Avoid being time barred from claiming extensions of time in development agreements
23 October 2023
23 October 2023
Development agreements typically require the developer to reach specified stages of completion by key milestone dates. It is common for there to be a detailed extension of time (EOT) regime to adjust those dates for delay events. EOT regimes have the potential to trip up developers, leading to developers being time barred from claiming EOTs. The consequences may be significant if a developer is not able to extend a key date, including liability for liquidated damages, financing covenants not being met or, at worst, a termination right if works are not completed by a sunset date.
This article explores the following issues for developers:
EOT regimes permit the developer to extend target dates for meeting construction milestones and/or achieving practical completion. They also set out conditions that the developer must comply with to be entitled to an EOT.
Types of delay events in EOT regimes may include:
Developers should try to negotiate development agreements so that delay events are as broad as possible and processes for notification and claims are reasonable, to ensure that target dates can be extended for any event that is beyond the developer's reasonable control.
EOT regimes often require detailed notice of the delay to be provided within specific timeframes. Counterparties are often quick to look for ways in which a developer has not complied with the EOT regime in order to refuse an EOT.
In many development agreements, a failure to strictly comply with the form, content and timing requirements of the relevant notice provisions will result in the developer being barred from claiming an EOT. However, in some agreements, the terms may permit less formal notice, provided that effective notice of the necessary information has been given by the developer within the time required. Understanding your rights and how to preserve those rights is key.
In some cases, sufficient informal notice of the delay may have been given to the counterparty or independent certifier through a combination of:
Whether such informal notice is sufficient will depend on the particular terms of the development agreement, the details of the informal notice provided and the records kept to substantiate the notice.
This means that, in addition to diligently providing formal notices under the agreement in a timely way, developers and project managers should ensure they provide relevant reporting to counterparties. They should keep records of meetings and discussions with counterparties, so that these are available to rely upon if permitted by the agreement.
In order to avoid being time barred from claiming EOTs, developers should ensure that, at the start of any development, they are familiar with and closely follow the exact requirements in the development agreement. The failure to comply with just one aspect of an EOT regime could trip up a developer and lead a counterparty to dispute an EOT claim. Not only should formal notice requirements be complied with, but it is also a good idea to record notes from meetings and discussions where further details of delay events are given. Good systems, record keeping, and a good working knowledge of development agreements are key to preserving and exercising developers' protections under these agreements.
Contributing Authors: Adam Firth, Partner; and Rani Krechster, Senior Associate.