I recently came across a blog post on Honestbuilding.com that was so true, it was funny and made me laugh. 6 Absurd Things CRE Teams Say About Approvals and How to Address Them describes excuses we have all heard about why applications and the documents that go with them are delayed. These excuses are also used when you’re waiting for any documents, whether its signed contracts, draft loan documents or due diligence packages.

Let’s stick with development approvals for this post. Luckily, most of the development teams I work with are prompt and professional. We meet regularly, if not in person, by conference call or e-mail. One person, usually the land planner, keeps us on task and assures that we have what we need on time and deadlines aren’t missed. We are all accountable to each other. However, when the team is spread out around the state or the country for a project that is not local, we come across these kinds of problems from time to time.  The person who is most harmed by this is the client, the developer, as deadlines are missed. When a purchase agreement is contingent upon obtaining approvals and there is an outside date to obtain the approvals, it is often difficult to obtain the extension due to someone failing to submit a document because an administrative assistant was unavailable to send the Fed Ex.

But I want to focus this post on some of the strange, sometimes outrageous requests that the municipalities place on the development team in order to obtain the approvals. We generally spend a great deal of time reviewing ordinances and code requirements before submitting an application for approval. We will have met with planning and zoning staff to get thoughts and ideas as to what is likely to be approved and what the requirements will be so that our applications will be as close to perfect as possible and that the review staff won’t be surprised when they see the application. And, when possible, we meet with elected officials to assure that there will be support at the board level when the time comes. Nevertheless, when applications are submitted, the comments, generally technical requirements, are often laughable.

For example, one application we are working on came back with comments reminding us that the Owners & Encumbrance Report (the title report submitted with the application) must include the names of the current owner and all mortgagees. I scratched my head because if the O&E didn’t do that already, then what did it do? The same report noted that our plan showed the storage/janitor’s closet but that it did not show a mop sink. We’re asked to confirm, following application review, that we aren’t seeking variances, when the application does not ask for variances.

The point here is that in reviewing development applications, most municipalities have set processes and checklists.  There are boxes to check and even if it should be apparent that the boxes have been checked when the application is submitted, it is our job, as the representatives of the developer, to make sure that the staff receiving the application understands that all of the boxes have been properly checked off and all requirements satisfied. If a request seems silly, we have to grin and bear it. Fix the problem and move on to the next one!

I have been negotiating and closing real estate development deals for a long time. In nearly every case, my developer clients have come to me prior to executing a contract to discuss the due diligence that they have already done on the property and what will need to be done going forward.  We discuss the proposed use of the property, the current zoning and land use, the necessary land use to construct the proposed improvements, what other approvals will be required and the seller’s willingness to allow us to obtain all these approvals prior to closing.  The client has generally assembled all or most of his team and has a pretty good idea of what he wants to accomplish and what he will be capable of getting approved, subject to further research and subject to the give and take of the zoning and land use process.

            Perhaps at this point a Letter of Intent has been discussed or even executed; the basic financial terms agreed to.  However, my job is about to begin – prepare a contract.  It will be most important to hash out the contingencies, specifically the contingency for approvals.  Although the seller is prepared for this, we both might have strong opinions about the required time frame to obtain the approvals.  Some of this will be based on the amount of time the buyer needs to prepare plans.  Some this might depend on seller’s desire to approve plans, particularly if the property is part of a larger development.  Sellers want to make sure buyers don’t miss rigid deadlines.  Buyers, on the other hand, need leeway for governmental delays, slow engineers and architects and even slow response times from sellers.  There is give and take between the parties.

            Extensions of time periods may be built into the contract or subsequently negotiated.  Additional deposits or extension fees are part of this discussion.  Are they applicable to the purchase price?  Are they refundable or non-refundable?

            I write about this because I am working with a client who recently came to me with a fully executed contract for property on which he wants to build a high density (for the neighborhood) multi-family, multi-story apartment building.  the property is only about 1.25 acres and currently has a single family house with an ancillary garage or some other building on it.  The property is zoned for residential/agriculture.  The contract has a 120 day due diligence period followed by an immediate closing.  The purchase price reflects the desired use of the property, but not the current market value or as is use.  The client had not assembled any team or professionals and, other than a brief meeting with city planning and zoning staff, had done no investigations to determine whether we could build what he wanted to build.

            We have since met with the city and determined that the city is in the process of initiating a re-zoning of the property to a favorable designation.  However, the density will not provide the desired number of units, leaving the client roughly 15 units short.  This city does not allow variances for density and there is no possibility of re-zoning to another classification.  The economics of the deal would not work without these units.  The zoning classification will allow mixed use, meaning that the client can put office/retail on the ground floor.  With about 10,000 square feet of office/retail in addition to the apartments, the client believes the economics are very favorable. Tthe client has not yet assembled his team and the due diligence deadline is rapidly approaching.  We have a team that has submitted proposals that are awaiting the client’s approval.

            But, that brings us back to the seller.  The seller’s expectation is to close immediately following the 120 day due diligence period.  This is the problem with executing a contract before understanding what is permitted and what will be necessary in order to build your project.  The seller, unfortunately, has medical issues and needs cash.  Fortunately, non-refundable extension fees solve the seller’s cash needs and we will be able to extend the contract for the 10 months necessary to obtain the approvals.

            The work is just beginning. The project needs to be designed in order to be approved.  We need to now work with the engineer to prepare a site plan in accordance with the proposed zoning ordinance.  The client needs to describe his vision to the architect to design a building that the city will also like.  Working with a good land planner who will act as the quarterback to keep everyone on task, including surveyors, civil engineers, landscape engineers and me, we can get this project approved within the 10 month time frame and the contract closed.


        Mixed Use developments are very popular components to re-development in many cities. Cities often see a new multi-tenant building with a retail component as the jumping off point towards cleaning up blighted neighborhoods.  Some developers are happy to provide this product and are very successful.  Others are more cautious and wait for the appropriate moment.  But some cities can’t see the forest through the trees and make first floor retail as a condition to approval of multi-family projects.  The planners in these cities aren’t necessarily considering whether the site will have adequate visibility or access for retail or whether the existing critical mass in the neighborhood will support retail.  Because of this, a new project could be doomed for failure.

        Mixed use projects are great assets in thriving urban areas. However, when a blighted area is targeted for redevelopment, the first building in might not be prime for a mixed use building.  This is a mistake many cities and developers make.  While renters do like having restaurants, groceries, pharmacies, dry cleaners and other amenities within walking distance, these features don’t have to be within their buildings.  Cities should focus on bringing these businesses to the neighborhood through small business incentives such as community development block grants, CRA and other tax incentives.  These efforts should occur as the first multi-family buildings are being developed.  As renters and businesses locate to the targeted area, the neighborhood will become more attractive to developers and more upscale businesses.  That is the time to start planning for mixed use projects and the new urbanism development can take hold.

        Planners need to allow for developers to achieve success. Forcing a portion of a building to have a commercial component when the neighborhood is not ready not only takes away from potential income stream, it adds to the costs of construction as accommodation must be made for ventilation, electrical and structure that would not need to be made for a purely residential building.  If the neighborhood can’t support the commercial tenants, the space will go unleased and the vacant space will discourage other businesses from locating to the neighborhood.

        Mixed use projects serve a definite purpose – a positive one. However, they can’t be over used and they have to be used at the right time and in the right place.

        Image result for western palm beach housing images

        A housing boom is occurring in Western Palm Beach County in the Agricultural Reserve. Nearly 10,000 homes have been approved and are in various stages of construction and development within the Ag Reserve, which spans from Boca Raton through Delray Beach to Boynton Beach in the far western reaches of the county.  The boom looks much like the rapid rise of Weston and Western Pembroke pines in the 90’s and 00’s.  The Broward construction boom differs from the Palm Beach construction only because the Broward boom was made possible because of the construction I-75 and I-595 and necessary because of Hurricane Andrew.  No such compelling forces are driving the boom in Palm Beach except for the continued migration of Broward County and Miami-Dade residents north and the lack of availability of large tracts of land elsewhere in Palm Beach County or the southern counties.

        Like the expansion of Broward in the 90’s and Dade County in the 60’s and 70’s, the movement west has encroached into environmentally sensitive land. The Ag Reserve was created to preserve farmland and wetlands in areas to enhance agricultural activities, environmental and water resources and open space by limiting uses to agricultural, conservation, low density residential and non-residential uses which serve the needs of farmworkers and residents.  The land use plan requires developers to preserve 1 1/2 acres for ever acre developed.

         The major developers with approved projects in the Ag Reserve are GL Homes, standard Pacific Homes and Ansca Homes. GL Homes is currently developing 3 communities:  7 Bridges, Valencia Cove and Valencia Bay.  Standard Pacific is building Palm Meadows and Ansca recently received approval for a new community of 283 homes.

       Palm Beach’s land use plan and the Ag Reserve is an effort at smart growth management and to strike balance between development and environmental concerns in sensitive areas. As the projects proceed, we’ll see whether the plan is successful.

Zoning Contingency (00163050)

Purchasers and tenants who need zoning and other land use changes prior to closing or rent commencement need to provide for adequate time in purchase agreements and leases. This requires investigation and preparation prior to finalizing the contract or lease. In most cases, buyers and tenants should begin investigating what approvals will be necessary and the amount of time required to obtain the approvals even prior to entering into a letter of intent. Quite often, the approval contingency paragraph is the most negotiated provision of a purchase agreement. And, because in a lease, while the commencement date may have occurred, tenants will not want rent to commence absent all approvals. No tenant will want to expend money for tenant improvements and no landlord will provide a tenant improvement allowance until certain that tenant will be accepting the space. Because of these factors, knowledge of timing of approvals is especially important.

Buyers and tenants should engage land use and zoning consultants and attorneys early in the process to advise on these issues. The appropriate time periods for approvals should then be drafted into letters of intent and then the purchase agreements and leases. Buyers and tenants should add time for delays in the process as meetings will be postponed, submittal deadlines will be missed and plans will changed.

The pushback to shorten the approval period is always great. If the approval period, whether in a purchase agreement or lease is cutting it close, buyers and tenants need to provide for extension periods. Extensions often come at a cost. An extension fee is generally non-refundable but can usually be applied to the purchase price (or perhaps tenant improvement credit). If the approval period (with extensions) is not long enough, contracts and leases will terminate and deposits and other due diligence expenses, including cost of design and plans will be lost.

Clearly it is better, as a buyer or tenant, to be conservative and estimate a longer time period than is necessary to obtain the approvals. Sellers and landlords are always happy when you can close early. But in the all too often event when delays occur and you can’t finish when estimated, even with extensions, can you expect cooperation from your seller or landlord? Generally speaking, if the buyer/tenant has been diligent in pursuing the approvals and has been open and up front with the seller/landlord throughout, most sellers or landlords will cooperate. But, if the process has been secretive and buyer/tenant has not communicated and surprises the seller/landlord at the end, a new extension is likely to be very expensive.

It is very difficult to guess right on approval provisions. Buyers and tenants who develop their property deal with many moving parts and change is inevitable. Up front due diligence is essential to getting as much time in a contract or lease as possible. And, equally as important, cooperation and communication with the seller/landlord in case delays happen.


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    Welcome to Assouline & Berlowe’s Florida Real Estate Law and Investment Blog with news, insights, and commentary for investors, developers, and their advisors.


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