How do investors protect
their investment in a property development joint venture?
Many land owners who want to develop their property run out
of money before their property development project is
Some land owners find an investor who is prepared to fund
the development, not as a lender who receives interest, but
as a joint venturer who partners with the land owner and
shares the development profit.
The relationship is documented as a joint venture for
The recent decision of the Supreme Court of New South Wales
of Coleman v Hart-Hughes  NSWSC 656 (Darke J)
illustrates how investor should protect their investment in
case the joint venture relationship sours, as it did in that
How the joint venture was
formed and performed
Ms Hart-Hughes (the land owner) owned a semi-rural property
at Bangalow of 3.56 ha. She wanted to subdivide the property
to take advantage of a recent re-zoning by the Byron Shire
Council. But she had no funds to carry out the development
because she had exhausted her borrowing capacity: she owed
$1,650,000 under the first mortgage and $190,000 under the
second mortgage. In fact, she was in serious financial
difficulty, having defaulted under the first mortgage loan.
Mr Coleman (the investor) agreed to invest funds to clear
the loan arrears and to develop the property for subdivision
They entered into a Joint Venture Deed for Land Development
on 4 July 2012, which contained these provisions:
The development project was the subdivision and sale of
the land, and the development and sale of houses on the
The land owner agreed to contribute the land at cost
(subject to the existing mortgages) and the investor
agreed to contribute the funds which were $666,258
(already paid) and $118,475 (to be paid).
The land owner and the investor formed a Joint Venture
Committee (JVC) to make the joint decisions for the
The land owner was to act as the project manager.
The development profit, after payment of approved
budgeted costs (including the land cost), repayment of
the mortgage loans and the investor’s contribution, was
to be divided and distributed 50% to the land owner and
50% to the investor.
he land owner acknowledged that the investor:
has a caveatable interest in the Land and will
consent to the registration of a caveat on the title to
The investor registered a caveat over the title.
In February 2016, the subdivision was approved as two
smaller lots and one larger lot. The land owner requested
the investor consent to the registration of the plan of
subdivision. The investor requested details of the amounts
owing under the mortgages.
The land owner responded not by giving the details of
balances outstanding, but by serving a lapsing notice to
remove the caveat. The investor consented to the
registration of the plan, and the plan was registered in
The two smaller lots – 19 and 21 Ballina Road had houses on
them. They were sold – lot 1 for $730,000 and lot 2 for
$835,000. The sale proceeds were applied to the first
The larger lot had a long frontage to the Pacific Highway,
and had development potential/approval for 20 dwellings in
five separate two-storey buildings. The prospect of sharing
a substantial development profit with the investor goes a
long way towards explaining why the land owner wanted to
walk away from the joint venture.
The issues in the legal
The investor instituted legal proceedings in the Supreme
Court to maintain the caveat, by seeking declaratory orders
the land owner had granted a valid equitable charge over
the land; and
the land stood charged to secure repayment of
$881,233.90 payable under the Deed.
The land owner wanted to end the joint venture, arguing
the joint venture was illegal because only the profits,
and not the losses were shared;
the joint venture deed had been terminated by
The Court’s determination on
the validity of the joint venture deed
The Court determined that the deed was valid and enforceable
for these reasons:
A joint venture deed is a contract. There is no statute
which makes it illegal to share profits, without sharing
losses in a joint venture. Nor is there any public
policy consideration – there is no legal wrong, immoral
act or illegal purpose which would make it illegal to
agree that losses are not to be shared.
For a contract to be terminated by frustration, an
unexpected event must occur which renders the contract
radically different from what was entered into. In this
case, delays in the project from 2012 until 2016 were
not unexpected and did not prevent the parties from
performing their obligations according to the deed.
The Court’s determination on
The difficulty was that although the deed conferred a
caveatable interest and stated that the land owner will
consent to the registration of a caveat, it did not
specifically state that the land owner granted an equitable
charge over the land.
The Court reviewed the Joint Venture Deed and determined
that despite no reference being made to the grant of an
equitable charge, the investor was entitled to maintain the
The terms the Deed do support the implication of an
intention that the plaintiff have an equitable charge to
secure repayment of the monies he advanced. The Deed
does not seem to contain any indication to the contrary
sufficient to overcome the implication.
Comments on protection by
In entering into this joint venture, the investor had good
reason to leave the land in the land owner’s name instead of
transferring the land into a jointly owned entity, namely
the mortgages on the land would not need to be refinanced
(if indeed they could).
But without the security of being registered on the title,
the investor had little control over their investment. While
a Joint Venture Committee provided some protection, the
investor needed security for the performance of the Joint
Venture Deed in the form of a registered caveat.
What the decision of Coleman v Hart-Hughes teaches us is
that it avoids argument if the caveat clause specifically
states that the land is charged with the performance of the
If so, a registered caveat will protect the investment in a
property development project.
And the investor should insist on sharing only the profits,
not the losses, from the project.
This is the subdivision plan which was registered in July
2016, with the land outlined in yellow.