Real Estate: Best Practices in Property Development

Real estate matters simultaneously represent market potential, transactional sophistication and regulatory complexity. New opportunities such as renewable energy siting must be balanced against compliance demands affecting everything from foreign investment to wetlands development. Add the constant need for contractual vigilance, and real estate becomes a major challenge for corporate counsel.

While the development of real property enhances asset value, it also represents a major expense and, if not managed properly, a source of significant problems. Corporate counsel can use the following best practices to help ensure a quality facility is built on time and on budget. On any major project, a valuable first step is to engage a program manager -- an independent consultant who understands the workings of the local construction market and will protect the owner's interests. At the outset, the company and program manager should work closely with real estate counsel to structure contracts that minimize the common risks, liabilities, ambiguities and pitfalls so common on construction projects.

Next, prepare and issue clear and detailed RFPs for architectural, engineering and construction services. RFPs should specify not only the scope of work, but should also include the terms and conditions of contracts to which the architect and contractor must adhere. Misunderstandings can be avoided concerning design intent, and value engineering cost savings can be achieved by selecting a general contractor early on in the design process.

Contracts should specify for all parties the hourly rates and unit prices for added or changed work, assign liability for defective work and detail the indemnification obligations associated with the various hazards common to construction projects. Insurance provisions must be clear and the owner's insurance broker should be consulted to ensure that full coverage is in place for general and employer liability, professional liability, property losses and workers' compensation. The goal is simple -- anticipate problems to prevent unnecessary downstream delays, disputes and costs, and maximize your initial real estate investment and development goals.