Strategic considerations for a joint venture between a developer and a land proprietor
Developers often joint venture with land proprietors because it allows both parties to leverage their strengths and interests, reduce upfront investment, manage risk, benefit from mutual expertise and optimize returns. In this article, we highlight a few strategic considerations for developers to evaluate prior to committing or executing any form of agreement with the land proprietor.
- Choice of Joint Venture Model
Incorporation of joint venture company (“JVCo”) Model
This is a model where both parties i.e. land proprietor and the developer incorporate a JVCo and subscribe to the shares of the JVCo. For this model, it is important to have a Constitution of the Company and shareholders’ agreement crafted in place to address or to avoid disputes between the shareholders. Some developers are inclined to opt for this model as JVCo operates as its own legal entity, making it easier to isolate liabilities and manage risks; or
Contractual Model
A contractual model is an arrangement where there is a direct contractual agreement between the land proprietor and the developer to develop a piece of land, usually documented by way of Joint Development Agreement, without any need to form any JVCo as a vehicle to undertake the development. This is a straightforward and simpler arrangement as the parties are able to save time and cost in incorporating a JVCo. In addition, JDA enables parties to demarcate clear obligations, responsibilities, and entitlements between the land proprietor and the developer. - Additional assessments and considerations must be undertaken where the subject land falls within the statutory definition of “estate land” or is classified as “hill slope land.”
Estate lands
Estate lands cannot be transferred, conveyed or disposed of in any manner whatsoever unless approval for such transfer, conveyance or disposal is first obtained from the Estate Land Board (“ELB”). Therefore, it is important to firstly, ascertain whether the land in question falls within the definition of “estate land”. Estate land is defined as:- agricultural land;
- held under one or more than one title;
- held under one or more than one title;
- the area or the aggregate area of which is not less than 40 hectares; and
- the alienated lands constituting such area are contiguous.
Hill slope lands
Generally, there is a stricter governance in relation to property development on hill lands and slopes. Any application for planning permission must be subject to planning regulatory laws, and where there is an inconsistency between the category of land use under the National Land Code – Revised 2020 and planning control under the Town and Country Planning Act 1976, the latter would prevail. Hence, it is pertinent for developers to consider all relevant planning regulatory laws prior to committing to undertaking any property development, more so when it has potential environmental considerations / implications. - Funding and Cost for the Proposed Development
Unless there are other source of fundings, in the event it is the intention of the developer to secure financing from a licensed financing institution to fund the cost for the proposed development, the developer shall ensure that the land proprietor expressly consents to the creation of a third‑party legal charge over the land and duly executes all necessary charge documents and ancillary agreements required for this purpose. - Grant of Power of Attorney
Granting a power of attorney by land proprietor to the developer is one of the crucial terms in a joint development agreement as it empowers the developer to do and carry out preliminary matters relating to the intended development and take all action required for purposes of development and construction. - Stamp Duty on Power or Letter of Attorney
Prior to 1 January 2025, most of the Power or Letter of Attorney are stamped at RM10.00. However, effective 1 January 2025, all Power or Letter of Attorney with element of conveyance of real property would be subject to ad-valorem stamp duty as a conveyance of sale, i.e. the tiered stamp duty computation (for the first RM100,000 of the property value, the stamp duty is 1%. It then increases to 2% for the next RM400,000 (RM100,001 to RM500,000), 3% for the next RM500,000 (RM500,001 to RM1,000,000), and 4% for any amount exceeding RM1,000,000). Therefore, developer must be mindful to take into account the hefty stamp duty imposed in the event the Power or Letter of Attorney is being assessed by the Collector of Stamp Duty as having element of conveyance of real property. - Compliance with Housing Development (Control & Licensing) Regulations 1989 (Amendment 2002) (“HDA Control & Licensing Regulations”)
In the event that the development carried out by the developer requires the use of the form of sale and purchase agreement prescribed under the HDA Control & Licensing Regulations, it is crucial to ensure the land proprietor expressly agree and consent to the sale of the properties comprised in the intended development and shall comply with all rules, regulations, by-laws, statutes and Acts of Parliament for the time being in force. In the absence of such provisions in a joint development agreement would invite unnecessary queries raised by the investors or financiers which could potentially impede or delay the drawdown of financing for the proposed development. - Incorporation of Environmental, Social and Governance Clause
In today’s evolving business and regulatory landscape, it is increasingly vital for parties to embed Environmental, Social, and Governance (“ESG”) considerations within their contractual arrangements. Including an ESG clause ensures that both parties align their efforts towards sustainable development, responsible governance, and long‑term value creation, while also addressing emerging compliance requirements, stakeholder expectations and facilitating accessing to financing as lenders and investors increasingly prioritise ESG-compliant ventures. - Other Key Considerations
- In the event that any consultant, architect, or engineer has been previously engaged to work on the subject land, it is essential that the land proprietor obtain an unconditional letter of discharge from such parties. This is to confirm that all prior fees, claims, and obligations have been fully settled, ensuring the developer can proceed with its proposed development unencumbered by any existing liabilities or disputes.
- In the event that the proposed development is to be implemented in multiple phases over an extended period, it is essential to ensure that the developer retains full discretion to plan, design, and implement each phase of the project in a manner that is responsive to prevailing market conditions. This is to prevent the developer from being bound to a fixed or inflexible development plan that may impede its ability to adapt to market demands as the project progresses which could, in turn, affect its access to financing and overall financial viability.
Given the complexity and long‑term implications of such joint development, it is highly recommended that readers seek independent legal advice to ensure that any agreement entered into is properly structured, adequately protects their interests, and is fully compliant with applicable laws and regulations.
Disclaimer: The views and opinions expressed in this article are solely those of the author for information and discussion only and it does not constitute any form of legal advice from the author or the firm. Readers are encouraged to seek independent legal advice before acting or refraining from acting on any matter discussed in this article.