What Should Your Property and Construction Contracts Address?
Wolfgang A. Orsini und Rosenberg has defined experience in real estate law; he speaks with us this month regarding the importance of contracts in real estate and what you should be addressing in such contracts in order to avoid disputes.
How important is a legally strong contract for property/construction development?
A strong, well-considered contract is essential for any purchase or sale of real property. When first considering purely the purchase and sale of real property, careful thought is required as to which provisions are included in the contract and which ones are not. It is important here to give a precise description of the property, which extends far beyond the mere extract from the land register. Detailed surveys of the boundaries of the property, of property zoning, are just as essential as the examination of the soil for contamination. Major property acquisitions should also always involve surveys by the building authority, so as to identify open construction contracts or construction projects not yet completed.
Zoning is, at present, of particular relevance as it regards undeveloped properties; take Vienna as an example: in Austria’s capital, in particular, living accommodation is at a premium and there is huge demand for it, which is putting increasing pressure on property prices. Particularly, property that is undeveloped – properties used for agricultural or horticultural purposes – is therefore much sought-after at present. The prerequisite, however, is always the property’s re-zoning as land for development. This is where our excellent contacts and close networking with the competent bodies come in to find solutions quickly.
From a legal perspective it is also important, particularly in the field of property development, to have a good economic understanding of prices per square metre and to keep an eye on any further costs that might potentially rise after purchase.
What things should clients ideally be looking to address in such contracts?
All the details described above are to be found in our contracts which should reflect the prevailing situation as accurately as possible. From a legal perspective it is also important, particularly in the field of property development, to have a good economic understanding of prices per square metre and to keep an eye on any further costs that might potentially rise after purchase. Tax arrangement is also of crucial importance. Here, too, appropriate provisions must be included in the contract.
In the case of contracts with property developers or construction firms (general contractors), it is important to have a good understanding of the structural details. As precise a description as possible of the service to be provided, the sampling and detailed specifications of the building and fittings are essential. It is imperative to have provisions dealing with default and other breaches of contract to provide appropriate safeguards that the agreed deadlines are observed.
In our experience, the majority of disputes arise as the result of certain things being left unaddressed.
When dealing with litigation, what are common disputes that have arisen due to lack of thoroughness when devising a contract at the onset?
In our experience, the majority of disputes arise as the result of certain things being left unaddressed. The parties usually fill these “gaps” with expectations which – if failed – then result in dispute over the terms of contract and scope of services. The provisions specifying what the seller guarantees and what is not guaranteed also need to be quite clear and precise.
How must development contracts differ for developers, compared to project financers and private individuals?
Usually developers acquire large real property and/or sections in not yet zoned, mostly undeveloped or only lightly developed condition. Here, particular consideration must be given to rights and obligations under public law (vehicular access, zoning, density of development). Project financers are on the lookout for projects that are as far as possible to being completed which are a good investment proposition for them. Private individuals, on the other hand, normally acquire existing properties where the definition of specifications of the building and fittings is important. If private individuals acquire properties that are still under construction, the provisions of the Bauträgervertragsgesetz (Austrian Developers’ Contract Act) must be applied, which specifies certain minimum content of contracts, e.g. milestones and tranche payments.
Orsini und Rosenberg
Tel: +43 1 90 1 90
Wolfgang A. Orsini und Rosenberg is a qualified and well-known lawyer in Austria and founder of the Orsini und Rosenberg law firm with a particular focus on real estate law as well as building and construction law. He primarily deals with contractual matters, but he is also an experienced trial lawyer and advises his clients in commercial matters. He is a member of the Vienna Bar and started his legal career right after completing his studies at the University of Vienna with distinction. He is a member of various national expert committees and provides advice to interested parties during the legislative process.