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It Matters: JV or Partnership?
by Ron Davis
A Michigan shopping center will apparently remain in the hands of the current owners despite the wishes of some of them who want to sell the property.
The shopping center, located in the Detroit suburb of Southgate, has operated since 1969, when four developers agreed to build and manage the property. Some of the successors to the original contracting parties now want to sell the facility, however, having received two offers of $3 million each from potential buyers.
At present, the shopping center is held as a tenants-in-common arrangement. But those who want to sell argue that the property is actually owned by a partnership. That means, they explain, a unanimous consent to sell is not required. All that’s needed, they add, is a simple majority of the partners–or perhaps only the wishes of the managing partner.
Not so, contended the holdout partner, explaining that the original parties to the 1969 agreement entered into what they called a “joint-venture agreement.” And under Michigan law, such an agreement is in contrast to a partnership, which is an association of co-owners in a business with profit as the objective. A joint venture, on the other hand, is defined by state law as “an association to carry out a single business enterprise for profit.”
Michigan’s courts eventually had to settle the dispute. And a state circuit judge ruled in favor of the partners who want to sell the property, observing that the owners had formed a partnership and therefore the property belonged to the partnership itself. The holdout partner appealed that ruling, pointing out that a joint venture and a partnership are separate and distinct legal entities and the law does not attach the same legal status and import to them.
A Michigan appellate court reversed the circuit judge, explaining, “The original parties to the agreement formed a joint venture. They titled their contract a ‘joint-venture agreement.’ The purpose of the 1969 agreement is clear: the founders agreed to carry on a joint venture rather than a general partnership because the agreement contemplates a single endeavor–to own, build, and rent a retail shopping center in Southgate. In other words, the agreement was not to form a general business, but was limited in scope to the undertaking of a specific project.... The agreement does not contain language that suggests the formation of a partnership. It does not contain the word ‘partnership’ and it does not discuss majority/minority rules regarding decisions about the property or the authority to convey it. Thus, a tenancy in partnership is not indicated by the contract.” (Kay Investment Co. v. Brody Realty I, 2006 WL 3824887 [Mich.App.])
Decision: December 2006
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