{"id":1004143458,"date":"2016-05-04T10:16:21","date_gmt":"2016-05-04T18:16:21","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004143458"},"modified":"2020-05-13T02:01:53","modified_gmt":"2020-05-13T10:01:53","slug":"in-jv-partnerships-mind-the-punctilios","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/in-jv-partnerships-mind-the-punctilios\/","title":{"rendered":"In JV Partnerships, Mind the Punctilios!"},"content":{"rendered":"

By Brian Hochleutner<\/p>\n

\"BrianHochleutnerSC\"<\/a>How do you know whether you or a joint venture partner has breached a fiduciary duty? Is your joint venture agreement clear enough for that question to be answered?<\/p>\n

Fiduciary duties often arise in joint ventures, regardless of whether the parties intend them to exist. They are created by statute or common law based on the existence of a relationship in which one party is deemed to have placed special trust in another or to have relied upon that other party\u2019s judgement. In other words, a manager, general partner or controlling member in a joint venture can have fiduciary duties, even if the parties make no mention of such duties in their agreements.<\/p>\n

Real-world questions<\/strong><\/p>\n

The scope of such duties can be uncertain. A fiduciary is considered to have heightened duties of care and loyalty, but what does that mean in the real world? For example, the duty of loyalty requires avoidance of conflicts of interest. Is that duty breached if a limited-liability company owns real property and its manager (or the manager\u2019s affiliate) also manages other potentially competing properties? This is just an example of the kind of uncertainty that can make fiduciary duties susceptible to disputes.<\/p>\n

The classic fiduciary duty case is Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928), which involved a joint venture that owned a 20-year lease. When the lease and venture ended, one partner made a new deal with the property\u2019s landlord. The other partner sued, alleging breach of fiduciary duty. The New York Court of Appeals ruled that a breach of duty had indeed occurred. Chief Judge Benjamin Cardozo famously wrote in the court\u2019s majority opinion that a fiduciary must abide by \u201cthe punctilio of an honor most sensitive,\u201d which he called \u201csomething stricter than the morals of the market place.\u201d<\/p>\n

Punctilios and morals are not great guideposts for behavior in modern commercial transactions, and while more recent case law and statutes give additional benchmarks, considerable uncertainty remains. It is therefore particularly important that parties to commercial real estate joint ventures take care to address and define the scope of their fiduciary duties. Generally speaking, parties can choose: (1) traditional\/default fiduciary obligations, express or implied; (2) waiver of fiduciary obligations to the extent permitted by law; or (3) modification\/clarification of fiduciary duties (e.g., limiting such duties to particular circumstances, such as in the handling of money or other critical assets).<\/p>\n

Mind the details<\/strong><\/p>\n

In defining fiduciary obligations, the relative leverage of the parties, the scope of anticipated reliance and potential for conflicts will be critical factors. The following should also be considered:<\/p>\n