I invested, with a partner, in an apartment building, which we planned to renovate and then flip when the value increased and split the profit. We now realize that we have severe differences of opinion as to how to go about dealing with the property, and I would like to buy out my partner, since we can’t simply divide the management of the project in two.
May I compel my partner to sell me his portion?
The Chazon Ish (Bava Basra 8:1) explains that Chazal reasoned that it would be unfair to lock a person into an unwanted partnership, so there must be a set of halachos governing how to split up a partnership when the two parties are at odds with each other and one party cannot, or does not want to remain in the partnership.
Generally, the rules governing the dissolution are as follows:
If one of the partners is demanding to dissolve a partnership in a property, the correct approach will depend on the type of property they are invested in. If the nature of the property is such that, after the split, each partner will be left with a portion that can be used in the same manner as the original property, then we fulfill the wishes of the partner demanding to split. But if each portion will not be usable after the division, then one partner may not force the other to split the property (Shulchan Aruch Choshen Mishpat 171:1). If splitting the property will cause each portion to devalue a great deal (i.e., more than a fifth), it is considered tantamount to each portion not being usable (Rema, ibid. 5; see Chasam Sofer, Choshen Mishpat 12, cited in Pis’chei Teshuvah 171:3, who rules that heirs can insist on splitting an inherited property even if it will devalue more than a fifth).
In cases in which we do not allow a partner to force his counterpart to split the property, each partner may suggest a price for the value of half of the property, and say, “Either buy me out, or allow me to buy you out at that price” (gud o eigud; see BHI issue #468 where we addressed this concept at length). The price offered must be at least equal to the actual value of that portion of the property; otherwise, if one partner is wealthy, he might offer an amount that is far less than the value of the property, if he knows that his partner cannot afford that amount, and force him to accept it (Choshen Mishpat 171:6).
A partner is not entitled to compel his counterpart to sell him his portion without making this offer, even if he owns the majority of the property.
According to some Rishonim, partners may declare gud o eigud only if the partnership was foisted upon them, such as in a case of an inheritance; if they entered in the partnership willfully, neither partner may declare gud o eigud, because they obligated themselves to the partnership and may not just decide to withdraw (Tur 171:33 and Shach 1). Others maintain that this halachah pertains to all partnerships, because there is no way for a person to know in advance whether he will be able to find common ground on all matters of the partnership.
The Poskim are ultimately divided on this matter (see Chasam Sofer, Choshen Mishpat 12, Mishpat Shalom 176:15; Dovev Meisharim 1:138; see also Minchas Pittim 171).
Returning to your case, if all of the prerequisites listed above are met, according to some of the aforementioned Poskim, you would theoretically be entitled to declare gud o eigud.
But since you agreed to renovate the property and sell it when it increases in value, it is considered as though you obligated yourself to remain in the partnership for a certain amount of time, in which case, even if it is possible to divide the asset, you are not entitled to demand a split (Choshen Mishpat 176:15), and if it is not possible to divide it, you cannot demand gud o eigud until the building is renovated (Nesivos, ibid. 32, and Mishpat Shalom, ibid.).
Obviously, if you had an earlier agreement as to how to dissolve the partnership if one of you wanted to split, or if there is a standard practice in your industry for how to split up a partnership, that becomes binding in Halachah.
It is therefore wise, whenever entering a partnership, to draw up a contract with all conditions of the partnership, including an exit plan of how to fairly dissolve it if one of the parties wants to split.
