Property Joint Ventures – What could possibly go wrong?

There are lots of reasons to invest in real estate on a joint venture basis. One party may have the capital, the other the expertise; one may have commercial experience, the other residential; or it may simply be a way to spread the risk. There are also lots of ways in which a joint venture can be structured: a company, an LLP, a partnership or contractual arrangements. Unfortunately, there are also lots of ways in which a property joint venture can go wrong. In a series of articles over the next few months, our corporate disputes and real estate litigation team provide an overview of both established principles and recent case law that highlights some of the potential pitfalls and solutions when things don't go according to plan.

In the first of the series, we examine the case of Baldudak v Matteo, in which judgment was given earlier this year. The case demonstrates what remedies may be available when one party to a joint venture contributes the purchase price for a property and a dispute subsequently arises as to who owns that property.

In this case, an office in North Shields (the "Property") was legally jointly owned by Matteo and Baldudak as individuals. It was the trading premises of a company, HTS, that, at one stage, was owned equally by M and B. However, following a fall out and previous Court proceedings, the company was now owned wholly by B. The Property was purchased using funds from HTS' bank account. B had previously transferred (by way of a loan) £750,000 to the account of a separate company, PCB, jointly owned by B and M. That loan was later novated to HTS. B contended that, as a result, he had contributed 100% of the purchase price and, therefore, beneficially owned the Property outright. M contended that it was a term of the joint venture agreement that the Property would be purchased for them both to use as premises for their business venture and so they were each entitled to a 50% share of the Property.

The first argument raised by B was that the £750,000 had been transferred to PCB specifically for the purpose of setting up a specific business venture. As a result, B argued, the money was held on a Quistclose trust for B to be used solely for that purpose, with B remaining the beneficial owner of the funds until that purpose was achieved. That specific business venture did not proceed, and so, it was argued, the funds belonged to B and any property purchased with the funds belonged to B. This argument was dismissed, with the Judge finding that the money was paid into the company for the general purposes of the joint venture between the two men. For a Quistclose trust to arise would require clear and precise language that the money was intended for a specific purpose, and no such language applied in this case.

However, for various factual reasons, the Judge found that B had paid the entire purchase price of the Property. B therefore argued that M and B held the Property on a resulting trust for B. The general position is that where one party contributes the purchase price for a property there is a presumption that a resulting trust will arise and the purchase price will not be treated as a gift. Clear evidence is required to rebut that presumption. The Judge found that this was not the case here.

Finally, B argued that M had, in previous proceedings, submitted that B was the beneficial owner of the Property and he could not now change his position. M's counsel had, on the day before a previous trial, sent an email to the Judge containing a spreadsheet which included a representation that the Property had been purchased by B. Unsurprisingly, the Judge found that M was bound by his statement in previous proceedings.

This case is a reminder of a number of important principles arising in joint venture disputes:

If lending money to a joint venture solely for a specific purpose, that must be made clear in writing otherwise the funds could be treated as general funds for the benefit of a joint venture;
If one party to a joint venture is contributing the purchase price for a property that is intended to be beneficially held by both parties, that must be made clear in writing; an
An admission or statement made in previous proceedings can be binding in any future proceedings.