Legal & Tax | Exits
Exit Strategies: Buy-Sell, Forced Sale, Hold
A JV without a clear exit is a lawsuit waiting to happen. These are the six exit mechanisms we see in BC multiplex JV agreements, when each one works, and what to put in the agreement.
The Six Exit Mechanisms
Sell at Stabilization
After lease-up or strata sales, the project is wound down and capital is distributed through the waterfall. The cleanest exit and the one most JV agreements assume.
When It Works
Build-to-sell deals or build-to-rent deals that achieve refinance-friendly stabilization.
Refinance and Hold
At stabilization, the project is refinanced into long-term debt and partners either keep their position or are bought out at appraised value.
When It Works
Build-to-rent deals where one or more partners want to convert into a long-term landlord position.
Shotgun Buy-Sell
Partner A names a price. Partner B must either buy A's interest at that price or sell their own at the same price. The mechanism forces an honest price because the proposer doesn't know which side they'll end up on.
When It Works
Two-party deals where one partner wants out and there is no third-party buyer.
Right of First Refusal
If any partner gets an outside offer for their interest, the other partners have a window to match. Less aggressive than a shotgun, more common in three-way deals.
When It Works
Deals where partners want to control who joins the venture but not force a deadlock-breaking sale.
Forced Sale Trigger
Specific events (default, deadlock, breach, death) that force a sale of the entire project. Drafted as a last-resort mechanism.
When It Works
Every JV — but used only when softer remedies have been exhausted.
Drag-Along & Tag-Along
Drag-along forces minority partners into a majority sale. Tag-along lets minority partners join a majority partner exiting on outside terms.
When It Works
JVs with passive capital partners and an active sponsor who may want to sell to a strategic buyer.
Best For
- ✓ Anyone drafting or reviewing a JV agreement
- ✓ Partners trying to plan their endgame before formation
- ✓ Capital partners worried about being trapped in an illiquid position
Usually Fails When
- ✕ The agreement only contemplates the happy-path exit
- ✕ Buy-sell mechanics are vague
- ✕ There is no forced-sale trigger for true deadlock
What To Verify Before Spending Money
- → At least three exit mechanisms are in the agreement
- → Buy-sell pricing formula is mechanical, not subject to interpretation
- → Drag/tag thresholds are reasonable for the deal size
BC Legal Resources
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