gets 50,000 from the sale

Peregrinus

It's still a suspiciously generous deal. The UK guy is handing over half the rental income, plus half the capital appreciation in the house, to the Irish guy in return for the Irish guy managing the rental. The UK guy could get an Irish estate agent to manage the rental for much less than half the rental income, plus no part at all of the capital appreciation in the house so, yeah, the excess over the commercial value of the services provided by the the Irish guy does look a lot like a gift.

Mind you, if you treat the Irish guy's 50% share of the rental as income, he pays income tax on it. If you treat most of it as a gift, he pays gift tax on it and, depending on the circs, that could be a much lower liability, or nil. Similarly, having his share of the sale proceeds treated as a gift rather than as a capital gain might work out well for him.

You haven't explained why the UK guy wants to enter into this (on the face of it, very unusual and very disadvantageous) deal. Might be wise for the two of them to trot off to a tax consultant and explain what they want to achieve, and let him[/] suggest a tax-efficient way of achieving it. At the moment the whole thing looks a bit artificial, and that's always risky from a tax point of view.

thejourney

Peregrinus wrote: »

It's still a suspiciously generous deal. The UK guy is handing over half the rental income, plus half the capital appreciation in the house, to the Irish guy in return for the Irish guy managing the rental. The UK guy could get an Irish estate agent to manage the rental for much less than half the rental income, plus no part at all of the capital appreciation in the house so, yeah, the excess over the commercial value of the services provided by the the Irish guy does look a lot like a gift.

Mind you, if you treat the Irish guy's 50% share of the rental, he pays income tax on it. If you treat most of it as a gift, he pays gift tax on it and, depending on the circs, that could be a much lower liability, or nil. Similarly, having his share of the sale proceeds treated as a gift rather than as a capital gain might work out well for him.

You haven't explained why the UK guy wants to enter into this (on the face of it, very unusual and very disadvantageous) deal. Might be wise for the two of them to trot off to a tax consultant and explain what they want to acheive, and let him[/] suggest a tax-efficient way of acheiving it. At the moment the whole thing looks a bit artificial, and that's always risky from a tax point of view.

The Uk guy invests every year in uk as he is very successful and needs to put money somewhere, he hates to leave it in his bank account, and always investing. He owns hundreds of houses and offices.

He knows and trusts me and wants to have a joint venture. He benefits and I benefits. Of course I benefits a little bit more but have more work.

Perhaps the gift tax could be a way to lower the taxable amount. This will be all above board as he is very strict in business

Peregrinus

I get that he wants to invest in Ireland. The thing is, through the structure you propose he's paying vastly more to invest in Ireland than he needs to pay. It looks like this isn't an investment made purely for financial reasons; he's trying to do you a favour, and accepting a [much, much] lower return on his investment in order to do that. Which is where the gift element comes in.

Peregrinus

Sure. But it really comes down to this; if he pays you more money to do the work than he would pay someone in a commercial, arm's length arrangement, the extra amount he pays you does begin to look like a gift.

Which, as I say, might actually work out quite well for you, tax-wise. You might decide that you want that treatment, in which case you might want to re-jig the transaction to as to call attention to the gifty nature of what your getting, rather than trying to characterise it as rental income or gains.

thejourney

Peregrinus wrote: »

Sure. But it really comes down to this; if he pays you more money to do the work than he would pay someone in a commercial, arm's length arrangement, the extra amount he pays you does begin to look like a gift.

Which, as I say, might actually work out quite well for you, tax-wise. You might decide that you want that treatment, in which case you might want to re-jig the transaction to as to call attention to the gifty nature of what your getting, rather than trying to characterise it as rental income or gains.

yeah, I agree. Better speak to an expert to make sure it all is above board.

If you go to a tax consultant and they give you advice and you follow it. Are they liable if the revenue claims you did something wrong by following the advice of an expert?

That would take a lot of the press off the layman to always know the law. Should they teach law in primary schools to everyone?

Peregrinus

thejourney wrote: »

If you go to a tax consultant and they give you advice and you follow it. Are they liable if the revenue claims you did something wrong by following the advice of an expert?

They are liable (to you, not to the revenue) if their advice was negligent.

thejourney

Peregrinus wrote: »

They are liable (to you, not to the revenue) if their advice was negligent.

Ahh I see, So how much would a consultantion cost with a top tax advisor in Ireland?

Peregrinus

No offence, but I don't think you need a "top tax adviser" for this one. Top tax advisers deal with multimillion dollar structures with correspondingly large tax exposures, and their hourly rates reflect the significance (to their clients) of the advice they get. On this transaction, you don't want to be paying for that.

You're looking for a GP, not a consultant surgeon, so to speak. No idea what they would charge, I'm afraid; presumably, it will depend on how long the consultation takes. Try to get a recommendation from a friend who runs a small business, and then ask them to quote for an initial consultation.

thejourney

Peregrinus wrote: »

No offence, but I don't think you need a "top tax adviser" for this one. Top tax advisers deal with multimillion dollar structures with correspondingly large tax exposures, and their hourly rates reflect the significance (to their clients) of the advice they get. On this transaction, you don't want to be paying for that.

You're looking for a GP, not a consultant surgeon, so to speak. No idea what they would charge, I'm afraid; presumably, it will depend on how long the consultation takes. Try to get a recommendation from a friend who runs a small business, and then ask them to quote for an initial consultation.

Ok, thanks very much for all your replies. They have been very useful. I will seek the help I require. God bless