The Real Estate Case You Need to Know About

In the recent decision of the Court of Appeal (“COA”), Caribbean Real Estate Investment Fund v Valrine King [2023] JMCA Civ 18, the COA had to review the Supreme Court judgment in favour of Mrs. King that a joint venture agreement (“JV Agreement”) between her and Caribbean Real Estate Investment Fund (“CAREIF”) was unenforceable on the basis of illegality and uncertainty. 

The case is indeed noteworthy and should be heeded by developers, real estate investors, financiers, and their advisors.  Most notably, the case makes important findings on the interpretation of the provisions of the Real Estate (Dealers and Developers) Act (“the Act”), as well as the terms of JV agreements. 

Case Background 

Mrs. King, a landowner, entered into a JV Agreement with CAREIF in 2006, whereby Mrs. King would provide her land, CAREIF would provide financing and logistics for developing the land into a mix of commercial and housing units, and Mrs. King would be paid for the value of the land and receive a share of the profits from the development. In 2007 Mrs. King wrote to CAREIF to terminate the JV agreement. After years of silence, and inactivity, followed by some unsuccessful, renewed discussions, CAREIF filed suit against Mrs. King, in 2013, to compel her to abide by the JV agreement, and provide the title for the land. In defense to CAREIF’s claim, Mrs. King asserted that the JV agreement was unenforceable on the grounds of illegality and uncertainty, while CAREIF asserted that the JV agreement was clear in its terms and binding on Mrs. King. 

The Decision

The COA, with two members assenting, and one member dissenting in part, found in favor of Mrs. King. 

The first central issue of the appeal was whether the JV Agreement was illegal because CAREIF did not have a Real Estate Dealer’s licence at the time of entering into the JV Agreement.

Under the provisions of the JV Agreement CAREIF covenanted and intended to amongst other things “[construct] units on Mrs. King’s Land by obtaining financing from investors, who would obtain ownership of a unit in the development”, “[act] as a broker who would obtain money in exchange for an interest in the property”; and “[sell] the constructed units”. Furthermore, the recitals of the JV Agreement indicated that CAREIF “[entered] into [the] agreement for the purpose of acquiring and developing and managing the property for long term income if not sold or it [was] determined by [CAREIF] that long term [was] the desired business and profit taking strategy”.

The Supreme Court, in summary, found that the forgoing activities would constitute CAREIF carrying out real estate business as defined under the Act for which a Real Estate Dealers licence is required, and that, in purporting to act for Mrs. King in this way, CAREIF would fall under section 3 of the Act, as these real estate transactions were to be carried out “on behalf of another person”. It was found that in the absence of a licence under section 10 of the Act, the JV Agreement was an illegal and unenforceable contract. It was also found that, based on the scope of the JV Agreement and the numerous steps that CAREIF was required to take thereunder, the activities would not qualify as an isolated transaction that fell within the exceptions to the requirement for a licence under the Act. The COA affirmed, by a two-to-one majority, that as the JV Agreement was illegal, Mrs. King was not obliged to perform any obligations thereunder. 

The second central issue of the appeal was whether the JV Agreement was unenforceable for uncertainty. In reviewing the terms of the JV Agreement, the COA looked at the clause dealing with the compensation Mrs. King was to receive and found that it was unclear as to the basis on which the compensation to Mrs. King was to be calculated and paid. Essentially, the clause provided for two differing methods of calculation of the consideration that were so different that it was uncertain in a material respect. The COA also went on to look at an addendum to the JV Agreement that was also signed between the parties, and found that the addendum was such an open-ended arrangement that it too was uncertain. 

Key Takeaways

Where a JV agreement is improperly drafted to include obligations, covenants, and intentions of a developer that are interpreted as illegal or uncertain, the developer will not be able to enforce the JV agreement, even after having invested significant time, money, and effort in advancing a particular development. Developers must be mindful of the services they are purporting to offer under a JV agreement, and ensure the clauses relating to these services are drafted with utmost care.

It is noteworthy that one member of the COA, Edwards J, dissented on the point of illegality, indicating that, in his view, an intention to do something is not the same as engaging in something, and that, therefore, a Real Estate Dealer’s licence would not be required at the time of entry into a JV agreement if the developer would not be “engaging in the practice of real estate” at that stage. Edwards J also raised the point that a developer does not have to sell the units he develops himself, but can contract a licenced dealer to sell on his behalf at the requisite time. Again, whether a developer would be engaging in the practice of real estate at the time of entering into a JV agreement, would be a matter of the interpretation of the wording of that specific JV agreement. 

A Word To The Wise

Be wary of the words used in any potential JV agreements. As the CAREIF case turned on its specific facts and the wording of the JV Agreement, we can find comfort in the fact that many a well-drafted JV agreement has been found to be enforceable and upheld. This case clearly demonstrates that having an aptly drafted JV agreement can make or break your development project. Real Estate Development is very technical, and should not be ventured into without proper, experienced, and professional advice. Venturers beware.