- Despite everyone’s best intentions, sometimes real estate deals go bad.
- To minimize the pain, its best to be prepared with a great operating agreement and written records.
- And when a dispute does arise, stay calm and hire a good lawyer.
I love real estate closings. Its such an exciting time. Everyone (usually) is happy and excited for the journey upon which they are about to embark. Optimism is high. Its an opportunity to improve a little piece of the world and make a little money also.
Despite the best of intentions, however, unfortunately deals do not always go as we expect them to. Through nobody’s fault, the market can change or deals can just go bad. When that happens, sometimes the partners in the deal will get upset with each other and blame each other for the failure. What do we do when that happens? That’s what we are going to talk about in this week’s blog entry.
The Most Important Way to Avoid a Partnership Dispute
For the thousands of avid readers of this blog, this next part may sound familiar. I wrote about it back in November. But by far the best way to avoid a nasty partnership dispute is to have a good partnership agreement.
A good partnership agreement will explicitly list the rights and responsibilities of all the parties to the agreement. And it will explain what needs to be done in the event that the future of the partnership is no longer viable. Of course no agreement can predict every potential dispute or scenario that will arise. But having a good one will provide guidance for most scenarios.
But even with a good partnership agreement, partnership disputes may arise.
How to Minimize the Disputes Between Partners in a Real Estate Deal
Even though disputes may be inevitable, it would still be nice to minimize them as much as possible. But how do we do that?
- Act ethically – This may seem obvious. But that does not always appear to be the case. If you are the general partner, you have an obligation to use best efforts to protect the investment of all the partners. Acting ethically is not only the right thing to do, its also the best thing for your investment, and the best way to minimize partnership disputes.
- Stay in contact with the partners – This is not a relationship blog, but good communication is the key to any good partnership. If things are not going well, keep your partners informed. It will pay off in the end.
- Keep written records of everything – If, despite your best intentions, a dispute arises, records will be the key. Make sure you have written records of your expenses, efforts to make the investment work, etc.
Following these suggestions will definitely help. But they cannot completely eliminate the possibility of a dispute.
What to do if a Partnership Dispute Arises
So we have our partnership agreement, we have acted ethically, kept our partners informed and yet – despite all that, the deal went bad and our partners are not happy. What do we do now?
- Be prepared – Hopefully you followed the rules in the previous section and kept great written records. Well its now time to get those records. Take the time to find all the documents you have because they will be important in any litigation.
- Stay calm – Nobody wants a dispute to arise. But sometimes it happens. And partners can fight with each other. Try not to make it personal. And do not say or write anything emotional that can come back to haunt you during litigation.
And, of course, I’m sure you know the last and most important piece of what to do if a partnership dispute arises. Its not going to be fun. But – if you hire the right lawyer, hopefully you can get out of it without too much damage. So the final piece of that puzzle – hire a great lawyer.