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Beware the risks
What owners should know when forming joint ventures to developer their land
01/01/2005 NST-PROP By Salleh Buang

A joint venture in any undertaking - whether in trading, manufacturing, construction or land development - is like a marriage. While some joint ventures can be said to be “made in heaven”, there are others that can only be described as “consummated in hell”.

Asked to advise parties intending to enter into a joint venture, or “strategic alliance”, as the current fashionable terminology goes, I would normally ask each of them: “What if things don’t work out as planned?”

This question normally evokes the sort of response that would enable the potential JV partners and I to work out the necessary measures. Better to be safe than be sorry, I tell them. Better to quarrel now rather than later, when it would be too late.

As long as they know what they are planning to do, reasonably confident (based upon prudent investigation and ascertained facts, not on blind hope) and if the joint venture partners (JVPs) are competent, capable and compatible, there is no reason why they should refrain from forging the intended alliance.

They should avoid entering into a completely unknown business venture - something in which neither partner has knowledge of, nor experience in.

They should also be careful about a JVP who is practically a stranger to them, or whose track record is a blank page. To do so is akin to marrying someone your parents chose for you, a stranger you’ve not met before, from a place you have not heard of.

I am usually asked about the “legal skills” required to negotiate a workable and profitable JV and my usual response is that there is nothing to worry if you don’t have such skills: What you don’t have, you can buy.

The important thing is not to go into negotiations with a prospective JVP without the benefit of legal advice. You should get a seasoned lawyer to advise you or better still, bring him along when you go into the negotiation room.

In the meantime, look around for legal workshops and seminars on the subject, which are held from time to time. If you can find the time, do attend these sessions and equip yourself before the occasion demands it - you would subsequently say that it was time (and money) well spent.

Over the last weekend, the subject of international joint ventures and strategic alliances resurfaced in my mind as I read reports in the daily newspapers about the visit of our Prime Minister to West Asia and India.

Many joint ventures and business alliances can be expected out of this important (first) visit to these two parts of the world by our national leader, who had been accompanied by the customary entourage of business leaders and corporate chiefs.

I remember the things so many local chief executive officers who went on these foreign missions with national leaders had told me at the workshops on joint ventures I used to conduct in the mid-90s.

These people have gone to various corners of the globe, negotiating and dealing with foreign partners. They told me stories of the things they did right, and other things that they did wrong - plus the human and financial cost that they subsequently had to bear.

I have discovered that many CEOs form joint ventures without the benefit of a proper business plan. It is akin to flying blind. Likewise, I have also discovered that many landowners agree to form joint ventures with property developers without any firm idea of what is actually happening, and what they would be getting at the end of the day.

They have some vague idea of what they will get if and when the planned project is finally completed, but they usually do not know, nor do they actually care, how the project will progress from one day to another, or from one year to another.

Many are lulled into a “comfort zone” by the developer, with a rosy picture of what’s coming. Many happily sign JV agreements without really understanding the risks they are taking.

In the past, there have been cases of landowners granting full powers over their land to the developer through power of attorney, without considering the dangers of this, after being offered a paltry amount as “advance from profits”.

Many joint ventures have failed because the parties are actually not “compatible” with each other: Compatibility is required not only in terms of management style, financial strength and corporate vision but also in fundamental matters such as honesty and integrity.

Likewise, many joint ventures failed because the expectations of the landowner are not known - or even worse, not fulfilled or totally ignored by the developer.

There have been in the past joint ventures that also failed because of a communication breakdown between the parties. The most notable case of such a failure occurred some two decades ago, affecting a joint venture between a Perak State Government statutory body and a private sector company.

This case, which is reported in the law journals, is usually referred to as the “Asean Security Paper Mill” case.

A joint venture can also fail if it is meets with strong local opposition, even though it might have obtained the blessings of the Government. Many years ago, a private sector company based in Kuala Lumpur forged a strategic alliance with a State agency to develop a mega tourism-related project, Disneyland-style, in Kedah.

Unfortunately, a greater part of the land area to be developed was already part of the popular Gunung Jerai mountain resort. As a result of strong pressure from the local people, the joint venture project was scrapped, even though we were told that the parties had concluded a formal joint venture agreement.

A joint venture agreement involving land can also fail if there are too many parties involved, as a result of which no single party can be identified as a strong leader. I am reminded of the old adage, “too many cooks can spoil the broth”.

Residents of Johor should be able to recall what had happened during the early stages of the “Desaru Project”, when there were at least five parties involved in the venture to build an ambitious holiday resort along the beautiful Desaru beach.

If there is a single cause of failure of joint land development ventures that tops the list, it would be “lack of funds” on the part of the developer.

The Johor sugar plantation project failed because the money had dried out: The company involved did not even have funds to pay the quit rent due to the State, as the Privy Council decision showed (see UMBC vs Pemungut Hasil Tanah Kota Tinggi [1984] 2 MLJ 87).

A housing project near my birthplace in Jalan Bakri in Muar, Johor, failed 15 years ago. It has been abandoned, without any hope of being revived by the Housing and Local Government Ministry or by any other party, because the developer ran out of funds and absconded, leaving the purchasers and the landowner in the lurch.

In a nutshell, giving up your land to another party to develop it on the basis of a joint venture is a risky affair. Do it only if you know the party well, and you are absolutely certain he will not let you down.

Take precautions and, better still, get involved in the project. That way, you will know what is happening all the time.

Salleh Buang is senior advisor of a company specialising in competitive intelligence. He is also active in training and public speaking and can be reached at

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