It's a hot topic: Eight top tips on property development for lawyers

by NZ Lawyer30 Jul 2014
It’s time for lawyers to come out of the shadows in commercial property development deals, and get the recognition they deserve as key partners - that’s according to the general manager of McConnell Property, Nigel Richards.

“On a major development we recently unveiled in New Zealand’s heartland, I realised that even though lawyers played an integral role in getting the project underway and completed, very rarely were they acknowledged as a partner in the same way that architects, funders, builders – and developers are given kudos - and that’s something we should look to change.”

Richards offers a few tips on how legal firms and practitioners can make some small changes to their dealings with the property development sector for better stakeholder outcomes, enhanced relations and negotiations - and a mention in that next building opening:

1. Rethink pricing structures to get projects across the line
One of the toughest issues for the development sector is getting a good handle on pricing from the legal community. At the proposal and feasibility stage for any project - large, small, residential, industrial or office - there are legal costs associated with Due Diligence, acquisition, planning, sales and marketing, leasing, finance, construction and divestment.
When we are putting together those spreadsheets, it can often be no better than an educated guess when it comes to legal fees - so our message to the legal sector would be this: help us get projects across the line with structure and certainty around legal costs. A few firms have been moving to a fixed-fee or pain-share, gain-share arrangement, but there’s still room for alternative approaches.

2. Are your family trusts investors or developers?
What we are seeing in Canterbury in particular, is that family trusts or individuals (rather than institutional investors) have had their buildings taken out by the earthquakes, they’ve had an insurance pay out, and now they are trying their hand at development. The trouble is, being a passive investor, and being an active developer are two completely different ballgames, so we’ve seen a few projects fall over before they even get underway or worse still once they are underway.
Lawyers working with the likes of family trusts should be aware of this potentially problematic trend, and consider the benefits of introducing a trustworthy development partner to provide professional support to your clients to assist in walking through the minefields and ensure they maximise their investment value.

3. Connect your clients to development opportunities
Lawyers are perhaps one of the most connected and networked professions out there. We’d say there is certainly scope for lawyers to generate more opportunity for their clients, for their own firm and for development partners. With all due respect to legal privilege and the confidential client-attorney relationship, we see significant opportunity for mutually beneficial business between these three parties. So often it’s a case of putting the right people in touch with the right opportunity.

4. Create the space for offshore investment into local development
There’s been a tangible rise in offshore capital flowing into Kiwi property opportunities. We know from conversations in the market that many lawyers are scratching their heads at connecting their clients with the right developers - particularly when working with investors from the greater Asian market, because there is client demand for development partners who command longevity, trust and credibility in the market.
The more aware you are of who the credible developers are, the better placed you are to advise your offshore clients on astute development and investment prospects. We’re not all white shoe, gold chain rouges, and it pays to know the difference. Furthermore most developers’ key concern up-front is the exit strategy, so having a take-out investor that is prepared to assist by way of a pre-commitment to investment early under an exclusive arrangement is music to a developer’s ears.

5. Use simple language to get smart outcomes
We love it when lawyers use Plain English in their documents. It enhances understanding, enables good decision-making, and mitigates confusion. Keep it coming because everyone benefits. Enough said!

6. Be realistic about risk, without documenting Armageddon
This is perhaps one of the most complex (and, if we’re honest, damaging) practices we see from the legal sector – an overzealous approach to drafting risk into documents. Don’t get me wrong, of course we have to be aware about the risk reward continuum, but writing often implausible risk into a development simply means that we build that cost in, and it can kill deals.
Most of the time the risk factors outlined will never materialise, so let’s get some healthy pragmatism around documenting risk as it applies to legal process.

7. Support heads of agreement and help facilitate, not create barriers to understanding
Few things pain me more than getting a handshake on deal with a prospective partner or stakeholder, where everything is understood in principle through a Heads of Agreement or MoU and then we both get our lawyers in to finalise the relevant Agreement(s). Weeks later we’re all at loggerheads over points that were never raised or seen as a problem when we shook hands. Help us facilitate negotiations, not turn a three or four page agreement into a thirty page manuscript. Remember a developer’s greatest enemy is time especially if the clock is ticking on finance commitments.

8. Adapt to the times and the market – and reap the benefits
We are highly aware of the value of being quick to adapt to the market and the changing times. Whether that’s changing the typologies of a large-scale residential development to fit the changing home purchase trends, or seeking alternative funding sources, our mantra is often ‘adapt or die’. Professional product development companies are open to productive, profitable, and mutually-beneficial partnerships with progressive legal firms.