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Joint venture requires up-front investment: how do we make this binding before finalising heads of agreement?
We are looking to enter into a joint venture with another company which will require us each to enter into some paid-for market research prior to the agreement being reached. Each of us plan to do this ourselves at own initial expense but the costs of our research are likely to be far higher than theirs and the joint venture is for 50% each and we want to agree that we should recoup our costs on a 50:50 basis once the final agreement is signed or indeed if the results are unfavourable and we decide not to proceed. I'm told that this should be done in a short-form agreement which should be signed now before the joint venture agreement is finally drawn up. What is a short-form agreement and can you draw one up?
You need to create and sign a binding short-form agreement which only deals with the issue of the expenditure, who pays for it and which purpose it is supposed to serve.
Details of this can be then included or referred to in the Heads of Agreement and indeed in the final signed contract.
You should specifically not lock down the Heads of Agreement to early.
Particular care needs to be taken to ensure that the Short Form Agreement is properly worded, however informally the rest is phrased as it is specifically designed to be legally binding. Different and particular issues can arise, for example, where representations are made about the prospects of a certain proposal, or where a sale of land may be involved.
We can provide standardised and simple forms of 'agreement outlines' which can be used for this purpose, and will help you draw up clauses to deal with special issues which will need to be addressed by the parties.
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