What should housing associations consider when agreeing a joint venture?

The result of a joint venture should be that the whole will be greater than the sum of parts. Any practical, operational or cultural obstacles that might inhibit a smooth collaboration should be highlighted as soon as possible and, if appropriate, a contingency plan or solution should be discussed.

If the JV includes a local authority or other public body, then it is important that there is no risk of being in breach of the subsidy control regime, which replaced the state aid rules in January 2023.

Otherwise, there may be consequences for unlawful funding that could include the money being recovered.

As with any investment, it is important to ensure agreed outcomes are delivered, and risks and liabilities are mitigated.

Effective management processes should be designed from the outset that build in relevant and appropriate obligations.

These should include information sharing procedures to ensure transparency and accuracy, user guides that clearly set out obligations so that complex legal documents can be more easily navigated.

There should also be mechanisms for any behavioural complaints and handover strategies should one of the parties leave the JV.

Tax considerations should also be factored into plans, as unexpected liabilities could damage the economics of the joint venture when dealing with profit and cost sharing arrangements and going through the planned transfer of completed houses.

Therefore, it is important to seek advice from relevant financial advisors prior to entering any legal arrangements.

Once these factors have been discussed and decided, the next step prior to agreeing legal paperwork is to confirm a detailed heads of terms that covers key areas of contribution, risk and reward.

These can include procedural situations, for example, in the event that one party does not invest in the joint venture in accordance with the business plan.

In this situation, other parties can be left with unexpected and increased costs or liabilities. To ensure that any dispute is minimised, mechanisms – including compensation – should be decided in advance.

In some circumstances, the agreed terms are structured so that the majority of risk is weighted towards one party, but profits are still split equally.

It is important for successful joint ventures that both risk and reward are divided equally between the parties. It is therefore vital that expectations are clearly allocated from the outset of the arrangement and agreed by all parties.

Exit strategies should also be planned from the beginning of the JV and putting exit mechanisms in place from the start is the best way to ensure an amicable and cost-effective parting.

Considerations should include the continuing liability of any exiting party to cover potential issues that only become known post exit, for example, defects arising once the development is in use.

Ensuring management arrangements apply throughout the joint venture’s lifetime, including on the exit of a JV party, is also crucial.

It enables issues and non-performance to be identified and dealt with earlier, reducing costs, risk and liability. It also ensures ongoing reporting or compliance obligations continue to be fulfilled.

Comprehensive provisions should also be included in the documentation to deal with disputes or a defaulting party.

While there are many factors to consider and setting up a joint venture can be a complex and detailed process, they can prove fruitful for HAs and local authorities under pressure to deliver more affordable housing.

It can also benefit house builders whose output is showing signs of decline due to a variety of factors, including increased material and labour costs, inflation and planning delays, that put scheme viability into question.

However, as with any JV, it is important to ensure that all eventualities are accounted for and potential disputes are minimised from the outset to help for smooth process and productive working relationship.

Joanna Lee-Mills, property development expert; Jon Coane, finance expert; and Rachel Gwynne, corporate expert, Shakespeare Martineau