What Is a Landowner and Builder Agreement?
A landowner and builder agreement is a contract that is entered into between the owner of a property and a builder who wishes to construct a building on such property. This agreement is known as a joint development agreement wherein the landowner provides the land, and the builder is responsible for constructing either a residential or commercial building on the land. Thereafter, the building is either sold or leased out, and both parties share the profits. It is a contract that provides equal benefits to both parties.
When Do You Need a Landowner and Builder Agreement?
This agreement is needed when a landowner and builder decide to enter into a joint venture for the development of the land. The development agreement lays down the manner in which the joint venture will be conducted. The duties of both parties are specified in the contract, and care is taken to ensure that the construction is carried out in a manner that complies with all statutory requirements.
Purpose of the Landowner and Builder Agreement
The purpose of this agreement is to define the process of development of the plot. For this purpose, all the important particulars are included in the agreement to ensure there is no scope for any misunderstanding or misinterpretations whatsoever.
The agreement defines the parties, payment schedules for the work, the work schedule, and the basic commitment of the trade contractor.
Inclusions in the Landowner and Builder Agreement
The agreement should ideally encapsulate the below-mentioned details
- In the construction agreement, the first requirement is that the property should be identified. This means the address of the land, along with the area, the boundaries, and the survey number should be mentioned. The landowner should have adequate proof that the land belongs to him.
- The timeline within which the construction should be completed by the builder should be mentioned in the agreement. If such a timeline is not adhered to, certain penalties can be levied on the builder.
- The agreement should also address who shall be the owner of the building that is to be constructed.
- The agreement should clearly state the manner in which the profits shall be shared by the landowner and the builder. Usually, the profits are shared by the parties in the ratio of 50:50.
- The contract must specify the contract price, how much will be charged and whether it includes sales tax or not. It should also specify if the work can break into phases of completion.
- It should specify the scope of work, what will be accomplished, the intentions, and the type of work to be performed?
- It must mention the schedule of payments and payment modes. Is there going to be a down payment, retainer fee paid, or progress draws, and the final payment due?
- It shall elaborate on the building codes, who shall be responsible for the conformance of drawings and specifications to the building code and what will happen during the course of construction if the building codes change.
- It shall explain the Disputes and Remedies. How misunderstanding (in case of any) shall be resolved? Do such misunderstandings calls for a Mandatory Arbitration Rules or will the dispute be settled as per the Construction Industry Arbitration Rules or can you terminate the relationship without paying any penalties or additional fees.
- It must specify the Unforeseen Conditions. Who will be responsible for identifying or removing hazardous waste? Who shall identify and fixe structural defects, mechanical or electrical conditions and who shall undertake financial responsibility for theft and vandalism?
In any real estate development project, there are multiple permissions that have to be acquired and various laws, rules, and regulations that have to be complied with. It is important that the agreement mentions which party will be responsible for acquiring the necessary permissions. In such a joint venture, it is usually the builder who acquires all the permits that are required.
How to Draft a Landowner and Builder Agreement?
While drafting a landowner and builder agreement, follow these steps:
- The landowner and the builder are required to negotiate on the various aspects of the transaction and the manner in which the development shall be taken care of. This includes the term of the agreement, the profit-sharing ratio, etc.
- All the important terms and conditions must be laid down in a written agreement that provides clarity on all the details. It should contain all the details and obligations of the Owner, Trade Contractors, and those activities which will be shared by mutual agreement.
- The purpose for which the parties have entered into the agreement must also be stated.
- All possible events of default should be included in the agreement, along with remedies for the same.
- It should include the scope of work, contract price and schedule and mode of payments.
- The agreement should be signed by the parties.
- The contract should then be registered.
- Both parties should have a copy of the agreement.
Benefits of the Landowner and Builder Agreement
The benefits of this agreement include:
- The agreement provides details of the terms that have been agreed upon by the parties.
- In a joint venture, there is the minimum investment required by both parties.
- This agreement can go a long way in preventing any dispute between the parties.
- In case either party breaches the agreement or violates any of the terms therein, the other party can have recourse against such violations.
Key Terms in the Landowner and Builder Agreement
The key terms in a landowner and builder agreement are as follows:
- Description of the parties
- Purpose of the agreement
- Description of the premises
- Term of the agreement
- Permits, sanctions
- Profit-sharing ratio
- Events of default
- Remedies for events of default
- Dispute resolution mechanism
- Modification of the agreement
- Termination of the agreement
A joint venture agreement between landowner and builder format mandatorily includes these inclusions.
[ Also Read: Construction Contract]
What Happens in Case of Violation?
In case the builder fails to fulfill the terms of the agreement or abandons the construction, the landowner shall serve a notice to him, requiring him to cure the breach within a certain period of time. If this is not done, the landowner can terminate the agreement. The builder will be then required to remove all his construction material from the site, and if he does not do so, the landowner can take possession of the same and use the materials in any manner as he deems fit. The landowner can thereafter appoint any other builder to complete the construction.
In case there is a dispute with regard to the clauses of the agreement, the parties can choose to resolve such disputes through arbitration if the contract so provides. The manner in which the arbitrators are to be appointed and the method through which the arbitration process is to be conducted must be laid down in the agreement itself.
The landowner and the builder agreement serves as an important document that helps negotiate on transactions involved between the landowner and builder. Since all the important terms are precisely laid down in this agreement, it leaves no scope for misinterpretations, making the partnership an easy process.
You can download a joint development agreement/landowner and the builder format here.
Sample for Development and Construction agreement
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