Exiting an Equity Share
Equity share agreements typically are for a specified term. At the end of the term, the occupying owner has the right to buy out the investing owner for an amount equal to their initial plus additional capital contributions plus the investors proportional percentage of the mutually agreed upon sale price. If the occupying owner declines the buyout option, the investing owner has the reciprocal opportunity to buy out the occupying owner. If neither is interested in a buyout, the property is sold on the open market and the proceeds divided according to the ownership percentages. At this point, detailed records of subsequent capital contributions are beneficial as the original ownership percentages may be impacted by improvements to the property or by substantial monthly capital contributions by the occupying owner.
In the event of a sale, the owners may have different views and/or needs in terms of the pricing of the property and the marketing tactics used in selling the property. As such the owners may want to draft specifications for valuing the property and choosing a realtor and place these guidelines into the equity share agreement to diffuse any potential conflict at sale. The owners should have strict deadlines for making decisions about buyout and/or sale. The equity share agreement should drive the process so that the current needs and/or emotions of the owners have little impact in the actual process.