Construction partnership with a project company: why each project needs its own entity

The usual problem: accounts that are not kept apart

In a typical construction partnership contract, the owner provides the land and the builder takes responsibility for construction; each party's share is usually written as a percentage of the built area. But construction funds, pre-sales and running costs often pass through accounts that belong to several projects. When one project slows down, the others suffer too.

For a landowner in Mazandaran, whose land is often the family's only major asset, this is a risk that does not show in the text of the contract.

What does a project company change?

In the project company (SPV) model, a separate company is formed for each building. The land, capital, costs and sales of that project are recorded in that company and are not mixed with other projects. Instead of a share of the built area, the landowner can be a shareholder in that company.

This structure makes reporting simpler: each cost belongs to one project, and a shareholder can see the path of the money more clearly. Azhianeh uses this model for its own development projects.

How is the landowner's share determined?

There is no fixed figure for all land. The owner's share depends on an independent expert valuation of the land, the buildable capacity under the regulations, the estimated construction cost and what each party contributes. Anyone who proposes a firm percentage before studying the land is giving a number with nothing behind it.

For this reason, the study of the land's capacity comes before any promise: access, permitted use, the market and development scenarios.

What if construction costs rise?

Cost increases are normal in construction, especially in today's materials market. What prevents disputes is a mechanism written into the contract in advance: who approves the increase, how it is shared, and what report proves it.

Cost control in a project company can be defined around an approved budget, staged payments and audit; the details are set in each project's contract, so that there is no need to argue invoice by invoice in the middle of the work.

Before signing, ask for these

A land capacity study report; a dated estimate of cost and time; how the project company is formed and the share composition; the reporting method; the cost-increase mechanism; and each party's exit route. Have the contract reviewed by an independent lawyer before signing.

See also

• Three ways to work with Azhianeh
• Feasibility and land assessment
• Request a land assessment

Keep reading