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:
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:
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 valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Antrea Kinni, Associate at Limassol Tel +357 25363685 or email email@example.com