Land Purchase - Contingencies

[Scott Savard]

Hi BP community. I am interested in making an offer on a lot of land. The land is currently zoned for Residential usage though the lot currently has tennis and basketball courts on the land that are set aside as Recreational use.     I'd like to put an offer on the land with contingencies such as those listed below. Are there others that the BP community would recommend including? Also, does anyone have a template offer contract for a land purchase?

•  Needs to pass a perc test and/or obtain permits for a septic system/ sewer hookup
•  Survey be completed to show the boundaries, size of the parcel, and any easements or encroachments by neighbors
•  Subject to town design review committee approving home house design
•  Obtain approval to subdivide the land into two separate lots
•  Variances are granted to use the land as two single family lots (if this is even necesary) 
•  Building permit approval
•  Subject to appraisal

[Barry Ruby]

Hi Scott,

As a developer, I am always mindful of the fact that the closing of a property purchase needs to be contingent on the purchaser receiving ALL 3rd part approvals that will fully permit the project and allow for its construction and long term operation. All of my purchase contracts also condition closing on securing commitments for debt and equity capital needed to buy the land and to build the intended project.

Executing a ground up development can easily require a year or more to get permits and financing together. Listing the elements you need to solve for during a named due diligence period (like those you have set forth) is a good practice and should be prefaced by the words: "Such as, but not limited to" which will then include any other factors that have not been specifically cited.

In addition to citing the elements that define due diligence functions is the TIME needed to get them done. The most effective way to determine the time needed to execute these functions is to run a critical path analysis that lays the tasks out along with the parties that will be employed to do them and the processing time needed for the consultants you will engage and the city/town/county process they will be subjected to.

The critical path will inform you as to which due diligence functions are sequential in nature and or which ones can or should be run in tandem. For instance, if a permitting authority requires a package of information/data, you must factor the time required to create the package and therefore these two functions (creating and submitting the package and the time required to process and get it approved) are, by definition sequential. Other functions MAY be lend themselves to being able to be done in tandem "out of order" (like commissioning a full set of construction documents before preliminary approvals are in hand). Even though you may be able to save time by doing construction docs early, generally speaking the risk (cost and revisions) is not worth the reward (saving time).

Once a critical path has been constructed, it can and should be used to define the closing date which should be tied to x days or 1 month after a date you are comfortable and confident that all due diligence activities have been completed. The critical path can also be used to create the line items, budget and timing of the costs associated with executing the due diligence activities which basically forms the cashflow of the project's pre-development period.

Please DM me and I will send you an Excel critical path & budget worksheet that performs these functions.