Real Estate Development: Consider These Issues
Real estate construction and development, unlike private construction, is a heavily regulated industry. Real estate development companies must adhere to a plethora of laws regulating the construction of the actual building as well as the many possible externalities that may affect communities. Real estate developers should keep informed about certain industry issues when starting a project.
Contract Types
There are two common ways to contract in the real estate development context. The contractor and the developer can agree to a lump sum or fixed price contract. In a lump sum contract, the rate of the construction project is stipulated in the contract along with a defined scope and time of completion. Here, the contractor is obligated to complete the project as stated in the contract and in the time agreed upon. In return, the developer pays the contractor the stated amount in installments, sometimes based on milestones completed. This type of contract can benefit the developer as the rate is fixed even if change orders are later necessary. Contractors will normally agree to a slightly elevated rate to account for possible change orders.
Another contract type is called the cost plus fee contract. In a cost plus contract, the developer pays the contractor for work done and also provides the contractor’s expenses as a result of the work done. Unlike lump sum contracts, developers pay the contractor for work and expenses, which can increase significantly depending on unexpected changes. This kind of contract shifts the risk to the developer in the event the scope or timing of the project is redefined.
HUD Regulations
The U.S. Department of Housing and Urban Development (HUD) is a cabinet level agency under the executive branch. One of HUD’s missions is to meet the need for quality; affordable rental homes in various communities. In the real estate development realm, HUD ensures that developers are in compliance with regulations that protect low-income persons by providing affordable housing. HUD also oversees the process requiring real estate developers to register land sales.
Zoning and Land Use Laws
Developers must adhere to all local zoning and land use laws. Developers are required to obtain the proper clearances from local or state agencies before building. For example, if a developer is building a complex that encompassing both shops and apartments units, the developer must check with the local zoning board to ensure that the area is zoned for mixed use building. Similarly, the developer is obligated to obtain environmental permitting depending on the purpose of the building and its possible effects on the environment. In certain instances, the developer should prepare to face opposition from the agency, community members, and/or environmental groups. Opposition means possible litigation that is quite costly. At this point, developers will have to decide whether the cost of erecting the building is worth the heavy cost of litigation.
Fort Lauderdale Construction Attorney
Real estate developers have many rights, but they have even more obligations. Attorney Brendan A. Sweeney has years of experience advising on commercial construction law issues. Contact the office now for a consultation.
Resource:
hud.gov/sites/dfiles/Main/documents/HUDPrograms2017.pdf
