You own the lot, but instead of building a spec house on it, you want to “build to suit.”
You get a client and strike a deal. They will buy the lot from you and enter into a cost-plus contract for a house you will build. They have the set of plans and have paid you to perform a detailed estimate, but instead of settling on a lump-sum price with allowances, they prefer the cost-plus route.
What form of contract can adequately protect you from them walking after they have closed on the land?
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Replies
Are you wonder that if after they buy the land that they might want to get someone else to build on it?
Or or worried about them just backing out and not building at all?
You could have a deed restrict that only you could be on the lot for a reasonable period of time. Probably a year.
You might also have a buyback that if construction is not started within the year that you could buy the lot back at some predetermined cost method (same price, same price of plus inflation, 3 independent appriasors?)
you could buy the lot back at some predetermined cost method
The buy-back price is waht they paid you less interest at prime + 2 for that period less 25% for loss of potential sale (and thus the profit) to another qualified buyer. Why should you have to pay a premium to buy it back?
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
Your question is a very good one. Maybe use a cost-plus with a guaranteed minimum OH&P clause if they decide to walk. If the house is going to be $500K total, with your fee at $100K, you could stipulate that the guaranteed minimum OH&P due you is 50, 75K... some agreed amount.
It does seem like you want the land to be theirs before building starts. Seems a lot cleaner if you can lien their land if the deal goes bad, rather than having their half-finished house on your lot. No guarantee that the house they started to build is one that others would buy.
There's a guy on JLC that goes by 'The CM' who seems to do some build-to-suit deals. I'd see if you can find him. Of course Allan Edwards would be a good source too.
Gene, since you are talking about two separate contracts, I don't really understand what your fear is.
You sell the lot contingent upon the clients entering into a cost plus build. The build plans and specs are signed and you have a contract. If they don't follow through on their contract, you excercise the penalty clause or force them to perform via a lawsuit.
This situation is no different than any build contract.
blue
The sale of the land has to be contingent on you being the builder in your proposed contract
The reason i say proposed is their lawyer is unlikely to advise them to go with a cost plus deal
If they are involved with a mtg the lender usually does not like a cost plus contract
If you sell them a package deal wih the land and home as one they cant kick you off the land while working on it
I seen one here where a modular home supplier yanked one of their homes off a foundation at 5am to get around the home owner trying to kick them off the lot after the home owner and the gc tried to stiff the modular home supplier
The police stopped them on the hwy but by then they had physically repoed it