Use Entitlement Contingencies in Contracts

The difference between a profitable land deal and one that ends up as an expensive mistake is often found in the details of the contract you draft.

Lesson No.1, says Tom Stephani, president of Rosenthal Company, a builder in Crystal Lake, Ill., is to spell out the proper contingencies that will allow you to get out of a deal if your entitlement process is not going well.

Because each land transaction is different from the one before, there is no set list of entitlement contingencies to include. But there are some basics that should be on your attorney's checklist.

1. Zoning. The deal cannot go through without needed variances.

2. Subdivision approval. The pro-formas that underlie the value of the deal are based on a certain map. If it does not get approved, you can walk.

3. Density requirements. This is a variation on the same theme. If your unit count goes down, the deal should be null and void.

4. Financing. If funding falls through, you won't be on the hook for it.

5. Permits. Name the time frame in which you need permits for the deal to work.

6. Title issues. Very standard contingency, clear title is required.​​​​​​​

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These contingencies are negotiable, and in competitive land markets, it may mean having to do with less protection. It also may mean walking away from several deals.