How Lenders Fund a Joint Venture Property Development
Property Development Finance
Developers and landowners · Lender treatment · Australia
A landowner, developer and capital partner can agree a joint venture that looks commercially fair and still be difficult to finance. This guide explains how an Australian development lender reads the borrower, site, equity, guarantees, security and control rights, how it sizes the facility, what it wants before terms, who funds overruns, and what happens if a partner fails or exits.
Quick Answer
Yes, lenders can fund a joint venture property development. The lender underwrites the borrower and project, then tests who controls the JV, who owns the site, who guarantees, where each party's money ranks, who must fund a cost overrun and whether the security works. A JV does not create a separate LVR or LTC rule.
Start with the party you are
What is a joint venture property development?
A joint venture property development is an arrangement where two or more parties combine land, capital or development capability for one project and share an agreed economic outcome. The legal structure can vary, so the borrower, registered landowner and parties sharing the return are not necessarily the same people or entities.
What are the three structures the Australian market actually uses?
Most lender-facing property development joint ventures fall into three practical shapes. Landowner plus developer, where the landowner contributes the site and the developer handles approvals, construction and sales. Capital partner plus developer, where an investor contributes equity and the developer delivers. Developer plus developer, where two or more experienced parties combine capital, guarantees or delivery capability on a project neither would carry alone.
There is a fourth that gets named less often and matters more than its profile suggests: a true unincorporated joint venture, where no new entity is formed at all and each party holds its interest directly. It changes who the borrower can be, which is the subject of the next two sections.
You will also meet the vocabulary of the funding side on any of these: the capital stack, mezzanine finance, preferred equity, loan to cost, loan to value, gross realisation value and total development cost. This page names them where they bear on the joint venture question and does not explain them, because each already has a page of its own on the development finance pillar.
Is your arrangement a joint venture, or a partnership wearing the name?
This is the sharpest test in the area, and the Australian Taxation Office states it plainly. For goods and services tax purposes, a joint venture is an arrangement between two or more parties characterised by five features: sharing of product or output, rather than sale proceeds or profits; a contractual agreement between the participants; joint control; a specific economic project; and cost sharing. The first feature must be present. The others are indicative, and the ruling accepts that not all of them will always be there.
Read that first feature again, because most development deals fail it. An arrangement under which the parties share the money from the sales, rather than the dwellings themselves, is not sharing product or output. The arrangement that does satisfy it is the one where a landowner takes finished stock instead of cash: two dwellings back out of a six dwelling site, say, rather than a share of what the six sell for. That is the clearest case of sharing product or output, and it is also the version of the deal that most landowners never think to ask for. Section 51-5(1)(b) of the GST Act separately requires that a GST joint venture is not a partnership, and the ruling devotes paragraphs 44 to 51 to telling the two apart. Its second limb is the one that catches property people by surprise: an association of persons in receipt of income jointly, such as co-owners of a rental property, is a partnership for tax purposes whether or not anyone intended one.
Source: Australian Taxation Office, GSTR 2004/2, Goods and services tax: What is a joint venture for GST purposes?, paragraph 11 and paragraphs 44 to 51. Original ruling 7 April 2004, consolidated 31 October 2012, read 18 September 2026. This is the distinction for GST purposes and is the ATO's own articulation. It is not an income tax ruling, and it is not legal or tax advice.
What nobody writes down is what a lender does about it. A credit team does not care what the document is called. It cares what the arrangement makes the borrower liable for, who controls it, and whose signature it can get. That is the rest of this page.
How do lenders assess a joint venture property development?
A development lender underwrites the borrower first, then looks through the structure to the JV parties, the agreement, control rights, security, equity contributions and project feasibility. The borrower still owes the money, but the lender also needs to know who can stop a drawdown, withhold more equity, control the land or disrupt enforcement.
Does the lender assess the joint venture, or the parties?
Both. The lender starts with the borrower named on the facility, then assesses the parties and documents behind it. In a company structure the borrower is the company. In a trust structure the trustee borrows in that capacity. In an unincorporated structure the parties may need to borrow directly. The lender then tests each party whose money, consent, guarantee, title or performance can affect the project.
The practical consequence is that adding a strong party to a JV agreement does not automatically strengthen the credit. The lender needs a legally useful connection to that party, such as ownership in the borrower, security, a guarantee, a binding equity commitment or another enforceable obligation. The project still has to pass the feasibility tests the lender applies.
What does a credit team look at that a sole developer never has to think about?
Control and deadlock. A sole developer can make every call; a joint venture borrower can be stopped by one party refusing. Credit will read the constitution, the shareholders agreement or the joint venture agreement looking for who can bind the entity, who can block a drawdown request, what happens if the parties cannot agree, and whether any of that can stall a build the lender is funding month by month.
Then it looks at cost overruns. Development budgets move, and when they do somebody has to write a cheque. The question a credit team asks is not whether the parties have agreed to fund overruns; it is what happens if one of them will not. If the answer is a dispute clause, the lender is carrying the risk of a delay it cannot control, and it will price or structure for that.
Do both parties have to show experience, or is one enough?
The delivery track record has to sit with the party actually delivering. A lender is not looking for two developers; it is looking for one credible one, with the right consultants, on a project of a size that party has completed before. An investor putting in money is assessed on something else entirely: capacity, source of funds, and the control rights they have negotiated. A passive funder with no veto is easy. A funder with step-in rights over the build is a second decision-maker, and credit reads them that way.
What gets a joint venture borrower declined that would have been approved as a sole developer?
Four things, in rough order of how often they end a deal.
- Control that cannot be resolved. Nobody can act without the other, and nothing in the documents breaks a tie.
- An equity contribution the lender cannot verify as money genuinely at risk.
- A party the lender cannot reach, because they sit outside the borrowing entity, hold no interest the lender can take security over, and will not guarantee.
- Contributed land treated as debt rather than equity, which quietly moves the whole deal up the stack.
From our broking, indicative
Across the joint venture deals we have placed, the pattern that decides the outcome is rarely the numbers in the feasibility. It is whether the parties have already answered the questions a credit team is about to ask.
- What most often turns an approvable developer into a declined joint venture borrower is an agreement that says the parties will act reasonably and says nothing about what happens when they do not.
- Investors routinely ask for things developers do not expect: a seat inside the borrowing entity, a veto over variations, and security of their own over the project, all three of which the senior lender then has to be asked to live with.
- Where the landowner holds title and is not the borrower, a credit team will not proceed on goodwill. It wants the landowner inside the security, and it wants that settled before valuation, not after.
- These deals fall over late and for structural reasons, not for pricing reasons. The common one is discovering, after the term sheet, that the party who has to sign the mortgage never agreed to sign anything.
Indicative only, based on deals we have placed. Not a quote, not an offer, and not a statement of any lender's policy. Actual terms depend on lender policy and your circumstances at the time of application. Not financial advice.
How does a capital contribution get treated: as the borrower's equity, or as debt in the stack?
It turns on whether the money is genuinely at risk behind the senior debt, or repayable alongside it. Money subscribed into the borrowing entity, subordinated, and not repayable until the senior is repaid is equity, and it does the work equity does in a feasibility. Money advanced as a loan with a return and a repayment date is debt, wherever the parties file it, and the senior will want that relationship documented and ranked. At that point the arrangement has stopped being purely a joint venture question and become a stack question, which is where mezzanine finance and preferred equity live. Name them, do not conflate them, and deal with the ranking on paper before the facility is drawn.
Does a joint venture change how much a development lender will fund?
No. A joint venture does not create its own loan to cost or loan to value rule. The senior facility is still sized from the lender's normal development finance tests, including accepted project cost, valuation, completed value, presales where required, contingency, interest and the exit. The JV changes where the required equity comes from, who provides security and guarantees, and how any capital behind the senior lender is ranked.
That distinction matters when a developer is short of cash. Adding an equity partner may fill the equity gap, but it does not make an unbankable feasibility bankable. Start with the development finance guide for the facility mechanics and the lender feasibility tests for how the numbers are assessed.
Worked example: how much equity does a property development JV still need?
The equity gap is the amount left after the lender applies its own gearing tests to the costs and value it accepts. A JV investor can fill that gap, but it does not change the lender's maximum senior position.
Assume the lender accepts total development cost of $10.0 million and a completed value of $13.0 million. For this example only, assume credit caps the senior facility at the lower of 70% of accepted cost or 65% of completed value. Those percentages are assumptions for the arithmetic, not a statement of current market policy.
70% of $10.0 million is $7.0 million. 65% of $13.0 million is $8.45 million. The cost test is lower, so the example senior facility is $7.0 million and the JV must provide $3.0 million of equity before allowing for any lender-specific adjustments.
If the contributed site is valued at $2.4 million, has $1.0 million of existing debt and the lender accepts the $1.4 million net land equity toward the required contribution, the remaining cash equity is $1.6 million. A capital partner contributing that $1.6 million closes the equity gap. If the lender's quantity surveyor later increases accepted cost to $10.5 million while the senior remains $7.0 million, the equity requirement becomes $3.5 million and another $500,000 has to come from the parties or another lender-approved source.
The point is not the percentages. It is the sequence: calculate the lender's senior limit first, work out what land equity the lender actually accepts, then size the JV capital behind it. A capital partner solves an equity shortfall only to the extent their money is available, subordinated and accepted by the senior lender.
What documents does a lender need to assess a property development JV?
A lender needs enough information to answer four questions before it can sensibly price the deal: who owes the money, what is being built, where the equity comes from, and what security and control rights exist around the project. A signed JV deed is not the starting document. A clear structure summary and current feasibility are usually more useful at the first read.
| Item | Why the lender needs it |
|---|---|
| Structure and ownership chart | Shows the proposed borrower, shareholders or unit holders, landowner, developer, investor and any related entities before the legal documents are read. |
| Heads of agreement or draft JV terms | Shows contributions, profit rights, control, deadlock, exit and whether any party can stop funding or lodge security against the project. |
| Title or site contract | Confirms who owns or controls the land and who must sign the mortgage if the borrower is not the registered proprietor. |
| Current feasibility | Sets out total development cost, gross realisation value, contingency, finance costs, profit and the amount of senior debt the project can support. |
| Planning and approvals position | Shows what can legally be built, what conditions remain and whether the facility is acquisition, pre-construction or construction funding. |
| Builder and cost evidence | Supports the construction budget and lets credit assess builder experience, contract certainty, related-party issues and cost overrun risk. |
| Developer track record and financial position | Shows whether the delivery party has completed comparable projects and whether the sponsors have liquidity if the build needs more money. |
| Evidence of each equity contribution | Confirms whether the contribution is cash, land or another asset, whether it is available, and whether it is equity or debt that must rank behind the senior facility. |
| Exit and presales, where relevant | Explains how the facility is repaid and whether settlement proceeds, residual stock or refinance are realistic for this project. |
Scroll the table sideways to see every column. On a phone each row is shown stacked.
There is a prudential reason banks are so particular about the amount and ranking of debt, and it is worth knowing because it is not a matter of opinion.
What the capital rules say about development lending
- 100%The risk weight a bank may apply to a land acquisition, development and construction exposure secured by residential property, but only where all four conditions are met. APS 112, Attachment A, paragraph 29
- 150%The risk weight a bank must apply to all other land acquisition, development and construction exposures. APS 112, Attachment A, paragraph 30
- 75%Total debt to qualifying development costs must be below this for the lower weight, counting every debt facility the borrower holds against the property. APS 112, Attachment A, paragraph 29, second limb
- $5mAbove five million dollars of aggregate exposure on a single development, qualifying pre-sales must be at least equal to the total debt. APS 112, Attachment A, paragraph 29, third limb
Source: Australian Prudential Regulation Authority, Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk, Attachment A, "Land acquisition, development and construction", paragraphs 29 and 30. Effective 1 July 2025, instrument F2025L00652 made 11 June 2025. Read at source 18 September 2026. Paragraph 29 is permissive, a bank "may apply"; paragraph 30 is mandatory, a bank "must apply". This is a capital rule binding on banks. It is not a lending policy, it is not an offer, and it entitles no borrower to any rate or any approval. It is here because it explains why banks price and structure these facilities the way they do, and why the counting of "every debt facility the borrower holds" matters so much to a joint venture that has capital sitting behind the senior.
Put plainly: a development lender asks the developer for a delivery record and a guarantee, asks the capital partner to prove the money is genuinely subordinated, asks the landowner for a registered first mortgage over the site, and asks the builder for a fixed price contract and evidence of solvency.
| Party | Inside the borrowing entity | On title | Guarantee usually sought | What the lender is testing |
|---|---|---|---|---|
| Developer | Yes, almost always | Where the entity holds the land | Yes, and usually from the principals behind it | Delivery track record on a project of this size and type, and capacity to fund a cost overrun |
| Capital partner | Often, and the lender will ask why not | Rarely | Negotiated, and often limited | Whether the money is genuinely subordinated, whether it is repayable before the senior, and what control rights came with it |
| Landowner | Sometimes, and the structure usually depends on it | Yes, until the land moves | Where they stay on title and are not the borrower | Whether the lender can take a registered first mortgage over the site, and who has to sign it |
| Builder, where separate | Usually not | No | Not from the builder | Contract form, fixed price certainty, solvency, and whether the builder is related to any joint venture party |
Scroll the table sideways to see every column. On a phone each row is shown stacked.
How does a lender treat an investor who funds the project but does not build?
A developer has a site under contract and the approvals pathway mapped. An investor will put in the equity. Neither has done a joint venture before, and the agreement between them is drafted before anyone speaks to a lender. Here is the sequence a credit team then applies, and where it usually stops.
- Is the investor inside the borrowing entity? If the money is subscribed for shares or units in the borrower and cannot come back out before the senior is repaid, the lender can treat it as equity in the feasibility, and the deal looks like a well capitalised single borrower. If the money is lent to the borrower instead, the lender treats it as debt sitting behind its own, and wants to see the terms, the ranking and the repayment trigger before it will size anything.
- What did the investor negotiate for their money? A right to approve variations, replace the developer, or withhold a further contribution is a right to interfere with a build the lender is funding. Lenders do not refuse these outright. They document around them, usually by requiring that the investor cannot exercise them without the lender's consent while the facility is live.
- What is being asked of the senior? If the investor has taken security of its own, the senior will want priority settled before settlement, not on the day of a drawdown.
Where this structure fails at credit, it is almost always at the third question: the parties agreed a commercial deal that gives the investor protections the senior lender cannot rank behind, and nobody tested it against what the lender will actually assess before the documents were signed.
Who borrows and what security does the lender take in a property development JV?
In a funded joint venture the borrower, the registered proprietor and the parties sharing the profit are often three different things, and the lender has to be comfortable with all three at once. This is the comparison the scattered material on this subject never makes in one place, so here it is in one table, by structure.
Does the investor have to be inside the borrowing entity?
Not always, but the further outside they sit, the more the lender has to build around them. Inside the entity, their money is equity and their interest is captured automatically by the security the lender takes over the borrower. Outside it, the lender has to reach them separately, through a mortgage, a charge over their interest, a guarantee, or a priority arrangement. Each of those is a document somebody has to be willing to sign, and the time to find out whether they are willing is before the term sheet.
What happens when the landowner holds title and is not the borrower?
The lender takes a registered first mortgage over the land from whoever owns it. If the landowner is the registered proprietor and the developer entity is the borrower, then the landowner is a third party mortgagor: they are pledging their asset for somebody else's debt. That is a real decision with real consequences for them, and lenders expect the landowner to have had independent legal advice before signing. Where the land is transferred into the joint venture entity instead, the borrower and the proprietor line up, the mortgage is simple, and the duty and tax consequences of the transfer become the thing to work through.
Can the lender sell my land if I am not the borrower?
Potentially, yes. If you own the site and grant the senior lender a registered mortgage to secure the JV borrower's obligations, the land itself is security for that debt. If the secured obligations default and the lender lawfully enforces the mortgage, the fact that another entity is named as borrower does not by itself protect your land from enforcement.
That does not make you automatically liable for every dollar of the borrower's debt in your personal capacity. Your exposure depends on exactly what you sign: the mortgage, any guarantee or indemnity, any limited-recourse wording, the facility acknowledgement and the JV documents. A landowner should have independent legal advice on those documents before signing, with the adviser explaining separately what can happen to the land and what, if anything, can be claimed against the landowner beyond the land.
What security does the lender take over each party's interest?
A registered first mortgage over the land is the spine of it, and everything else is built to protect that position. Around it a development lender will usually take a general security agreement over the borrowing entity, an assignment of the building contract and the consultants' agreements so the project can be completed if it has to step in, and security or an acknowledgement from any party with a competing interest. The term to understand here is priority, not security itself, and it is the subject of the next section.
Does everybody have to guarantee, and what if only one party can?
No, and this is more negotiable than most parties assume. Lenders want guarantees from the people who control delivery and who have something to lose if the project is abandoned. A passive funder who has already put in cash they cannot get back is not usually the guarantee the lender is chasing. Where only one party can guarantee meaningfully, the deal is not dead; it is a smaller deal, with more security elsewhere, and a lender that wants the developer's principals on the paper.
Put plainly: in a landowner deal the developer's entity borrows while the landowner stays on title and signs the mortgage as a third party mortgagor; in a capital partner deal the joint entity borrows and holds title; in a developer partnership a jointly owned entity does both with guarantees from principals on both sides; and in an unincorporated joint venture there is no entity, so the parties borrow jointly and severally and every proprietor signs the mortgage.
| Structure | Who is the borrower | Who holds title | What the lender takes as security | What the other party usually signs |
|---|---|---|---|---|
| Landowner plus developer | A project entity the developer controls, or the parties jointly | The landowner, unless and until the site is transferred in | Registered first mortgage from the registered proprietor, plus general security over the borrower | The landowner signs the mortgage as third party mortgagor, and usually a consent and a subordination of their entitlement |
| Capital partner plus developer | The joint entity the parties subscribe into | The borrowing entity | Registered first mortgage plus general security over the borrower, capturing the investor's interest through the entity | The investor signs a subordination, and a priority deed where they hold security of their own |
| Developer partnership | A jointly owned project entity | The project entity | Registered first mortgage plus general security, with guarantees from the principals on both sides | Both sets of principals sign guarantees, and a deed dealing with deadlock and completion |
| Unincorporated joint venture | The parties jointly and severally, because no entity exists | The parties, in their agreed shares | Registered first mortgage from every proprietor, plus security over each party's interest in the project | Every party signs the mortgage and the facility, and a deed regulating what happens if one of them defaults |
Scroll the table sideways to see every column. On a phone each row is shown stacked.
When does a property development JV need a deed of priority?
A deed of priority is the document that fixes, in advance and in writing, whose claim over the same property is paid first and what each party may do without the other's consent. It exists because registration alone does not settle everything a senior lender needs settled, and because a joint venture routinely puts a second interested party on the same asset.
The senior wants one whenever another party has, or could obtain, an interest in the land or in the borrower. That includes a partner with a registered second mortgage, a partner entitled to lodge a caveat to protect a contractual interest, and an investor whose entitlement is secured rather than merely promised. Without it, a caveat lodged in the middle of a build can hold up a drawdown or a discharge at exactly the moment the project cannot afford a delay.
It is worth being precise about what a deed of priority is not. It is not the joint venture agreement, and it does not settle the commercial bargain between the parties. It regulates the relationship between the security holders. A developer is typically asked to procure it from the other party, to agree that no further security will be granted over the project without consent, and to accept standstill terms that prevent the junior party enforcing while the senior facility is live.
Pricing, term and structure of the junior debt itself sit outside this page. Those belong with mezzanine finance and with a second mortgage behind a construction loan, both of which cover the mechanics in depth.
Can a landowner contribute land to a development instead of selling it?
A landowner can contribute land to a development instead of selling it, but the choice changes cash timing, risk, control, security and tax or duty exposure. A sale usually converts the land to cash at settlement. A JV keeps the landowner exposed to the development outcome and can also require the land to secure the project debt.
Before comparing headline profit shares, compare what each path asks you to risk and when you actually receive value.
| Question | Sell the land | Contribute the land to a JV |
|---|---|---|
| When do you receive value? | Usually at settlement under the sale contract. | Usually later, from the agreed return, completed product or residual project proceeds. |
| Do you keep development upside? | No, unless the sale contract includes another contingent payment. | Yes, but you also keep exposure to cost, delay, sales and partner risk. |
| Can your land secure the project loan? | After settlement, the purchaser controls the land and its financing. | Often yes if you remain on title. The lender may require you to sign the mortgage for the JV borrower's debt. |
| When is your return paid? | The sale price is paid under the contract. | The JV agreement sets it, but a senior lender will usually require project distributions to sit behind its facility. |
| What happens if the project underperforms? | Once an unconditional sale settles, the development result is generally the purchaser's risk. | Your return can fall, be delayed or become tied up in a dispute or refinance. |
| What advice is needed? | Conveyancing, tax and commercial advice on the sale. | Independent legal, tax and duty advice, plus an early funding review before the JV terms are locked. |
Scroll the table sideways to see every column. On a phone each row is shown stacked.
How do I check a developer before entering a property JV?
Check the people and entities before you check the promised profit split. For a landowner, the minimum due diligence is to verify who the contracting entities are, whether the developer and builder have actually delivered comparable projects, whether any builder licence required for the work is current, whether the companies show insolvency or external-administration notices, and whether related-party fees are disclosed rather than hidden inside the feasibility.
- Identify every legal entity. Search the ASIC company and organisation registers for the developer, builder and any development manager. Match the ACNs to the entities named in the proposed JV, building contract and development management agreement.
- Check corporate insolvency notices. ASIC's Published Notices search can show insolvency and external-administration notices. For an individual principal, the AFSA Bankruptcy Register Search searches the National Personal Insolvency Index.
- Check the relevant builder licence. Construction licensing is state and territory based. Use the regulator for the state or territory where the project sits, or the Australian Business Licence and Information Service route described by business.gov.au, and confirm the licence belongs to the entity that will actually contract to build.
- Verify comparable completed work. Ask for project addresses, completion dates, the developer's role, builder used, original versus final cost, original versus actual programme, and referees you can contact. A glossy project list is not the same as evidence the same entity delivered the work.
- Map related parties and fees. If the developer, builder, development manager or sales agent are related, list every fee and margin separately and compare it with the feasibility. Related does not mean unacceptable; undisclosed or double-counted economics are the problem.
- Ask what else is being funded now. Current projects, outstanding equity commitments and guarantees matter because the same sponsor may be expected to cure overruns across more than one project at once.
Primary-source checks: ASIC says its company and organisation registers can be searched by company name, business name or ACN and provide basic company information, while its Published Notices service carries insolvency and external-administration notices. AFSA's Bankruptcy Register Search covers personal insolvency, not companies. Building licences and permits are jurisdiction-specific. These checks do not prove a developer is financially sound or competent; they are the starting point for independent legal, financial and technical due diligence.
How is contributed land valued as an equity contribution?
On its current value, not on what it will be worth once the project is built. A lender relies on a valuation it instructs, on the site as it stands and on the basis the facility requires, and the joint venture agreement's own figure for the land carries no weight with credit. Where the parties have agreed a contribution value above the valuation, the shortfall does not disappear: it becomes an equity gap somebody has to fill in cash.
What does the landowner actually receive, and when?
Usually last, and that is the part worth stating plainly. A landowner who has contributed land and taken a share of the end result sits behind the senior debt, behind the build costs, and behind any junior capital, and is paid out of what is left when the stock settles. Whether they also receive something earlier, and whether that earlier payment is treated by the lender as a cost of the project or as a distribution, is a term to negotiate before the facility is documented, not after.
What does contributing land trigger that selling it does not?
In the Australian state of Victoria, it can trigger land transfer duty on an economic entitlement, even though no land changes hands. Part 4B of Chapter 2 of the Duties Act 2000 (Victoria) applies where a person acquires an economic entitlement in relation to relevant land. Section 32XC provides that this happens where an arrangement is made on or after 19 June 2019 in relation to relevant land with an unencumbered value of more than $1 million, under which the person is or will be entitled, whether directly or through another person, to any one or more of five things: to participate in the income, rents or profits derived from the land; to participate in its capital growth; to participate in the proceeds of its sale; to receive any amount determined by reference to any of those matters; or to acquire any entitlement described above. The fifth limb is the one most often missed, because an option or a right to take one of the other four is itself caught.
The line that matters most to a development agreement is where a fee sits. The State Revenue Office of Victoria has ruled that a developer merely entitled to a reimbursement of the costs it genuinely incurred to develop land, plus a fixed percentage mark-up on those costs, does not acquire an economic entitlement. A developer entitled to a variable mark-up based on the income, rents or profits from the land, or its capital growth or sale proceeds, does. Same project, same parties, different fee formula, different duty outcome.
The same rulings deal with lenders, which is directly relevant to any joint venture bringing in outside capital. A lender providing a conventional facility, where the interest rate is a percentage of the amount advanced, does not acquire an economic entitlement in relation to the land. Where the interest or fee is instead tied to the performance of the land, for example a rate determined by reference to the income or rents derived from it, the lender will generally be taken to have acquired one.
Source: Duties Act 2000 (Victoria), Part 4B of Chapter 2, section 32XC; State Revenue Office Victoria public rulings DA-065 (service fees), DA-066 (calculation) and DA-067 (key concepts and interpretation). DA-065 and DA-066 issued 30 June 2025, date of effect 1 July 2025; DA-067 issued 25 November 2025, date of effect 26 November 2025. All three read at source on 18 September 2026 and shown as current, not draft. Duty is calculated on a deemed 100 per cent beneficial ownership under DA-066, subject to the Commissioner's discretion under section 32XE(3) to determine a lower percentage, and is phased in under section 32XG where the unencumbered value of the land is between $1 million and $2 million. Transitional relief under clause 47 of Schedule 2 applies to arrangements made before 19 June 2019. These provisions are Victorian. Other states and territories operate their own landholder and duty regimes, which work differently, and this is general information rather than duty advice: get your own.
How does a development lender treat a site contributed by a party who is not the borrower?
As security it must take from a third party, with all the formality that implies. The lender will require the landowner to mortgage the land for the borrower's debt, will expect evidence of independent legal advice, and will want the landowner's entitlement under the joint venture agreement subordinated so it cannot be paid ahead of the facility. Where the site is being assembled or the approvals are not yet in place, the funding question changes shape again and is covered in site finance before approval.
How does a lender fund a JV when the landowner contributes the site?
A landowner has held a site for years and does not want to sell it. A developer has the capacity to deliver. They agree the landowner contributes the land, the developer funds and builds, and they share the result. The funding sequence then runs like this.
The lender instructs its own valuation of the site as it stands, and sizes the facility from that, not from the value the parties put on the contribution. It then asks who will be the borrower and who will be the registered proprietor. If the answer is that the landowner stays on title, the lender needs the landowner to sign the mortgage as a third party mortgagor, and needs them to have taken independent advice before doing so.
Next comes the landowner's entitlement. The lender will want it subordinated, so that nothing is payable to the landowner ahead of the facility, and it will want any right the landowner has to lodge a caveat dealt with in a way that cannot interrupt a drawdown or a settlement. That is the practical purpose of the security package around the mortgage.
Where the landowner sits when the money comes in is the last piece, and it is usually the piece the parties discussed least. Settlement proceeds pay the senior facility first, then the remaining project costs, then any junior capital, and the landowner's share comes from the balance. A landowner who understood their contribution as an ownership interest, and discovers at the end that it ranks behind everything, has had a bad surprise that the documents could have prevented.
What happens to the development loan if a JV partner fails mid-build?
Treat it as a financing event first and a governance event second, because the facility will react long before the dispute is resolved. A partner entering administration, a deadlock that stops the entity acting, or a caveat lodged by one party against the project each touch the same three things in a construction facility: the borrower's capacity to request a drawdown, the lender's security position, and the events of default.
An administration or liquidation of a party is usually a default event in its own right in a development facility, even where the party is not the borrower, because facilities commonly define default by reference to the guarantors and the parties whose performance the project depends on. That does not mean the lender calls the loan. It means the lender now has the right to, which is what gives it a seat at the table while the position is worked out, and it is why the first call after a partner fails should be to the lender rather than to a litigator.
A deadlock is more insidious, because nothing has formally gone wrong. The entity simply cannot act. If a drawdown request needs two signatures and one party will not sign, the build stops being funded while the interest clock keeps running. Facilities do not fix this; joint venture agreements are supposed to, through a casting vote, an expert determination, a buy-sell mechanism or a right for one party to fund and be repaid in priority. Whether your agreement has one of these is worth checking before you need it.
A caveat lodged by a partner is the most immediate of the three, because it can block a discharge or a settlement at the moment stock is selling. A priority deed dealt with at the start is the answer to this, which is the point made in the deed of priority section above.
What should the remaining parties do in the first 48 hours?
Preserve funding and decision-making capacity before trying to solve the economics. The immediate job is to find out whether the borrower can still request the next draw, whether a default has already occurred, how much cash is needed to keep the build moving, and what lender consent is required before anybody changes the ownership, security or delivery team.
- Read the facility and JV documents together. Identify insolvency defaults, change-of-control clauses, drawdown signing authorities, equity commitments, cure rights, deadlock provisions and any caveat or security rights.
- Notify the lender and the transaction lawyers promptly. Do not wait for a missed draw or settlement if a material party has failed, refused to fund or lost authority to sign.
- Rebuild the cost-to-complete. Update cash on hand, certified work, unpaid claims, remaining contingency, interest to completion and the amount of equity required before the next draw.
- Confirm who can legally keep the borrower acting. A solvent borrower can still be paralysed if the failed partner holds a veto, is a required signatory or controls the development manager.
- Put replacement capital and replacement control on one page. Show the lender whether the cure is extra equity from the remaining party, a new investor, a buyout, subordinated capital, a refinance or a combination, and what security or ownership changes each option requires.
- Do not grant new security or admit a new investor without checking consent. A rescue that breaches the senior facility can make the position worse even if it brings cash in.
If the builder or development manager is a separate key project party, the lender may also have direct-agreement or side-deed rights dealing with notice, termination and step-in. Whether those rights exist is document-specific. The important point is that replacing a failed partner, developer or builder is usually both a JV decision and a lender-consent decision.
Two neighbouring situations get confused with this one and are covered separately: when the construction funder withdraws mid-build, and when presales fall over and the facility no longer works. And a boundary worth stating explicitly, because the two questions look alike and are not: this page is about a partner coming into a project. A partner leaving one, and how that is funded, is buying out a business partner.
Which entity should a property development JV use, and what does the lender check?
The financier's question about a vehicle is narrow: can it borrow, can it give good security, and can the lender enforce against it without tripping over somebody else's rights. That is a much shorter enquiry than the tax and asset protection comparison the parties will run with their advisers, and it is the one that decides whether the facility is documented in a week or a month.
Two things sit outside the vehicle question and are settled by law rather than by choice. Credit provided to a company borrower is outside the National Credit Code because the Code applies where the debtor is a natural person or a strata corporation. The same is ordinarily true where a corporate trustee is the borrower. Where the borrower or trustee is a natural person, however, the purpose of the credit matters and the Code's declaration provisions may become relevant. A declaration that is not substantially in the form required by the regulations is ineffective.
That is the clean case, and it is worth naming the one that is not. A small joint venture between individuals, two families building a dual occupancy and each taking a dwelling, does not settle itself by the same reasoning: the borrowers are natural persons, and whether the Code applies turns on the purpose the credit is actually put to rather than on what the parties call the project. Owner occupation of one of the dwellings and an intention to rent the other pull in different directions. Where a small development is being funded in the names of individuals, get the purpose question answered by a credit lawyer before the facility is documented, because the answer decides which regime the loan sits under and cannot be fixed afterwards by a declaration in the wrong form.
Source: National Credit Code, Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth), sections 5(1), 5(3) and 13(2) to (5). Compilation No. 52, compilation date 1 July 2026, read at the Federal Register of Legislation on 18 September 2026. General information about how the legislation is framed, not advice on your transaction.
The second is goods and services tax. Property development is an eligible purpose for a GST joint venture in its own right: the regulations specify "design, or building, or maintenance, of residential or commercial premises" as one of fourteen purposes, and a joint venture for more than one specified purpose is covered by the combination. Whether an arrangement qualifies then turns on the conditions in section 51-5 of the GST Act, one of which is that the joint venture is not a partnership, which loops straight back to the distinction in the first section of this page.
Source: A New Tax System (Goods and Services Tax) Regulations 2019, regulation 51-5.01(1)(f) and 51-5.01(2). Compilation No. 05, compilation date 1 November 2025, read at the Federal Register of Legislation on 18 September 2026. Cite the regulation rather than the 2004 ruling for eligibility: the ruling predates these regulations. Speak to your own accountant before relying on any of it.
Does a joint venture affect the GST margin scheme?
It can, and there is one rule that exists only for joint ventures. The Australian Taxation Office lists, among the situations in which the margin scheme cannot be used on a sale from 17 March 2005, the case where you were a participant in a GST joint venture and obtained the property from the joint venture operator, who had purchased that property through an ineligible sale. In other words, the operator's acquisition history travels through to the participant. A separate limb catches a property obtained from an associate for no payment, which is worth knowing where a joint venture moves a site between related entities on the way in.
The mechanical requirement applies to a joint venture exactly as it applies to anyone else: the parties must have a written agreement to use the margin scheme before settlement. A margin scheme position assumed in a feasibility and never documented before settlement is not a margin scheme position.
Source: Australian Taxation Office, Eligibility to use the margin scheme, last updated 17 June 2025, read at source 18 September 2026. The joint venture limb and the associate limb are reproduced from the ATO's own list of when the margin scheme cannot be used. Margin scheme eligibility turns on the acquisition history of the particular property and is a question for your accountant, not a matter a finance broker can settle.
Put plainly: a joint venture company is the vehicle a financier documents fastest, because it is a separate legal entity that can borrow and give security in its own name. A unit trust works but adds a trustee power check. An unincorporated joint venture and a partnership have no separate entity at all, so every party goes on the facility and on the mortgage.
| Vehicle | Separate legal entity | How the parties hold their interest | What a financier asks for |
|---|---|---|---|
| Unincorporated joint venture | No | Directly, in agreed shares, under the joint venture agreement | Every party on the facility and on the mortgage, plus a deed dealing with one party's default |
| Joint venture company | Yes | Shares, with rights set by the constitution and a shareholders agreement | The constitution and shareholders agreement, guarantees from the principals, and security over the shares in some structures |
| Unit trust | No, the trustee contracts and holds | Units, with entitlements set by the trust deed | The trust deed, evidence of the trustee's power to borrow and mortgage, and the trustee's right of indemnity left intact |
| Partnership | No | Partnership interests, with joint and several liability | All partners on the facility, and a clear picture of what happens on a change in the partnership |
Scroll the table sideways to see every column. On a phone each row is shown stacked.
How does a financier read a development management agreement?
Four clauses of a development management agreement matter to a lender, and the rest is between the parties.
- Scope. What the manager is actually obliged to deliver, and whether that covers the whole project or stops at approvals.
- Removal. Whether the manager can be replaced, by whom, and on what notice. A lender wanting to complete a project needs to know the management function can survive a change of hands.
- The fee. A fee calculated by reference to the income, profits or sale proceeds from the land is a different animal from a fee calculated on cost, both for the duty analysis set out in the Victorian section above and for the lender's view of whether the manager is a service provider or a principal in the deal.
- Subordination. Whether the fee is payable during the build or after the facility is repaid, and whether the manager has agreed to stand behind the senior.
The third of those is where the agreement stops being a private document.
Where the structure is a trust, the questions overlap with those on any trust borrowing, and the current settings after the last federal budget are covered in choosing a first development trust structure. The vehicle comparison itself is deliberately short here: it orients, and it does not try to teach a taxonomy that is covered at length elsewhere.
When does a property development equity raise become a managed investment scheme?
Raising money from a handful of people you know is a private arrangement. Raising it from enough people, or promoting it as a business, turns the project into a registered managed investment scheme with a responsible entity, a constitution, a compliance plan and an audit. The line between the two is statutory, and it is worth knowing where it sits before the raise, not after.
Three elements have to be present for a managed investment scheme to exist at all. Miss any one and it is not a scheme. Hit all three and the registration question arises.
- Contribution. People contribute money or money's worth to acquire rights to benefits produced by the scheme.
- Pooling. Those contributions are pooled, or used in a common enterprise, to produce financial benefits or rights or interests in property.
- No day-to-day control. The members do not have day-to-day control over the operation of the scheme.
The thresholds that decide a development raise
- 20A managed investment scheme must be registered if it has more than 20 members, or is promoted by a person in the business of promoting such schemes. Corporations Act 2001, section 601ED(1)
- $2mPersonal offers of securities need no disclosure while they breach neither the 20 investor ceiling nor the $2 million ceiling in any 12 month period. Corporations Act 2001, section 708(1)
- $500kMinimum payable on acceptance at which an offer of securities needs no disclosure. The same amount is specified for an investment-based financial product. Section 708(8)(a); regulation 7.1.18(2)
- $2.5mNet assets certified by a qualified accountant, on a certificate given no more than 6 months before the offer, for the wealth limb. Regulation 6D.2.03(1); regulation 7.1.28(1)
- $250kGross income for each of the last 2 financial years, on the same certificate. Not an average, and not a single year. Regulation 6D.2.03(2); regulation 7.1.28(2)
Sources: Corporations Act 2001 (Cth), sections 9, 601ED, 708(1) and 708(8), Compilation No. 148, compilation date 27 August 2026; Corporations Regulations 2001, regulations 6D.2.03, 7.1.18 and 7.1.28, Compilation No. 214, compilation date 1 September 2026. Both read at the Federal Register of Legislation on 18 September 2026. The Act states no dollar figure for the wealth limbs; the amounts live only in the regulations. Section 601ED(2) removes the registration requirement where none of the issues of interests would have required a Product Disclosure Statement. These are disclosure and registration thresholds, not a view on whether a raise is a good idea, and nothing here is legal advice. A February 2025 report of the Parliamentary Joint Committee on Corporations and Financial Services records that "the individual wealth and product value tests have not been indexed or otherwise been adjusted" since they were introduced in 2001, and that on the projections before it approximately 18 per cent of Australians could qualify as wholesale investors or clients in 2024 against 1.9 per cent in 2002. The committee made two recommendations, a periodic review mechanism and removing the subjective elements of the sophisticated investor test. It did not recommend changing the dollar thresholds.
Where the vehicle is structured as a wholesale equity scheme with a separate trustee, the relevant licensing guidance is the corporate regulator's Regulatory Guide 192, Licensing: Wholesale equity schemes, published 27 November 2024. It is licensing relief guidance for trustees and managers of wholesale equity schemes and their advisers, not a property development document, and it is only in scope where that structure is being used.
This section stops here on purpose. The perimeter question has depth to it, and where a raise is central to how the project is being capitalised, the place to start is the funding structure itself and how it fits the funding options available to a developer, with your own legal advice on the scheme question alongside it.
How are profits split in a property development joint venture?
The profit splits after the debt is repaid, and how it splits between the parties is whatever they agreed, in one of two broad shapes. A straight profit share divides the surplus in fixed proportions, whatever the surplus turns out to be. A preferred return pays one party a defined return on their money before the surplus is shared at all, so that party is made whole first and the other carries more of the variability in the outcome.
Neither shape changes where the parties sit relative to the senior debt, and that is the part worth being clear about. The lender is repaid from settlement proceeds before any party receives a distribution of any kind, preferred or otherwise. A preferred return is a priority between the parties, not a priority ahead of the facility.
And no, a joint venture does not have to be 50/50. Nothing in law requires equal shares, and the split is a commercial negotiation that usually reflects what each party contributed, what each is risking, and who carries the cost overruns. What matters for funding is that the split is documented, that any entitlement ahead of the senior debt is subordinated, and that the parties know which of the two shapes they have actually agreed to.
The mechanics of ranking capital, and how a preferred return differs from junior debt, are covered in preferred equity against mezzanine in the stack and in the sequencing playbook for developers.
What should you agree before signing a property development joint venture?
A common funding problem is documenting the commercial deal before checking whether a lender can fund the borrower, title position, guarantees and equity ranking it creates. The safer sequence is to agree the economics in principle, test the structure with a development lender, obtain tax and legal advice, and only then lock the final JV and security documents.
In what order should a joint venture be put together?
- Agree the commercial shape in principle, not in a deed. Who contributes what, roughly how the result is shared, and who is delivering. A page of heads of agreement is enough at this stage.
- Establish who can actually be the borrower. This is the question that constrains everything after it, because the borrower has to be a legal person a lender can underwrite and enforce against.
- Test the shape against funding before drafting. An indicative read on whether a senior facility can be built around that borrower, that title position and that capital contribution.
- Settle who signs what. Who is on the facility, who is on the mortgage, who guarantees, and who subordinates. Find out now whether every one of those people is willing.
- Get the tax and duty characterisation from your accountant. Joint venture or partnership, the goods and services tax position, and any duty consequence of the way the fee or the entitlement is framed.
- Then draft the joint venture agreement, with the funding constraints and the characterisation advice already inside the instructions to the lawyer.
- Document the security package alongside it, including any priority deed, so the priority position is settled before settlement rather than on the day of a drawdown.
What should be settled before the joint venture agreement is signed?
Eight questions, all of which a credit team will ask and none of which improves by being left open.
- Who is the borrower, and can that entity give good security in its own name?
- Who is the registered proprietor at the time the facility draws, and does the land move before or after?
- Is each party's contribution equity or debt? Subscribed and subordinated is equity. Advanced with a return and a repayment date is debt, whatever the agreement calls it.
- Who guarantees, and has that person confirmed they will?
- Who funds a cost overrun, and what happens if one party will not?
- What breaks a deadlock, in a way that operates faster than a build can stall? A casting vote, an expert determination, a buy-sell mechanism, or a right for one party to fund and be repaid in priority.
- Can any party lodge a caveat, and has that right been dealt with so it cannot interrupt a drawdown or a settlement?
- How does a party exit, on what valuation basis, and who has the right to buy them out?
What happens if a JV partner cannot meet a capital call?
The project still needs the money, so the JV agreement should decide who can cure the shortfall and what they receive for doing it. A lender does not want the answer to be an open-ended dispute while construction costs and interest continue to accrue.
Common commercial mechanisms include another party funding the shortfall as additional equity, funding it as a subordinated shareholder loan with an agreed priority or return, diluting the defaulting party, triggering a buyout or forced-transfer mechanism, admitting a replacement investor, or selling the project if the gap cannot be cured. Which of those is lawful and appropriate is a drafting and advice question, not a lender rule.
The finance constraint is simpler: new debt, new security, a change in ownership or control, and a new investor commonly require senior-lender consent. A capital-call clause should therefore say not only what happens between the partners, but also that any cure requiring a change to the funded structure is subject to the senior facility and required lender approvals.
What if the joint venture agreement is already signed before finance is arranged?
It may still be financeable, but the lender does not have to accept the agreement as written. Credit may require amendments, a subordination or priority deed, extra guarantees, a change to drawdown control, evidence of further equity, or consent rights that override parts of the JV while the facility is live. Treat a signed agreement as an input to the finance process, not as something the lender is bound to honour.
If the signed document gives a partner security, a caveat right, an early repayment entitlement or a veto over funding decisions, disclose that at the first lender discussion. Those rights are usually easier to solve before valuation and legal work have started.
What happens after a lender says the JV structure is fundable?
The next stage is to turn the commercial structure into a credit-approved and documented facility without changing the deal underneath it.
- Indicative structure. The lender or broker confirms the proposed borrower, security, guarantees, equity treatment, facility size and major conditions.
- Valuation and quantity surveyor work. The lender tests the site value, completed value and cost plan using its own instructed professionals where required.
- Credit due diligence. The borrower, sponsors, builder, approvals, feasibility, presales where relevant and source of equity are checked together.
- JV and security documents are aligned. The lawyers make sure the shareholders agreement, JV deed, development management agreement, mortgage, guarantees and any priority or subordination deed do not contradict the facility.
- Conditions precedent and first drawdown. The required equity is contributed or evidenced, security is perfected, lender conditions are satisfied and construction funding begins under the agreed draw process.
What does it cost to set up a joint venture property development?
There is no standard figure, and anyone quoting one without seeing the structure is guessing. What is predictable is the list of things that carry a cost, and it is longer than most parties budget for. Expect professional fees for the joint venture agreement and any shareholders agreement or trust deed; company or trust establishment where a new vehicle is used; independent legal advice for any party signing as a third party mortgagor or guarantor; accounting advice on characterisation, the goods and services tax position and any duty exposure; a lender-instructed valuation and, on a construction facility, a quantity surveyor; the lender's own application, legal and documentation costs; and the drafting of any priority deed or subordination deed.
Two of those are the ones parties miss. Lenders commonly require a landowner who is mortgaging their asset for another party's debt to obtain independent legal advice, and duty can attach to the way a development fee or entitlement is framed rather than to a transfer of land, which is the Victorian point set out above. Cost, entity and duty questions belong with your own solicitor and accountant. What a broker can test early is whether the structure you are about to pay to document is one a senior lender is likely to consider.
How do you exit a property development joint venture?
There are three ways out of a property development joint venture, and which one is available to you was decided when the agreement was drafted, not when you decided to leave. One party buys the other out. The project is sold and the proceeds are distributed. Or an exit mechanism already written into the agreement is triggered, such as a buy-sell provision, a put or call option, or a right of first refusal over the departing party's interest.
Where a facility is live, none of those is purely a matter between the parties. A change in who owns the borrowing entity, or in who sits on title, is almost always something the facility requires the lender to consent to, and a guarantor cannot simply walk away from a guarantee by selling their shares. A departing party who is a third party mortgagor stays on the mortgage until the lender releases them, which normally means a refinance or a repayment rather than a signature.
The funding question that follows is usually the buy-out itself: the remaining party has to find the money to acquire the departing party's interest, often mid-project and against a part-built asset. That is a different financing problem from the development facility and is covered in buying out a business partner. Where the exit is contested rather than agreed, the caveat and priority questions in the sections above are what determine how quickly it can move, which is why they are worth settling at the start and not at the end.
A property development JV is fundable when the lender can see one coherent project: a borrower it can underwrite, land and security it can control, equity that is genuinely available and correctly ranked, a credible delivery team, and documents that say who funds an overrun and how the project keeps moving if a party fails. The profit split matters between the partners, but it does not replace the normal feasibility, valuation, presale, builder and exit tests used to size development debt.
Key takeaway: before signing the final JV deed, verify the developer, size the senior facility, test the borrower, title, guarantees and equity ranking, and decide who funds the next dollar if the budget moves. Then make the legal and tax documents fit the fundable structure, not the other way around.Frequently Asked Questions
A joint venture property development is an arrangement where two or more parties combine land, capital or development capability for one project and share an agreed economic outcome. The borrower, registered landowner and parties sharing the return are not necessarily the same people or entities.
Common lender-facing structures include a landowner with a developer, a capital partner with a developer, two developers combining, and an unincorporated arrangement where the parties hold their interests directly.
The funding vocabulary that surrounds it, including the capital stack, sits alongside the joint venture question rather than inside it.
Yes. A development lender can fund a joint venture where the borrower, land ownership, equity, guarantees, control rights and security package are clear enough to underwrite and enforce.
The lender underwrites the borrower and project first, then looks through the structure to every party whose money, consent, guarantee, title or performance can affect the build. The JV itself does not create a separate LVR or loan to cost rule.
That is why the structure should be tested against how development funding is actually assessed before the final agreement is signed.
Not necessarily, but they do have to be reachable. A lender is comfortable with a funder who sits inside the borrowing entity, because the security over the borrower captures their interest automatically.
A funder who sits outside it has to be reached another way, through a mortgage, security over their interest, a guarantee, or a priority arrangement, and each of those is a document somebody must be willing to sign.
Where the contribution is a loan rather than subscribed capital, the lender treats it as debt in the stack, which raises the same ranking questions as mezzanine finance.
Start with the entities and the delivery record, not the promised profit split. Search the ASIC registers for the developer, builder and development manager, check ASIC insolvency notices, check the relevant state or territory builder licence, and ask for evidence of comparable completed projects with referees you can contact.
Then map every related party and fee. If the developer, builder, development manager or sales agent are related, make sure each fee and margin is separately disclosed in the feasibility and legal documents.
For a landowner, also ask what other projects the sponsor is currently funding and what guarantees or equity commitments already sit elsewhere. Public-register checks are only a starting point; use your own solicitor, accountant and technical advisers for transaction due diligence.
A deed of priority fixes in writing whose claim over the same property is paid first, and what each security holder may do without the other's consent.
The senior lender wants one whenever another party has, or could obtain, an interest in the land or the borrower: a partner with a second mortgage, a partner entitled to lodge a caveat, or a funder whose entitlement is secured rather than merely promised.
It is not the joint venture agreement and it does not settle the commercial bargain. It regulates the security holders, which is the same job it does behind a second mortgage on a construction loan.
Potentially, yes. If you own the site and give the senior lender a registered mortgage to secure the JV borrower's obligations, the land itself is security for that debt.
If the secured obligations default and the lender lawfully enforces the mortgage, naming another entity as borrower does not by itself protect your land. Your separate personal liability depends on whether you also signed a guarantee, indemnity or other recourse document.
Get independent legal advice on the mortgage, guarantee and JV documents before signing, and ask the adviser to explain separately what can happen to the land and what can be claimed against you beyond the land.
It may well be, and the test is sharper than most parties expect. For goods and services tax purposes the Australian Taxation Office treats sharing of product or output, rather than sale proceeds or profits, as the feature that must be present for a joint venture to exist.
An arrangement under which the parties divide the money from the sales rather than the dwellings themselves does not share product or output. The second limb of the partnership definition catches more again: an association of persons in receipt of income jointly, such as co-owners of a rental property, is a partnership for tax purposes whether anyone intended one or not.
That characterisation drives the tax filing, the GST position and eligibility to form a GST joint venture, so it is worth settling with your accountant before the structure is locked, alongside the funding questions in the development finance guide.
The first implication is characterisation: whether the arrangement is a joint venture or a partnership changes the tax filing, the goods and services tax position, and whether a GST joint venture can be formed at all.
The second is duty. In the Australian state of Victoria, an arrangement giving a party a right to participate in the income, rents, profits, capital growth or sale proceeds of land worth more than $1 million can trigger land transfer duty on an economic entitlement even though no land changes hands, and the way a development fee is calculated decides which side of the line the agreement falls.
Other states and territories operate their own regimes, which work differently. This is general information and not tax or duty advice; the structural questions it interacts with, such as borrowing through a trust, should be worked through with your own adviser.
When three elements are all present: people contribute money or money's worth to acquire rights to benefits produced by the scheme, those contributions are pooled or used in a common enterprise, and the members do not have day-to-day control over its operation.
Registration is then required where the scheme has more than 20 members, or where it is promoted by a person in the business of promoting managed investment schemes.
There is a carve-out where none of the issues of interests would have required a Product Disclosure Statement, and a separate wholesale route with its own thresholds. Get legal advice on the perimeter before the raise, and test the funding structure against what a lender will assess at the same time.
Treat it as a financing event before a governance one. An administration or liquidation of a party is commonly a default event in a development facility even where that party is not the borrower, because facilities define default by reference to guarantors and to parties the project depends on.
That does not mean the lender calls the loan. It means the lender now has the right to, which is why the first call after a partner fails should be to the lender rather than to a litigator.
A deadlock that stops the entity requesting a drawdown, and a caveat lodged by a partner, bite faster than any dispute process resolves. The neighbouring case where the funder rather than the partner disappears is covered in what to do when the construction funder withdraws.
That is a commercial decision, not a finance one, but the two options carry different risks and it is worth seeing them side by side before you answer. A sale gives you a known amount at today's value, paid at settlement, with no exposure to whether the project succeeds. A joint venture keeps you exposed to the upside, and also to the build, the market at completion and the other party's solvency.
The consequences a sale would never have raised are the part to focus on. If you stay on title you will usually be asked to sign the mortgage as a third party mortgagor, pledging your land for somebody else's debt. Your entitlement will normally be subordinated, so nothing is paid to you until the senior facility and the project costs are met. And your land will be valued by the lender as it stands, not at the value the parties agreed for your contribution.
Take independent legal advice before signing anything, and get an early read on whether the structure being proposed is fundable at all, because a joint venture that cannot be funded is worse for you than either option.
The project still needs the money, so the JV agreement should say who can cure the shortfall and what they receive for doing it.
Possible mechanisms include another party contributing extra equity, a subordinated shareholder loan, dilution of the defaulting party, a buyout or forced transfer, a replacement investor, or a sale if the gap cannot be cured. The agreement decides the commercial consequence; the lender decides whether the funded structure can change.
New debt, new security, a change in ownership or control, and a new investor commonly require senior-lender consent. A capital-call clause therefore has to work with the facility documents rather than only between the partners.
Three ways, and which one is available to you was decided when the agreement was drafted, not when you decided to leave. One party buys the other out, the project is sold and the proceeds are distributed, or an exit mechanism already written into the agreement is triggered, such as a buy-sell provision, a put or call option, or a right of first refusal.
While a facility is live, none of those is purely a matter between the parties. A change in who owns the borrowing entity or who sits on title is almost always something the lender must consent to, a guarantor does not escape a guarantee by selling shares, and a departing third party mortgagor stays on the mortgage until the lender releases them, which normally means a refinance or a repayment rather than a signature.
The buy-out itself then has to be funded, often mid-project and against a part-built asset, which is a separate financing problem covered in buying out a business partner.
FBAA Accredited
