Two ways out of a joint venture disagreement explained in plain terms, with the cash, valuation and timing consequences each one creates for a foreign investor.
Deadlock provisions decide what happens when two partners cannot agree and the project cannot wait. A buy-sell procedure, sometimes called a shoot-out, forces one party to buy and the other to sell at a price one of them names. Put and call options give a defined right to sell to, or buy from, the other party at a valuation formula agreed in advance. The difference matters most to the party with less cash.
Buy-sell procedure at a glance
One party triggers the mechanism by naming a price per share. The other must then either buy at that price or sell at that price. Because the person naming the price does not know which side of the trade they will end up on, the mechanism pushes towards an honest number. It is fast and needs no valuer. It also favours whoever has the cash and the confidence to complete a purchase at short notice, which for a foreign investor may be the other party.
Put and call options at a glance
The agreement gives one party a right to require the other to buy its stake, or a right to buy the other stake, on stated triggers and at a price set by a formula or an independent valuation. Nobody has to bluff, and the outcome does not depend on who can raise cash overnight. It is slower, and it depends entirely on the quality of the valuation mechanism, which becomes the real negotiation.
Who it favours
Buy-sell procedure: The party with immediate funding and a firmer view of value.
Put and call options: Neither systematically, provided the valuation mechanism is sound.
Speed
Buy-sell procedure: Fast, often weeks, since no valuation is required.
Put and call options: Slower, because valuation and process steps take time.
Cost to operate
Buy-sell procedure: Low in fees, high in risk of a poor price under pressure.
Put and call options: Higher in fees for valuers and advisers, lower in bluffing risk.
Effect on a part-built project
Buy-sell procedure: Risky, because an abrupt change of owner mid-construction disrupts contracts and funding.
Put and call options: Gentler, because triggers and timing can be tied to project stages.
What has to be agreed in advance
Buy-sell procedure: The trigger events, notice periods and completion timetable.
Put and call options: The valuation basis, the valuer appointment process and how disputes over value are settled.
Behaviour it encourages day to day
Buy-sell procedure: Caution about triggering, which can leave real disputes unresolved.
Put and call options: Willingness to use the mechanism, since the outcome is not a gamble.
When buy-sell procedure wins
- Both parties have comparable access to funding, so neither can be squeezed.
- You want a quick resolution without a valuation process.
- The asset is simple enough that both sides can price it confidently.
- You are prepared and able to buy the whole project if the other side names a low price.
When put and call options wins
- The parties have very different financial capacity, as is common between a cash investor and a landowner.
- You want a protective exit on defined events rather than a general fight mechanism.
- The asset is hard to price quickly, such as a partly built development.
- You prefer certainty of process over speed of outcome.
How to decide
If you are the party with less certain access to cash in the Kingdom, or if the project may deadlock while it is part built, prefer options with a defined valuation basis. If both parties are comparably funded and the asset is straightforward, a buy-sell procedure is simpler and resolves matters quickly. Many ventures use both: options on specific triggers such as a funding default or a long delay, and a buy-sell as the final route if nothing else works.
Ask your lawyer to walk through each mechanism as a timeline, with dates, notices and the money required at each step, then ask yourself whether you could fund the buying side within that time. A deadlock clause you cannot afford to exercise is not a protection; it is a route for the other party. Also confirm how the mechanism interacts with any lender consent, because a facility may restrict changes in ownership.
Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.
Frequently Asked Questions
What is a buy-sell or shoot-out clause in a joint venture?
It is a deadlock mechanism where one party names a price per share and the other must either buy at that price or sell at it. Because the party naming the price may end up on either side, the design encourages a realistic figure. It resolves disputes quickly without valuers, but it favours the partner with readier access to cash and firmer conviction about value.
What triggers should a deadlock or exit provision cover?
Typical triggers include failure to meet a funding call, a fundamental disagreement on a reserved matter after a defined escalation process, prolonged delay against the programme, insolvency or change of control of a partner, and breach of a material obligation. Each trigger should have a notice procedure and a timetable, so the mechanism is usable rather than theoretical.
Do I need a deadlock clause if I hold the majority of a development venture?
Yes, because majority control does not resolve disputes over reserved matters, which by design require the other party consent. It also does not help if the minority partner holds the land or a licence the venture depends on. A written route out of disagreement protects the value of the asset, which is what both parties own, regardless of the split.
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