A real estate joint venture (JV) can be one of the most profitable structures in property development.
A landowner contributes land.
A developer contributes capital, expertise, project management, and execution.
An investor may contribute funding.
Together, the parties create value that none of them could achieve alone.
However, before lawyers begin drafting a full joint venture agreement, experienced developers and investors usually start with a JV Term Sheet.
A well-drafted term sheet serves as the blueprint for the entire transaction.
It helps all parties agree on the major commercial terms before spending money on legal documentation, feasibility studies, and due diligence.
Without a clear term sheet, misunderstandings can arise regarding ownership, profit sharing, capital contributions, decision-making authority, and project responsibilities.
This guide explains exactly how to draft a professional JV term sheet for a property deal and the clauses that should be included to protect all parties.
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What Is a JV Term Sheet?
A JV term sheet is a preliminary document that outlines the key commercial terms of a proposed property joint venture.
It is usually prepared before the definitive legal agreements are drafted.
The purpose is to establish agreement on major deal points such as:
- Project structure
- Equity ownership
- Capital contributions
- Profit sharing
- Management responsibilities
- Exit rights
Legal and commercial practitioners generally view a term sheet as the framework that captures the business deal before formal documentation begins. business terms from any binding provisions. intended development. because they create clearer governance and liability separation. one of the most heavily negotiated components of a property JV. funding.
Include:
- Initial capital
- Development capital
- Working capital
- Contingency funding
Professional term sheets commonly address both initial and future capital obligations. – Funding commitments
- Financial oversight
Clear role allocation reduces future conflict. separate routine decisions from major decisions requiring approval.
Many real estate JVs use a distribution waterfall that prioritizes capital recovery before profit sharing. insist on completing due diligence before proceeding to definitive agreements. requirements from the outset. out rights
Transfer restrictions are common features of sophisticated real estate JV structures. mechanisms are considered essential governance provisions in property JVs. importance of discussing exits before signing any JV. include default provisions as a foundation for later legal agreements. Many term sheets make confidentiality legally binding even when the commercial terms remain non-binding.