Partnership and operating agreements, capital and control terms, and the structuring that lets parties combine capital, property, and expertise in a real estate joint venture on terms that hold up.
A real estate joint venture is priced in the waterfall and governed in the major-decision list. Return of capital, then a preferred return, then the promote: each tier is a sentence in the operating agreement, and a catch-up clause or a lookback can move the operator's share of profit by several points without touching the headline split.
Delaware lets the parties write most of their own law. Under its LLC Act, fiduciary duties can be restricted or eliminated by the agreement and only the implied covenant of good faith and fair dealing survives, so a capital partner who expects loyalty needs that duty on the page. The agreement should also name the partnership representative, who can bind every member in an IRS examination.
The document is tested at a capital call, a refinancing, and an exit. We draft the default remedies, usually dilution at a penalty ratio or a member loan at a default rate, so a partner who does not fund loses economics rather than the venture, and we price the buy-sell and forced-sale mechanics at formation, while neither side knows which it will be.
Choosing and forming the vehicle for a real estate venture, which may be a limited liability company, a limited partnership, or another structure, by weighing liability protection, governance, financing, and tax considerations against the parties' goals.
Negotiating and drafting the partnership, operating, and joint venture agreements that define how the venture is owned, how it is run, and how matters are resolved when the parties disagree.
Structuring how capital and property are contributed, how future funding obligations are handled, and how the venture's structure aligns with its acquisition, development, or refinancing.
Setting the management, voting, and decision-making terms that match the parties' expectations, including which decisions require consent, what a managing member or general partner may do alone, and how deadlocks are broken.
Defining how profits and losses are allocated and distributed and how a party exits, through buy-sell and buyout provisions, transfer restrictions, and agreed procedures for a sale or refinancing of the property.
Legal review of the property, the contributing parties, and the deal terms, surfacing the regulatory and contractual risks that should shape how the venture is structured and where liability is placed.
Most ventures form as a Delaware limited liability company because the Act enforces the agreement as written and lenders accept its single-purpose covenants without argument. The property itself usually sits in a wholly owned subsidiary, so a buyer can take the entity, and the loan with it, when assumption is cheaper than a payoff.
A fifty-fifty venture will deadlock eventually. The usual cures are a buy-sell, where one party names a price and the other must buy or sell at it, and a forced-sale right after a lockout. A buy-sell only works between parties who can both write the check, so capital partners want it and operators rarely do.
When a partner misses a required call, the agreement sets the price: the funding partner may advance the shortfall as a loan at a default rate, or contribute it and dilute the defaulter at a penalty ratio, and consent rights are usually lost until cure. Whether calls are mandatory, and capped at what, comes first.
Profit and loss allocations must track the distribution waterfall, or the IRS can reallocate them under the partnership rules. Most agreements now use target allocations that force each partner's capital account toward what it would receive on a hypothetical liquidation, which means the tax advisors should see the waterfall before the lawyers finish it.
A right of first offer or first refusal governs transfers among the partners; the lender's consent governs transfers of the property or controlling equity. The two are drafted together, because a ROFO that cannot be exercised inside the lender's cure period, or that purports to bind a foreclosing mezzanine lender, is a default in waiting.
The operator usually earns development, management, and construction fees from the venture it controls. The agreement should list each fee, fix its rate or a market test, and give the capital partner a consent or termination right over affiliate contracts, because once fiduciary duties are waived the fee schedule is the only check left.
Before an entity exists, the bargain goes down on paper: who contributes capital and who contributes the property or the platform, the promote and preferred return, and which decisions each party must sign off on. The term sheet is where the bargaining actually happens. Everything after is drafting.
The venture takes its form, typically a Delaware LLC or limited partnership, and the distribution waterfall is built tier by tier: return of capital, the preferred return, then the promote. Allocations are coordinated with the parties' tax advisors so the economics on paper match the economics intended.
Major-decision lists, managing-member authority, and deadlock mechanics are negotiated alongside the financing, because the lender will demand its own controls, single-purpose-entity covenants, and transfer restrictions, and the operating agreement has to leave room for them.
Over the hold, the document is tested: capital calls and the dilution or default remedies behind them, refinancing proceeds through the waterfall, and eventually the exit, through buy-sell, forced-sale, or ROFO mechanics that were priced at formation and exercised years later.
The operating agreement is read twice, once at signing and once at the moment the partners stop agreeing.
A jointly owned entity, almost always an LLC, in which one party supplies most of the capital and another supplies the property, the development capability, or the operating platform, and the two split profit on a schedule that pays the operator more than its capital share once agreed hurdles are cleared. That extra share is the promote. The venture is governed by an operating agreement that doubles as the deal's only law, because the entity statute defers to it on nearly everything.
A Delaware limited liability company in most cases, with each partner holding through an entity of its own. Delaware enforces the operating agreement as written, lenders accept its single-purpose covenants without argument, and the LLC is taxed as a partnership by default, so income is taxed once. A limited partnership appears where a fund sponsor's own documents require it, and a tenancy in common where investors need interests that can be exchanged under Section 1031, which partnership interests cannot.
Five things, in the order they will be fought over. The capital commitments, and what happens when a call is missed. The waterfall, tier by tier, with the preferred return rate, whether it compounds, and whether there is a catch-up. The major-decision list and who breaks a deadlock. The affiliate fees and the right to remove the operator for cause. The exit, meaning the buy-sell or forced sale and the lockout before either can be used.
Day-to-day authority sits with the managing member under a budget and business plan approved each year. Anything outside it goes on a major-decision list that needs the capital partner's consent: a sale or refinancing of the property, new debt, and affiliate contracts or budget variances above a set percentage. Deadlock on a major decision is broken by the mechanism chosen at formation, usually a buy-sell or a forced sale after a waiting period, and the operator can be removed for cause, with the promote forfeited or bought out depending on what the cause was.
Through a mechanism priced at formation. A buy-sell lets one partner name a value for the property, and the other must buy or sell at that number, which keeps the price honest but favors the partner with cash. A forced-sale right lets either partner require a marketed sale after a lockout, usually with a right of first offer so the other can match. Drag-along and tag-along rights govern a sale of interests rather than of the asset. Every one of these must be exercisable within the loan's transfer provisions, or the lender's consent becomes a veto over the exit.
From the term sheet to the capital event. We draft the term sheet so the economics are fixed before the other side's lawyers begin, then form the entity and its subsidiaries. The operating agreement is written with the waterfall modeled against the tax advisors' allocations and conformed to the lender's single-purpose requirements at closing. Over the hold we handle capital calls, consents, and amendments, and at exit we run the buy-sell or the sale process the agreement prescribes. One partner is responsible for the venture throughout.
Counsel for commercial property transactions, acquisitions, and dispositions, the deals that joint ventures are most often formed to pursue.
Explore →Legal support for property development, land use, and zoning, the coordination-heavy work that development joint ventures exist to carry out.
Explore →Guidance on the financing structures behind real estate investments, with the analysis and negotiation that the venture's structure must align with.
Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
One partner is accountable for the whole matter, and you have that partner's direct line. Chicago, London, and Dubai work to the same standard.