Part 3 of 5 — The Pre-sale or Pre-lease Contracts

These are the contracts that determine how you are going to make money from the development. There are many items to be wary of when negotiating these contracts, as they have a direct impact on your ability to fund a project.

These should, at the very least, be conceptualised and considered at the outset. What is a likely sale price? What is the demand for this product? How easy will it be to sell? These should all be questions that can be answered with relative confidence prior to land acquisition.

A common example of things to look out for is sunset dates in either a sale or lease contract. Funders will require sunset dates to be 12+ months from the expected completion date — not to be confused with practical completion of the physical works, which is typically 12–15 months from the start of construction. We often work with clients on extending these dates, as they fall too soon and impact their ability to secure funding.

Other important clauses include the deposit amount (10%+), the ability to substitute materials, and any vendor or buyer/lessee conditions. It is important that you negotiate and understand these contracts at the outset so you don’t find yourself in difficulty when it comes time to put funding in place.