For a landowner, a revenue-sharing construction agreement is a long-term commitment that is difficult to unwind. The provisions agreed at the outset define the framework for any dispute that arises during performance.
Formal Requirements
Because the agreement creates an obligation to transfer immovable property, it must be executed in official form. In practice this means an agreement drawn up before a notary. Agreements in simple written form are, as a rule, invalid; however, where the obligations have been performed to a substantial extent, invoking invalidity may be regarded as contrary to the rule of good faith.
Provisions the Agreement Should Contain
- The sharing arrangement stated clearly by independent unit number and square metres
- A technical specification and material quality defined in detail in an annex
- Firm dates for commencement of construction and delivery
- Penalty clauses and loss-of-rent provisions for delay
- Title transfers tied to construction milestones (staged transfer)
- Limits on the contractor's authority to sell to third parties
- Express provision that obtaining the occupancy permit is the contractor's responsibility
Where the contractor is in default, it is essential that the landowner's rights are expressly set out in the agreement and that those rights are reserved at the delivery stage, so that the owner may claim performance together with damages for delay (loss of rent) or, by renouncing performance, claim positive damages.
Staged Transfer of Title
The landowner's most important protection is not transferring all land shares at the outset. Tying transfer to construction milestones preserves the owner's remaining share if the contractor abandons the works.
The contractor's financing needs must also be taken into account. In practice the balance is struck through staged transfer linked to milestone certificates.
Delay and Defective Performance
If delivery is delayed, the landowner may claim the agreed penalty and, where the conditions are met, loss of rent. In cases of defective performance, the remedies are rectification of the defect, reduction in price or, where the conditions are satisfied, rescission of the agreement.
Latent defects must be notified to the contractor without delay once discovered. A notice sent through a notary is preferable for evidential purposes.