Article originally appeared in Perspectives on Real Estate, Spring 2010 edition. Updated July 2012.
Trouble, in the form of adverse changes in financial conditions or the property marketing environment, sometimes strikes urban real estate development projects during the period between construction contract signing and completion of procurement and construction activities. In many cases, the course of action that will maximize value for all stakeholders is to allow the work to continue. Project completion will result in improvement to a base level and more security from casualty risks, as well as satisfaction of the conditions from a seller or redevelopment agency to drawdown of the land rights. But if financing for that continuation is not available, or if prospects for selling or leasing the improved property appear sufficiently bleak, the developer may reluctantly determine that the construction contracts and work should be suspended for some period of time or terminated altogether.
This article outlines significant issues that an owner should consider when suspending or terminating a California commercial construction project. Similar principles apply to projects in other states and of a residential, industrial or public nature, but the statutes and other requirements are highly technical, and the specifics of the laws and contracts should always be reviewed by counsel.
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