Joint Venture Real Estate Contracts in Ontario: A Lawyer's Guide to JV Agreements

Intro: What Is a Real Estate Joint Venture?

Everybody, welcome to another episode of CRESI’s Ontario Landlord Series, where today we’re going to be discussing everything to do with putting together a joint venture. What is a joint venture, you ask — otherwise known as a JV? Simply put, it’s a business arrangement where two or more companies or people collaborate on a certain project.

It involves sharing resources, risks, and profits, which allows the parties to leverage each other’s strengths and expertise for mutual benefit. Joint ventures are a common structure for those investing in and developing real estate, which is why today we’re speaking with my friend and colleague, Mr. Shawn Quigg, a lawyer from Cardinal Law, where his firm specializes in helping investors, landlords, and entrepreneurs with estate planning, real estate transactions, and of course, joint ventures.

Shawn, how are you doing today?

The Profit Promise: Why JVs Matter

Thank you so much for having me on, and I hope a joint venture involves some profit — otherwise, what’s the point? That’s why we’re all doing this, that’s why we’re investors in real estate — to turn a profit. So for joint ventures, I’m going to share the four things I think are key to putting together a joint venture contract, and then I’ll let you take over as the professional to explain and break each of them down. Simply put, I think it has to be a written agreement

where both sides have separate, independent legal advice — let’s keep it independent, not talk about it together. The second is an exit strategy, or multiple exit strategies. Having a plan for cash calls, in case something isn’t going exactly according to plan, so you have the ability to get more funds if needed.

And lastly, the one nobody wants to think about — same reason you’ll get annoyed with me for saying this: I don’t even have a will yet. No one wants to think about death. But you need some kind of plan in case something goes sideways,

or you need an immediate exit because of a divorce or another financial situation where that asset needs to be sold. So those are my four basics. Shawn, what do you think about those?

Kevin’s 4 Essential JV Contract Elements

It’s almost like you’ve been to law school, Kevin — those are pretty good. I watched a lot of Matlock as a kid.

Legal Foundation: Contracts 101 from Law School

When I talk to anyone about joint ventures, I try to position them as having a life cycle. They’re born when someone finds an off-market — or on-market — deal. Maybe they have the expertise but not the money, or they have the money but not the expertise. Like you said off the top, a joint venture is really a collaboration —

it’s the combination of skills and resources to generate profit, and profit can look all sorts of different ways. It can be monthly cash flow, it can be a flip — the profit generated on a flip. It could be long-term appreciation, it could be mortgage paydown.

If we get into rent-to-own, it can be all sorts of different buckets. But I like the four things you identified, because those are big milestones within the life cycle of a joint venture. You started off with a written contract.

So going all the way back to law school, which for me was several years ago — one of the first things we learned was that a contract is “a meeting of the minds.” There’s a Latin term for it, but that doesn’t matter — a meeting of the minds is what forms a contract. You might think, okay, that’s a little simple, and you’re right, it is. So let’s get a little more complex.

There are three components that make up a contract — you must have all three for it to be a valid contract. One is an offer.

So if you and I are doing a deal, I’d say, “Hey, I found this deal, I need your money, Kevin, because I hear you have a lot of it. I’ve got the skill set,

I’m going to offer you a spot in this deal.” That’s the offer. The second component required for a contract is acceptance.

So, Kevin, you’d have to put your hand up and say, “Yeah, I’m in.” And third,

there must be consideration that flows both ways. Consideration is in the proverbial eye of the beholder — the courts aren’t going to step in and say what constitutes consideration, as long as there is something. This comes from a long line of cases going back to England, in a case known as the peppercorn case, where a judge had to rule on whether a contract was valid, and in that judgment said something to the effect that even a peppercorn would count as valid consideration — which stands for the proposition that anything can be consideration, as long as both parties consider it consideration. So in this case, I’m saying: hey,

Kevin, you’re going to put in your hundred grand, we’re going to buy this property together, you’re going to get half the cash flow, and you’re going to get half the profits when we sell — what do you think?

The Peppercorn Case: What Makes Contracts Valid

There’s my “hell yes.” All right, we have a contract. So those are the three components. Then we get into what that contract actually looks like.

So we’ve just formed a contract — now what matters is the evidence of the contract. Evidence comes down to provability — whether or not you can prove you had a contract. The thing is, you can have a contract just by talking. You can have an oral contract. That doesn’t make it smart.

Just because you can do something doesn’t mean you should. Having a verbal contract is “no bueno” for joint ventures. I can tell you, back in 2021 and 2022, when real estate was all the rage and everything was flying off the shelf with 15% appreciation a month, I couldn’t draft JV agreements fast enough. Now that the market has cooled, it’s how quickly can I get people out of them.

You’d be surprised how many people show up with a contract they drafted themselves, no contract at all, or a template pulled from a Facebook group where they inserted some names, nobody bothered reading it, everyone signed, and off they went. Friends don’t let friends draft their own contracts. You mentioned independent legal advice — whether it’s me or another lawyer who works with real estate investors — if you’re considering a joint venture agreement, you shouldn’t think about doing it until you get some independent legal advice.

What that independent legal advice does is help you understand the pros and cons of the deal. Good lawyers aren’t there to kill deals — bad lawyers kill deals, because they don’t want to take the time to understand the deal, or don’t want to take the risk of advising you to do something and then have it not work out and get sued. That’s the honest truth —

that’s how a lot of traditional lawyers operate. What a good lawyer does is tell you: here are the pros, here are the risks, and here’s how to mitigate them. Are you willing to accept these risks? One thing I tell people, Kevin, and I think we’ve talked about this — if you want to make money, you have to take risks.

Interest rate is a reflection of risk taken; rate of return is a reflection of risk. So you can’t put in your hundred grand without accepting some risk of losing it. The way we spread out the pros, cons, and risks is by writing it down and negotiating the terms.

You might say, “I want a cap on my loss of $75,000, so only $75,000 of my capital is at risk, and I want you, Shawn, to cover the other $25,000.” And I might say no, or I might agree — right?

Those are the sorts of things that good independent legal advice helps you understand, capture, and put into the document.

Independent Legal Advice: Why You NEED It

A lot of it, I think, is guidance — here are your options, here’s what’s going to happen so you’re aware, pros and cons, let’s evaluate everything and take a good look at it. And at the end of the day, it’s always that investor’s, that landlord’s, that person’s decision. As long as they have the proper guidance and advice to cover every situation or scenario — not just “here’s option A, so you’d better do option A.”

Right. A good lawyer helps you understand what the writing means, and a really good lawyer drafts it in a way that makes sense to the everyday person. It’s easy for lawyers to get caught up in legalese, because we’re trained on it —

but the regular investor doesn’t care about any of that. They want to read it, understand it, and move on with their day — it should be in plain language. So that’s a great point to start on, and that’s the birth of the JV life cycle — the deal, then the contract. What was your second point?

Exit Strategy Planning: Multiple Ways Out

Exit strategy — how are we going to get out of this, what are our ways out? Hopefully we have option A, the great one where we all make money, but what’s option B, C, and so on? We have to know how we’re going to get out. Here’s the thing I learned early on, in business and in law — if you’re starting a venture of any kind, you need to plan for the exit, because it’s not smart to start a venture thinking you’re going to own it for your whole life. That can actually be a very poor use of capital and time. So you’re absolutely right —

you want to plan an exit strategy, and the exit starts with: what’s our primary objective? Is this a BRRRR? Is this a flip? What is it?

If you’re an institutional investor, you’re probably buying a premium product and earning a 3% or 5% cap, paying your investors, and everything’s fine — you’re not necessarily buying value-add buildings. But most people at our level are buying value-add properties, because they need to get their capital in, refinance it out, and move on to the next one. In a long-term hold, you build your exit backward.

When do we want to exit? Traditionally we see a five-year post-stabilization exit, with options to extend if the good times are rolling.

Why not keep them going? So working backward on your exit strategy is so important, and this ties back to the importance of drafting. We talk about the options for exit strategy, and exit can look very good —

“Okay, our five years are up, I’ve enjoyed the ride, but I’m going to get off now,” and that’s fine, and if it’s drafted correctly, it gives each party the option to do that, if that’s what they want. Exits can look not so good, too — your fourth point was about sudden exits, and we’ll get to that in a minute — but you need a roadmap for those as well. If you’ve got a flip, your exit is probably not based on time but on milestones or events, like finishing the project.

I don’t know if you’ve done many flips, or any real estate project, but there’s never been a single one that’s gone perfectly, on time, on budget, with no issues whatsoever — that’s never happened. So tying a flip’s exit to a set time makes no sense, because it doesn’t account for something else happening. On my second flip, we got in there, opened up the walls, and had to replace all the electrical and plumbing — that wasn’t in the project plan.

That added a couple of weeks and a bunch of money. Luckily, our joint venture agreement wasn’t based on time, it was based on events, so no one was in breach.

Cash Calls: The #1 Source of Partner Conflict

The other point I mentioned was similar to what you’re describing — something goes wrong, and now you need a cash call: more time, more money. We only had X in the budget, and now we need to pull another $10,000 —

five from you, five from me, whatever it may be. Cash calls are the biggest source of conflict between joint venture partners, simply because the expectation is usually, “if I’m the money partner putting in a hundred grand, that’s it.” What I tell my active-partner clients is to prepare their money people for worse — way worse than that. Prepare them to expect they might need to put in double,

because no project ever goes perfectly. If you set the tone early that you’re fully expecting capital expenses or renovation costs to run 40 to 50% more, and the project still pencils out, then when it happens, your money partner isn’t nearly as upset. But if you set the expectation at a hundred grand, no more, and then you need another $50,000 three weeks later, that’s a problem. Planning for cash calls isn’t just about the terms of the contract, it’s about the relationship.

When people ask what they should think about before entering a deal, I tell them the relationship with your partner matters more than the contract. Set the tone early, set expectations, both good and bad — here’s what you can expect from me, and boundary expectations too, like “we’re going to speak once a month unless

operations require more, but no phone calls at 3 a.m., no daily check-ins.” You’ve got to set expectations, or you’ll get bogged down.

So, to your point on cash calls — it’s very important to get the language right, have those conversations early, and set the expectation that there likely will be a cash call.

Communication Expectations: Setting Boundaries

Another point I think is key is communication — how often, when, and so on. Communication, like any relationship, is huge — business or otherwise, both sides have to understand one another and what’s going on. If one person thinks you’re talking every week and the other thinks it’s every month, those three weeks in between, that person’s going to be worried or calling you.

Communication is huge, and it’s about setting expectations and then meeting them. Do what you say you’re going to do — that’s the number-one way to keep your partners happy. On top of the cash calls and expectations, anything done at any scale — nobody wins if the project doesn’t get completed. You have to get to the end.

You have to get through it. Be prepared for the hiccups and bumps, but you have to be able to finish, or it doesn’t work out for anyone. Everyone just loses, and there’s been a lot of that recently — the last two years have been a real grind.

If you’re a landlord or an investor out there, you know what I’m talking about.

Recent Market Reality: $14B in Losses

So much fun. Your last point was about sudden exits. Sudden exits can look very different, and you have to classify them. Some are involuntary —

death, incapacitation. Those are treated differently, and generally, when I’m drafting, I advise treating those circumstances more gently than voluntary early exits, because if someone dies or suffers a serious injury and can’t participate anymore, that’s not their fault. It might have been an accident, it doesn’t really matter, but they didn’t do something related to the venture itself that caused the exit. There are other types

of early exits that need to be treated more firmly, especially for an active partner. In all my time doing this, the vast majority of people who want to exit early are money partners. We’re talking about the traditional joint venture of a skilled person and a money person. The majority who want to leave early are money people, which puts the active partner in a difficult spot, because their payoff is based on time.

Assuming we’re not talking about a flip, their payoff is based on time — the more time in the deal, the better. Most of their work is front-loaded — bringing the property up to standard, getting it rented, stabilizing it.

So to get paid off, they need the cash flow over those three, four, five years, plus the mortgage paydown. The money person is in it for a return, and might prefer to exit early if they need the cash for something else, or aren’t seeing the return they expected.

That needs to be treated a bit differently in my view, especially when I’m representing the active partner, which is mostly who I represent, because it puts a disproportionate disadvantage on them. So I generally like to build in the option to exit early, but with a cost — if a partner wants out, they give up a portion of their share to the other side, and the further along in the joint venture, the smaller the percentage given up. That way we’re matching the disadvantage,

balancing it out.

Partner Selection: Money vs. Skills vs. Track Record

What else can we pick apart here? Let’s talk about selecting partners. Money is a commodity —

your five-dollar bill is worth the same as mine. So what that means for a money person — have you read Money People Deal, by Stefan Aarnio? Great book. It really sets out that there are three components to any deal — money, the people involved, and the deal itself, the opportunity.

One of the things the book talks about is being wary of each component. A deal is a deal if it pencils out under conservative assumptions. The people involved generally have to be good people — skilled in some sense, and connected. If you don’t know enough, you need a mentor to help you, because especially as an active partner, you’re a steward of someone else’s money. And then there’s the money piece —

it’s obviously important, but like I said, your five-dollar bill is worth just as much as mine. So for landlords out there, if you’re partnering with someone with money, you need to pick the right partner. What does that mean? Number one, don’t work with someone who’s going to invest every last cent they have. That’s a person who hasn’t reached the ability to operate at the scale they’re trying to, and they need to scale down.

They need to be able to afford to lose it. Putting up your entire life savings on one project means you can’t afford to lose that. You want to work with someone who can afford to lose it, because that’s a real possibility. It’s rare, but as you said, $14 billion is exiting the market in valuations right now.

So it’s important to make sure you’re working with the right person. If you’re a money person looking for an operator, there are generally two kinds of people — those who can show you a track record, and those just getting started who don’t fully know what they’re doing yet. I generally encourage people that if they’re partnering with someone just getting started in real estate, that’s okay,

as long as that person has a mentor behind them who can show a track record and help them make good decisions and be a good steward of money. We all started somewhere — I remember my first real estate project, and I’m sure you remember yours. If you’re going to partner with someone with very little experience, that’s okay,

but you need to make sure they have some guidance behind them, because that’s not your job as the money partner — if you were the one giving all the guidance, you might as well just do the project yourself. Monika Jazyk’s group, RPI, works with people to help them understand and get guidance for their projects — the BRRRR strategy is specifically what her group teaches and works with people on most.

Having someone who knows exactly what they’re doing, to guide you through the entire process, especially early on, matters a lot. Monika and her group know exactly what they’re doing and have been doing it a long time. Great people to have in the background — and their students might be new, but that doesn’t mean they won’t be good operators.

We all start somewhere.

Final Advice: The Cheapest Insurance Policy

That’s been a great conversation. Anything else you’d want to throw out there before we wrap up? What I encourage people to do, if they’re getting into real estate or want to keep going, is talk to other people. If you’re going to partner with someone, have a few conversations with them about things other than real estate before you partner up.

Get good legal counsel. No one really wants to pay a lawyer, but it’s the cheapest insurance policy you can buy. That few hundred dollars, or a couple thousand bucks, is the best money you can spend, because the number of people who show up having spent tens of thousands of dollars on litigation, because they didn’t have a well-drafted contract, would shock you — and you can avoid a lot of that. One of the things I tell people as we’re preparing to draft a joint venture contract is that we need to create a pathway

to all outcomes. If we can map a contractual path to every possible result, there’s never any ambiguity, and there’s nothing to argue about. If this happens, this is the result — this is the process we go through, this is the result, and if it happens, we just go through it.

There’s no arguing, because once a problem shows up, it’s too late to agree on something — that’s when emotions get involved in everything.

If you have it drafted, you can be as emotional as you want, but it doesn’t matter, because the writing is there and you signed it.

Upcoming Investor Summit Details

That’s a lot of great advice. You mentioned talking to people and getting around others doing this — I’ll use that to plug the Investor Summit, where we’ll have a whole range of investors and educators, speakers like Shawn, to educate and inform landlords and investors. It’s in the fall — more details to come, but the next one is September 25th, out in Markham.

Shawn, thanks so much for joining us today, it’s been a pleasure. I hope everybody took notes — Shawn’s contact information will be in the description below, so you can click through and connect with him.

And if you can’t reach him, reach out to me and I’ll connect you. He’s a great person to have on your side. Thanks so much, Shawn. Thanks for having me, Kevin. Bye for now, folks.

We’ll see you again. Please remember, while we are professionals, this podcast is for informational and entertainment purposes only. The advice shared may not apply to your unique situation. Always seek personalized advice from a qualified professional before making any investment decisions.

Hey everybody, thanks so much for joining us this week. I hope you enjoyed the episode. If you’re finding it informative and useful, make sure to like, subscribe, share with a friend so that we can keep getting

the information out there to Ontario landlords, and keep on joining us. We’ll see you next time.