Lease-Leaseback Delivery Method and Transactions
This topic will discuss the features, nuances, complexities and risks of lease-leaseback projects. Lease-Leaseback can be a very effective tool for project delivery and has been enjoying increasing popularity. It involves an owner leasing a site to a developer who, in turn, develops the project and leases it back to the owner. The developer can be paid over the course of construction and for a post-construction occupancy period, or the developer can fully finance the project until completion, with the lease payments commencing at project completion. Either way, owners are given flexibility to engage developers early in the project, before the plans and specifications are completed, resulting in more collaborative projects with less claims and delays. Unlike in design-build projects, owners will retain design responsibility. Done correctly, the projects can be quite successful. Done incorrectly, owners and developers can be exposed to significant risk, including in some states, disgorgement of all monies paid and liabilities for conflicts of interest.
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- History and PhilosophyAdvantages
- Collaboration Early in the Project
- Faster Project Delivery at a Lower Price
- Reasonable and Reliable Budgets and Schedules
- Fewer Change Orders and Claims
- Third-Party Financing of the Project If NeededRestrictions and Concerns
- Legal Authority to Use It and Legal Restrictions–Contracting Authority–Regulatory Approvals and Restrictions–Conflicts of Interest–Disguised Construction Contracts–Third-Party Financing Might Be Required–Even With Collaboration, Owner Still Bears the Risk of Design
- Practical Considerations for the Project–Restrictions on Competition–Getting Qualified Lease-Leaseback Providers–Getting a Fair Price–Cost of FinancingSummary Lease-Leaseback Agreements
- Site Lease
- Facilities Lease–Setting the Lease Term–Setting and Structuring the Lease Payments
- Construction Related Documents: Balancing Typical Construction Documents Against Avoiding a Disguised Construction Contract
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