A development agreement is a contractual arrangement between the builder and land owner for which there is a fee for the development of the land.
This arrangement differs from a typical JV where the result is a sharing of the final product (the completed houses, units or apartments), as the development arrangement will be a sharing of the profits by the land owner paying the builder a fee for the development of the land.
These agreements are best structured as to equalise the profits as best is possible.
The two main types of agreements are to either:
Structure a development agreement for a fee for costs plus a percentage of profit on sale of the units.
Structure a fixed fee that has a contingency based on the success of the project. In other words, the fee could be reduced if the expected return was not achieved.
These agreements have the benefit of eliminating any stamp duty that would be paid by transferring the ownership of the land from the original land owner to the newly created entity that would run the development (a significant cost, depending on the value of the original land used in the development).
If you would like to discuss your next development or even your current one, don’t hesitate to contact us.
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Tony has 33 years’ experience as an accountant, and 13 years’ experience as a CPA. His first 18 years’ experience involved financial, management and operational accounting roles at a senior management level, in the security, transport, and forensic accounting industries