It is an accepted fact that land owners have various opportunities to get revenue out of their land. An available option to the land owner is to assign a 'developer on the land' for the construction of a commercial building.
If the land owner of a potentially profitable land does not have the requisite expertise regarding construction and related formalities, time and sufficient funds to initiate the plan, a development agreement ('the agreement') can be drawn up between a 'developer of the land' and the 'land owner'. Simultaneously, it benefits the 'developer on the land' who might have sufficient funds and expertise but does not have the land, especially at prime locations. Taking into consideration the various risks involved for each party, having a well-founded agreement in place is key.
What a Development Agreement is
Development Agreements regulate a wide range of legal arrangements. However, the underlying objective is to ensure and safeguard that the 'developer of the land' will responsibly procure the relevant construction works and to also safeguard each party's rights and obligations as for the transaction to be mutually beneficial. Simply put, with the agreement, the land owners agree to provide their land to a 'developer on the land' who will in turn develop the land with his/her own investment.
The consideration of development agreements could be a lump-sum consideration, a certain portion of the developed property, or a certain percentage of share in the profits which arise from the development.
Each development agreement has to be tailored to every individual project to best meet the parties' needs.
Some of the areas that require attention include, but are not limited to:
- The quality and time frame;
- Specifications for the development;
- The use of reasonable care and skill;
- Clear understanding of what shall be provided to the land provider in return;
- All names of equitable and legal owners;
- The type of uses allowed on the property;
- Minimizing the risk and securing your interests;
- A list of all required need-to-be-approved permits.
Depositing the development agreement to the Land Registry
When the development agreement is signed, the parties should deposit it with the respective District Land Office. This will enable the purchaser to exercise their right of specific performance, as allowed by the law, if the vendor fails to comply with his/her contractual obligations.
As per the Sale of Immovable Property (Specific Performance) Law of 2011, L81/2011, as amended the below conditions must be met for the submission of the development contract to the Land Registry:
- The development agreement must be deposited within 6 months from the date of transfer of the immovable property from the provider to the counterparty.
- The immovable property which is the subject matter of the contract must be registered in the name of the provider at the relevant District Land Office. If the immovable property is not registered in the name of the provider during the set timeframe with the relevant District Land Office, the contract may be deposited within six (6) months from the date of such registration.
- In cases where the buyer is the transferee in a distribution agreement, which was concluded before depositing the contract to which it relates, and within the period of six (6) months from the date of signing the contract, then the submission of the development agreement must be accompanied by a copy of the distribution agreement and the tax clearance certificate.
- If a distribution agreement is concluded which refers to a contract which was already submitted to the relevant District Land Office, a copy of the distribution agreement shall be presented to the relevant District Land Office within six (6) months from the signing of the distribution agreement and shall be attached to the contract along with the certificate of tax clearance.
All in all, a well-founded development agreement creates a win-win situation for both the land owner and the developer of the land. Strict attention must be given to the drafting process as the agreement will set out the rules and obligations that the buyer or land owner will need to adhere to.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.