Risk Protection When You Build, Renovate or Convert to Condo
Posted on Monday, August 13, 2018 Share
Moving forward with a large scale real estate development project is a colossal effort that has implications in business and personal taxation, business profitability, personal wealth generation (or depletion), and many other areas for you and the other parties involved.
The best thing you can do to protect yourself from risk is to assemble a proper team of professionals in key areas to advise you and execute the construction, renovation and/or associated services in the best way possible.
Who to Call On?
Construction Managers (CMs). The first group to choose is a construction team to meet your building or renovation needs. There are ways to mitigate risk in development projects. Some developers hire their own consultants to represent them throughout the life of the construction or renovation of the building. These consultants are referred to as construction managers (CMs).
Construction managers are not construction firms per se, but if you hire a CM, he or she will be very familiar with the building and/ or renovation process. The CM will oversee and manage all the contractors doing work. Different from a general contractor, the CM reports directly to you and does no construction work. This consultant will make sure no contractors cut corners, which would otherwise put you at risk for financial losses and legal snares.
There are many risks that can hit you during a building or renovation project. Requiring your contractors to carry builders risk insurance will alleviate the risk of damage to the building during the construction process.
Check with your legal professional or counsel on what insurance requirements to include in all your written contracts. This may seem like an unnecessary cost as you enter a contract, but that initial cost could save you a bundle down the road, if a problem arises and thanks to proper insurance structuring, the financial burden does not land squarely on you.
Accounting and Tax Team. Much of construction and development involves financing, recording and paying interest, and managing cash flows throughout the life of the project. If you have a dedicated accounting team that works directly for you, like an accounting department in your own company, they will protect your interests to make sure you don't pay too much interest, you get the best financial treatment by way of the building process for your financial statements, and you get tax returns that reflect the best tax treatment possible.
Legal Professional or Counsel. You are well aware that legal support and representation greatly reduces your risk in many different situations. Having an attorney who is proficient in the construction, renovation or condo conversion process will greatly enhance your ability to come out more profitable and less likely to have loose ends when the building is completed and all is said and done.
Make sure your attorney is aware of your plans to build, renovate, or convert a condo well in advance of any contracts being generated. That way, your contracts with all parties will be reviewed in the beginning stages. Lots of contracts mean lots of areas to potentially increase your own risk.
Let your attorney build in less risk for you from the beginning, by doing a contract review. Then watch your building idea become a reality, and your profits and wealth will make a positive impact on your bank account.
Real Estate Professional. If you are closing units as part of a condo conversion, you may need to offer first right of refusal to the tenants already in the units. Having a solid real estate broker or agent working on the deal makes a big difference in limiting risk, because he or she will know all the ins and outs of condominium law and so can make sure your exposure is limited for future lawsuits.
A condominium conversion can be a very emotional experience because some people may have to move unexpectedly.
Your attorney can make this time less stressful by making sure everybody is properly informed: you, the buyers, prospective buyers and the existing tenants. You need legal assistance every step of the way.
Posted in Tax Topics For Individuals, Tax And Accounting Topics For Business
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.