Apr 27, 2014

Joint Development Agreement

The Joint Development Arrangement (JDA), as a business model has been in vogue for a couple of years in the real estate sector. With the evolution of the sector, opening up FDI for the sector and increased corporatization, JDA concept has also evolved and gained importance.

 

The key feature of JDA is that the land owner contributes land and developer undertakes the responsibility of obtaining approvals, property development, launching and marketing the project with its financial resources. 

 

Depending upon various factors such as land prices, products to be developed on the land, financial risks undertaken, roles and responsibilities undertaken by each participant, JDA model is structured. The land owner expects much higher consideration in return for providing development rights to the developer. Typically, consideration is discharged in the form of upfront payment, sharing of gross revenue, sharing of constructed area or a combination thereof. Given these commercial, regulatory and tax facets of the JDA various innovative JDA models are being structured. Each model offers its unique challenges and its implications also differ 


In a joint development rights agreement, the owner provides the land free and clear of all title defects and encumbrances, and undertakes the development of such land along with the developer. In such arrangements, the land owner continues to own the land and shares the responsibility to develop the building project along with the developer. In such arrangements, it is understood that the basic grunt work of development will be done through the developer, who has (or has access to) the manpower, equipment, expertise and experience to implement the project. When it comes to enjoying the proceeds of the built-up space constructed, the land owner and developer can either agree on sharing revenue out of sale or lease of the built-up space or owning the built-up space in an agreed ratio. In the case of sharing revenue from the built-up space, it is the responsibility of the developer to develop the parcel of land jointly with the land owner and sell or lease the built-up space to third-party purchasers/lessees and share the proceeds in an agreed ratio.
Since the ownership in the land continues to be with the land owner, the developer would require the cooperation of the land owner to transfer the title in the land to a purchaser while it transfers the built-up space


In scenarios of joint development rights agreements, the land owner, along with development rights, gives the developer a licence, authorizing the developer to enter the land for the purpose of development. The licence/authority to enter the land is typically given by way of a power of attorney issued in favour of the developer, authorizing the developer to develop the plot, apply for permissions related to the development of the land, carry out construction on the land, deal with local authorities for all necessary approvals and licences, raise debt for the project by mortgaging the land, appoint third party contractors for construction activity and advertising the project.


It is pertinent to mention that the power of attorney granted without consideration can be revoked at any time by the person granting it. However, a power of attorney issued as part of a contract to discharge contractual obligations, if revoked, would amount to a breach of such contract. In such cases, the developer could seek specific performance of the obligation of the land owner to transfer the land by either itself executing the sale deed in favour of the developer or its nominee (as the development agreement may provide) or issue power of attorney in favour of the developer to do so on its behalf, as required by the development agreement. It is also important to mention that in the event the developer is in breach of the terms of the development agreement, the land owner would have the right to revoke the power of attorney.
The rights of developers are also secured by the fact that on bringing up construction on the plot, they shall be considered owners of the built-up space irrespective of the fact that the land is not owned by them.

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