A Development Agreement is a contract between the owner of a property or asset and developer, wherein the latter agrees to get exclusive right to develop the real estate or any other tangible asset. The agreement is legally binding and highlights the terms and conditions of development and the rules that both parties have to abide by.
Although a staple of real estate, this agreement is used to develop many different types of products, like websites, computer software, and prescription drugs. It provides assurance to both parties that the terms and conditions of the agreement will not change over the course of the project.
Purpose of Development Agreement
The purpose of this agreement is to protect the rights of the property or asset owner and the developer. It, in particular, protects the rights of the creator of the service or product by highlighting the product or service, the development process, and the terms and conditions binding the process.
When Do You Need a Development Agreement?
You need a development contract when you have a property or asset, but not the resources and expertise to develop it. Under such circumstances, you find the right developer and negotiate the terms and conditions and payment to develop the property or asset. Once you and the developer are on the same page, both parties sign the agreement to make it legally binding.
Inclusions in Development Agreement
Besides the names and addresses of the owner and developer, some of the inclusions in this agreement are as follows:
- Start and finish date of the development
- Quality of the development
- Stages of completion (practical completion)
- Terms and conditions of the development
- Terms for the developer and owner
- Termination of agreement
- Liquidated damages that the developer needs to pay daily to the owner if they fail to meet the target date
- Arbitration policies and procedures
How to Draft Development Agreement
You need to take the utmost care when drafting this agreement. Here are some of the things that you need to do during the agreement drafting process:
- Identify the two parties precisely, with names, titles, and address
- Be specific about the scope of the project and the services provided by the developer
- Mention the estimated payment, if any, and mode of payment
- Clearly define ownership of the property or asset
- Start and finish date of the development project
- Penalty clause if the developer does not complete on time
- Termination clause and notice period should be clear
Benefits of Development Agreement
Every agreement has advantages and disadvantages associated with it. Some of the advantages are:
- Protects the rights of the owner and developer
- Minimizes upfront cost for the developer
- Maintains the owner’s rights
- Shares development risks between owner and developer
Here are a few disadvantages:
- Negotiation can be protracted and time-consuming
- Maximizes profits only for the owner
- Since legally binding, the agreement is difficult to amend
- Unrealistic targets stated can make the project unfeasible
Types of Development Agreement
There are many different types of development agreements based on the property or asset that needs development. Some of the types are as follows:
- Real estate (land) development agreement wherein the owner of the land parcel and a real estate developer agreed to develop the land
- An infrastructure development agreement is usually between local government authorities and contractor to develop the infrastructure of the city or town
- Software development agreement where the IT service provider develops proprietary software for a company
- A website development agreement is when a company wants their website to be developed from scratch
- A drug development agreement is between a pharmaceutical company and a drug manufacturer to develop a specific prescription drug
Key Terms / Clauses in Development Agreement
Besides the standard clauses, the agreement will have terms and conditions specific to the project. Some of the key terms of the development agreement are:
- Scope of Project: It lists the features of the project and what is expected from. If a third-party get involved, their responsibilities should be stated
- Deliverables: Here, the agreement mentions what the owner has to give the developer and vice versa. There is a time limit for each deliverable
- Termination: Lists out the situations that allow either party to terminate the contract before the completion of the project
- Ownership: States the ownership of the property or asset
- Indemnity Clause: Who pays for the lawsuit if a dispute goes to court
- Force Majeure: Developer cannot be held responsible for acts of God, war, natural calamity or anything else that is not in control of the developer but prevents timely completion of the project
What Happens When You Violate Development Agreement
If you violate the development agreement, the other party will use the remedies listed in the agreement. If that does not resolve the issue, the matter may go to court.
Sample for Development Agreement
A development agreement protects the rights of the owner and developer. Hence, it should cover all aspects. If you want to know how to draft such an agreement or understand its structure, download a sample here.