By Kyle McClammer, The Garrett Companies
Much like collegiate basketball teams slated for March Madness, no two real estate projects are the same. As real estate lawyers, we represent clients in projects and transactions ranging from "garden variety" to "I’ll never be able to bill for how much time this one will take." When we hear from the client or otherwise discover that certain aspects will apply to the transaction, we know the scale starts to slide toward the latter description. Components such as ground leases, tri-party agreements and inter-creditor agreements are examples of such scale-sliding inclusions.
In construction projects, private development agreements move the scale in a material way and should be approached with caution, both by the developer and its counsel. In general, a private development agreement arises when two or more parties owning property adjacent or nearby to one another have a common interest in seeing construction scopes accomplished If drafted and negotiated properly, such agreements are a benefit to all parties concerned because they address terms such as cost-sharing, plan approval and easement rights, among others. Most often, the scopes included are horizontal work such as roadways, utilities, sidewalks and related efforts, and often, each of the parties will be obligated to see such items completed by the permitting municipality.
Aside from the real estate lawyer reviewing such agreements with thoroughness and caution, the lawyer’s role also includes making sure a proper review is being completed by his or her client as it relates to scopes, costs, plans, schedules and other developer-centric items. The following is a non-exhaustive list of critical concepts a lawyer should consider when reviewing or negotiating a private development agreement on behalf of his or her client:
- Construction scopes to be included
- Each party’s rights and obligations related to construction work, including self-help rights for those parties not initially charged with prosecuting construction
- Plans and specifications to be utilized
- Plan and specification approval rights
- Cost obligations and funding mechanisms for the same
- Financial security measures such as cash escrows, letters of credit and bonds
- Contractor selection and oversight
- Scheduling and timing requirements
- City approval logistics and obligations
- Financial disbursement and/or reimbursement logistics and requirements
- Construction inspection and approval rights
- Indemnification terms
- Force Majeure
- Default and remedy
- Recordability
Aside from the large dollar amounts often at issue in a private development agreement, these instruments should be treated with caution given their intersection with municipal requirements. Your client’s ability to obtain items such as building permits and certificates of occupancy may be at issue. The above list is a starting point for a thorough review to avoid pitfalls for your client.
If you would like to submit content or write an article for the Real Estate & Land Use Section, please email Kara Sikorski at ksikorski@indybar.org.
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