Often a land owner will run out of money before their development is completed and they will look for an investor to come on board as a joint venture partner to fund the development and share the profits.

This was the case in the New South Wales Supreme Court decision of Coleman v Hart-Hughes [2017] NSWSC 656.

Hart-Hughes (the land owner) had no funds or borrowing capacity to carry out the subdivision of her land into 3 lots. Coleman (the investor) agreed to invest funds to clear her loan arrears and develop the property.

The parties signed a Joint Venture Deed for the development and Coleman registered a caveat over the land to secure his interest.

Relations between Hart-Hughes and Coleman soured and Coleman looked to enforce his security over the property through the caveat. Hart-Hughes alleged that the joint venture was illegal because only the profits and not the losses were shared and also that the Joint Venture Deed had been terminated by frustration. Coleman argued that he had been granted a valid “equitable charge” over the land.

The NSW Supreme Court held that:

  • it is not illegal to share profits without sharing losses in a joint venture;
  • the Joint Venture Deed was not terminated by frustration - delays in the project from 2012 until 2016 were not unexpected and did not prevent the parties from performing their obligations under the deed; and
  • the terms of the Joint Venture Deed gave Coleman an implied “equitable charge” over the land.

This case highlights that a failure to include express terms in a joint venture agreement (such as the grant of an “equitable charge” rather than just a “caveatable interest” over the land) can leave investors at the mercy of the Courts and potentially without means to recover their costs should the land owner default.

While a caveat may form the basis of claiming the existence of an equitable charge over property (as argued in Coleman v Hart-Hughes) a caveat alone is not a sufficient basis to claim the property as security. A caveat is a form of statutory injunction and indicates that a party holds an interest in the land. It does not give the caveator the right to repossess or sell the land to recoup any losses.

When looking to enter into joint venture agreement, the transfer of the land to a shared entity is always encouraged to ensure that all parties to the joint venture have a registered interest in the land. This may not always be the easiest option however as it can require the refinancing of existing mortgages over the property.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.