Consult Before You Commit

14 October, 2019

How Engaging a Civil Engineer In Your Real Estate Contract Deal Points Can Help You Understand and Manage Risk

Living in Northern Virginia, where driving to work can quickly escalate into a stressful hour (or more) in traffic, I rarely leave the house without checking Waze or Google Maps before hitting the road. Fortunately, these navigation applications alert me to things like accidents and slowdowns, providing guidance on the best and most efficient route. In consulting the Waze or Google App before I commit to my route, I now have a way to understand and manage my risk of getting delayed by traffic and arriving late.

The same analogy applies to managing risk in commercial land development. If we view the legal contract as a road map for the overall transaction between an owner and a tenant, a civil engineer can provide similar upfront tips and alerts as the GPS navigation App. Consulting with the civil engineer on your contract deal points may be a way for you to understand and manage the risk that lies ahead.

Consult before you commit.

Once the Letter of Intent (LOI) is signed, the countdown is on for the developer or tenant to determine the project’s feasibility on the property. Often, resourceful developers and tenants will engage a civil engineer to conduct due diligence. However, many aren’t aware of the insight to potential exposure in the development timeline and deal points that civil consultants can contribute.

Here is where the civil engineer can become the consulting “navigation app” for your contracts: in knowing your overall development objectives (your destination) as well as your contract deal points (your route), a trusted engineer can help you understand and manage the risk associated with the road map, or contract terms.

Consider three instances:

Scenario A: Arrival Time Assumptions

The contract requires closing in 12 months but, unbeknownst to both the owner and tenant, entitlements take longer.

Consult before committing: When talking through this deal point with his civil engineer, the developer learns that based on his engineer’s jurisdictional experience, the typical entitlement process takes 18 months—six months longer than anticipated.

In consulting before committing, the developer uses his civil engineer’s guidance to include a reasonable development timeframe in the contract. Similarly, contract consulting on the tenant’s behalf may foster the alignment of the permitting and site construction timelines with the rent commencement date.

Scenario B: Unexpected Costs

During due diligence, a tenant’s civil engineer learns that the water main running through the site is not sized appropriately.

Consult before committing: In knowing the tenant’s proposed contract terms in advance, her engineer raises a red flag, providing an opportunity for the tenant to negotiate this unexpected cost.

Scenario C: A Shortcut

ADA compliance requires facility upgrades.

Consult before committing: At the recommendation of civil engineers prior to final execution of the contract, responsibility for the necessary site upgrades has already been negotiated between the tenant and landlord as part of their contract. This allows both parties to move forward with the hard work of delivering the new pad site on time and within budget.

Tailoring Due Diligence to Your Deal Points

Contract negotiation can be a complicated and stressful process for real estate teams, considering the large investments and legal ramifications at stake. The use of boilerplate contract documents may inadvertently limit due diligence, preventing owners and tenants from uncovering critical project details impacting project feasibility, schedule, and cost. More commonly, confining contract negotiations to real estate teams and their legal departments can cause a missed opportunity for the technical expert to explain how their due diligence findings potentially affect the deal points.

In bringing civil engineers into the contract negotiation process, owners and tenants empower their consultant to tailor due diligence to the contract terms. In doing so, the engineer can assist regarding possibly critical information needed to make a more educated decision before signing on the dotted line.

Just as you rely on your phone’s GPS navigation App before selecting a travel route, consult with your site engineer before committing to contract terms. In knowing your deal points and goals, your civil consultant can raise potential obstacles along your route and assist you in determining a way to move forward before the legal contract is executed.

As a partner who moves you forward, Bohler can help your real estate teams by consulting before you commit. Contact our team of experts to learn more about our due diligence and contract consulting services.

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