One of the toughest discussions that any couple can have is what will happen upon a breakdown of their relationship. Likewise, negotiations concerning the collapse of real estate joint ventures are among the most vexing, contentious and emotional—particularly in connection with the removal of the real estate operator from its role as the manager of the JV by the investor member(s) in the event of non-performance or “bad boy” acts.

Though difficult, recent events and common sense militate for clear language in the JV agreement concerning the right of the investor member to remove the manager in such circumstances.

This isn't just abstract legal mumbo jumbo. As a recently reported episode in the New York real estate community illustrates, getting the operator removal provisions right is critical. In early 2017, it was reported that prominent developer Michael Shvo no longer had any control over the direction of the development of 125 Greenwich Street and that, while he would retain his (less than 10 percent) equity stake, at the end of the day he would get a check and that's all. This came a short time after Shvo was indicted for allegedly scheming to evade the payment of more than $1 million in taxes and it was reported that the indictment had been a source of concern for lenders on the project. This column has no firsthand insight into these reported facts. But it seems plausible that as a result of Shvo's indictment and perhaps the consequent difficulty in obtaining financing and other adverse consequences to the project, he was removed from the management of the project by the investor(s), resulting in a loss of what is known as the “Promote,” a key factor in investment return (discussed below). Though it may have actually played out differently, one can assume that the investor(s) would have at least wanted to have the right to remove Shvo as a means to safeguard its investment.