Understanding Real Estate Development Agreements
When investors and builders join forces, one of the most important documents they rely on is the real estate development agreement. A development agreement is a contractual commitment that maps out rights, obligations, and protections for everyone involved in a development project. In short, it creates certainty when large sums, long timelines, and regulatory risks are in play.
At Degnan Horne, PLLC in Phoenix, Arizona, we advise clients in real estate and construction law, helping navigate complex arrangements from the early phases of a project through litigation if disputes arise. Because development projects often involve multiple parties—landowners, developers, municipalities, financiers, and builders—having a sound agreement in place is critical.
Key Purposes of Real Estate Development Agreements
A well-drafted development agreement serves several vital purposes for both investors and builders:
- It locks in standards and expectations for what will be developed, when, and how.
- It provides regulatory certainty, especially when local governments are involved.
- It allocates risk between parties, defining who funds what, who takes permit risk, and who is responsible for delays or cost overruns.
- It sets the timeline and deliverables, so parties know what milestones must be met and when.
- It provides a mechanism for vesting rights, ensuring that once certain approvals are in place, the developer is protected from later regulatory changes.
For investors and builders operating in Arizona, working with experienced counsel like Degnan Horne helps ensure these goals are achieved while aligning with state and local law.
Critical Elements Investors and Builders Should Focus On
Scope of Work and Deliverables
The agreement should clearly define what is to be developed: the type of project, scale, permitted uses, design standards, quality of finish, and any required phases. Ambiguity here is a major source of disputes.
Timeline, Milestones, and Extensions
Set reasonable target dates and a “long-stop” date by which the project must be completed. Include conditions for extensions, such as permitting delays or force majeure events.
Financing, Cost Allocation, and Profit Sharing
Who will pay for what? Investors need clarity on funding commitments, draw schedules, incentives, and how profits or losses will be shared. Builders want assurance of predictable cash flow and clear risk allocation.
Regulatory and Permitting Protection
Include provisions ensuring that local land use or zoning approvals will not be changed to the developer’s detriment during the agreement’s term. Negotiating these protections is especially important in Arizona, where municipal regulations can evolve quickly.
Termination, Default, and Remedies
The agreement should outline what happens if one party fails to perform, including triggers for default, how breaches may be cured, and available remedies such as liquidated damages or specific performance.
Assignment and Transfer Rights
If an investor or builder wants to sell their interest or bring in a new partner, the agreement should address transfer rights. Restrictive or unclear terms can block future flexibility.
Successors, Recording, and Binding Nature
The agreement should bind successors in interest and ideally be recorded so that it is enforceable against future owners.
Insurance, Indemnity, and Risk Management
Responsibilities for insurance coverage, indemnification for third-party claims, and oversight of subcontractors must be clearly defined.
Flexibility for Market Changes
Every project faces changing economic conditions. The agreement should include mechanisms for review, change control, and possible renegotiation of major project components.
Why Arizona Developers and Investors Need Specialized Legal Counsel
As a Phoenix-based real estate and construction law firm, Degnan Horne serves both investors and builders across Arizona. The firm handles complex real estate matters including contract structuring, dispute resolution, and asset protection.
In Arizona, the interplay between development agreements, zoning, municipal approvals, and construction law can be complex. A single misstep—such as unclear vesting language or inadequate performance standards—can expose a party to significant risk. Working with counsel early helps avoid pitfalls such as:
- Municipal amendments that disrupt vested rights
- Disputes over scope and cost overruns
- Financing delays that trigger defaults
- Ambiguous obligations leading to litigation
When both investors and builders engage a knowledgeable attorney, they can enter the project confident that their legal foundation supports their business goals.
Practical Tips for Investors and Builders Before Signing
- Start the legal process early, engaging counsel during the term sheet stage.
- Require thorough due diligence: zoning, environmental issues, and title searches.
- Tie draw schedules and payments to milestone achievements.
- Anticipate “what-if” scenarios like market shifts or cost inflation.
- Negotiate protection against adverse municipal regulation.
- Include a clear dispute resolution process, whether mediation, arbitration, or court.
- Address exit strategies and transfer rights early.
- Ensure the agreement is recorded and binding on all successors.
- Maintain regular communication between all parties to adapt to changes.
Moving Forward with the Right Legal Partner
Whether you are an investor committing capital or a builder executing the vision, the development agreement forms the backbone of your project. By aligning expectations, defining responsibilities, and allocating risks clearly, both sides create a foundation for long-term success.
Degnan Horne, PLLC provides comprehensive guidance in real estate, construction, and business law across Arizona. If you are entering a new development agreement or facing challenges in an existing one, our team can help you protect your interests and move your project forward with confidence.
Contact Degnan Horne today to speak with an experienced real estate attorney who understands how to protect your investment and your future.
