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Difficult economy can bring issues on partnerships to boil

SAN RAFAEL – Partnerships can combine individual resources to take advantage of property investment opportunities, but tough times often imperil partners who haven’t seriously addressed a dozen common aspects of the relationship beforehand, according to a longtime real estate law expert.

Residential and commercial tenants late on their payments can cause a cash-flow crunch for the ownership. Retailers dependent on consumer spending may not be able to make rent payments to owners of a shopping center. Or, perhaps a commercial building gets condemned during a legal war between disgruntled partners.

These are recurring problems San Rafael-based real estate attorney and property investor Jeffrey Lerman has seen in his 28-year career, and economic downturns only accentuate any underlying issues.

“Any time you have any kind of business ‘marriage,’ when money gets tight then troubles can come,” Mr. Lerman said.

Generally, the 12 warning signs he has seen threaten a partnership, limited liability company, tenancy-in-common or other structure result from the partners not having deep discussions before the venture and periodically thereafter as well as not detailing the agreed terms on paper.

Mr. Lerman suggests those discussions and subsequent written agreements include:

• Profit and loss proportionment when one partner has more cash than the other

• Delineation of what each partner contributes to the venture

• How much each partner must contribute should the business need more capital

• Determination of who makes the decisions. If the partners have split ownership, they may need to pick one of them as managing partner, assign someone else to break a tie vote or to arbitrate, according to Mr. Lerman.

His other suggestions for partners to keep their business relationship healthy include:

• Check each other at the beginning for business successes or failures, legal troubles and litigiousness.

• Keep orderly records to avoid disputes when profits are distributed or capital infusions are needed.

• Use attorneys with experience in the types of contracts and documents drafted.

Also tearing at joint-venture cohesion is a sense that the other partners aren’t putting in as much effort or taking as much risk, he said.

Ventures that involve family members also loosen the “glue” of the original business relationship when longstand-ing family matters enter business decisions, according to Mr. Lerman.

“The potential for problems is greater in those situations because of the existing relationships,” he said.