Development Agreement Drafting Prompt

You are tasked with drafting a comprehensive Development Agreement, a critical transactional document that governs the relationship between a developer and property owner/client for a real estate or commercial development project. This agreement must be precise, legally sound, and tailored to protect all parties' interests while clearly defining obligations, timelines, and remedies.

Document Purpose and Context

A Development Agreement is a binding contract that establishes the framework for a development project, whether residential, commercial, mixed-use, or infrastructure-related. Your draft must balance the developer's need for operational flexibility with the owner's requirement for accountability and quality assurance. Consider the jurisdiction's specific legal requirements, zoning regulations, and industry standards throughout the drafting process. The agreement should anticipate potential disputes and provide clear mechanisms for resolution while maintaining a professional, collaborative tone that reflects the parties' mutual business objectives.

Parties Identification and Representation

Begin by clearly identifying all parties to the agreement with complete legal names, entity types (individual, corporation, LLC, partnership), principal addresses, and authorized representatives. For the developer, include licensing information, registration numbers, and any required professional credentials specific to the jurisdiction. For the owner/client, verify legal ownership of the property and authority to enter into development agreements. If multiple parties are involved—such as co-developers, consultants, or financing entities—establish their respective roles, responsibilities, and hierarchical relationships. Include provisions addressing successors and assigns, and specify whether the agreement is assignable and under what conditions. Ensure compliance with jurisdiction-specific requirements for party identification, including any mandatory disclosures or registrations required by state or local law.

Recitals and Background

Draft comprehensive recitals that establish the factual and legal foundation for the agreement. Describe the property subject to development with precise legal descriptions, including parcel numbers, addresses, and any relevant zoning designations. Articulate the owner's objectives for the development and the developer's qualifications and experience that make them suitable for the project. Reference any preliminary agreements, letters of intent, or feasibility studies that preceded this agreement. Establish the regulatory context, including applicable zoning ordinances, building codes, environmental regulations, and required permits or approvals. The recitals should create a narrative that demonstrates the parties' informed consent and mutual understanding of the project's scope, risks, and opportunities.

Definitions Section

Create a comprehensive definitions section that establishes precise meanings for all key terms used throughout the agreement. Define "Development" or "Project" with specificity, including the type of construction, square footage, intended use, and quality standards. Establish clear definitions for "Milestones," "Deliverables," "Substantial Completion," "Final Completion," and "Punch List Items" with objective criteria for determining when each has been achieved. Define financial terms including "Development Budget," "Cost Overruns," "Contingency," and "Allowances." Clarify temporal terms such as "Commencement Date," "Target Completion Date," and "Time is of the Essence" provisions. Include definitions for "Force Majeure," "Change Orders," and "Approved Plans" to prevent ambiguity in critical contractual provisions. Each definition should be drafted to minimize interpretive disputes and provide clear, measurable standards.

Scope of Work and Specifications

Provide a detailed description of the development work to be performed, either within the agreement body or by incorporating detailed plans, specifications, and drawings by reference. Specify the developer's obligations regarding design, permitting, construction, quality control, and project management. Delineate responsibilities for obtaining governmental approvals, utility connections, environmental assessments, and compliance with accessibility requirements. Address the standard of performance expected, whether "workmanlike manner," compliance with specific building codes, or adherence to industry best practices. Identify which party bears responsibility for site preparation, demolition of existing structures, environmental remediation, and off-site improvements. Include provisions for the owner's approval rights over plans, materials, subcontractors, and change orders, while establishing reasonable timeframes for such approvals to prevent project delays. Specify any exclusions from the scope of work and mechanisms for addressing unforeseen conditions or necessary additional work.

Timeline, Milestones, and Performance Standards

Establish a comprehensive project timeline with specific milestone dates tied to measurable deliverables. Structure the timeline to include key phases such as:

• Design development and approval deadlines
• Permit application and approval target dates
• Construction commencement and phase completion dates
• Inspection and certificate of occupancy timelines
• Final completion and turnover requirements

For each milestone, specify the criteria for completion, required documentation, and approval processes. Address the consequences of delays, distinguishing between excusable delays (force majeure, owner-caused delays, governmental action) and inexcusable delays (developer fault, subcontractor issues, poor planning). Include provisions for time extensions, notice requirements for anticipated delays, and the developer's obligation to implement catch-up schedules. Establish liquidated damages provisions for unexcused delays, ensuring the amounts are reasonable estimates of actual damages rather than penalties. Consider including incentive provisions for early completion if appropriate to the project.

Payment Terms and Financial Provisions

Structure a detailed payment framework that aligns compensation with project progress while protecting the owner's interests. Specify whether payment will be made on a fixed-price, cost-plus, or guaranteed maximum price basis, and define what costs are included or excluded. Establish a payment schedule tied to milestone completion, typically including:

• Initial deposit or mobilization payment upon execution
• Progress payments based on percentage completion or milestone achievement
• Retainage provisions (typically 5-10%) held until final completion
• Final payment upon substantial completion and lien releases

Detail the invoicing process, including required documentation such as lien waivers, proof of payment to subcontractors, inspection reports, and compliance certificates. Address how change orders affect the contract price and timeline, requiring written approval before additional work commences. Include provisions for the owner's right to audit development costs if using a cost-plus structure. Specify payment terms (e.g., net 30 days), late payment consequences, and the developer's remedies for non-payment. Address how cost overruns will be handled and whether the developer or owner bears the risk. Include provisions regarding development budgets, contingency funds, and allowances for owner selections.

Intellectual Property Rights and Ownership

Clearly allocate ownership of all intellectual property created during or used in the development process. Address ownership of architectural plans, engineering drawings, specifications, and design documents, typically granting the owner a license to use such materials for the specific project while the design professionals retain underlying IP rights. Specify ownership of any proprietary construction methods, systems, or innovations developed during the project. If the development involves software, branding, or creative content, establish clear ownership and licensing terms. Include provisions protecting third-party intellectual property rights and requiring the developer to obtain necessary licenses or permissions. Address the owner's right to modify or expand the development using the plans and whether additional compensation is required. Include representations that the developer has the right to use all IP incorporated into the project and will indemnify the owner against infringement claims.

Confidentiality and Non-Disclosure Obligations

Impose mutual confidentiality obligations protecting sensitive business information, financial terms, proprietary processes, and strategic plans disclosed during the development relationship. Define "Confidential Information" broadly to include non-public information about the project, the parties' businesses, financial arrangements, and any information designated as confidential. Establish standard exceptions for information that is publicly available, independently developed, or required to be disclosed by law. Specify the permitted uses of confidential information (solely for performing under the agreement) and require return or destruction of confidential materials upon termination. Address the developer's obligation to maintain confidentiality of the owner's business operations, tenant information, and financial performance. Include provisions requiring confidentiality agreements with subcontractors and consultants who may access sensitive information. Establish the duration of confidentiality obligations, typically surviving termination for three to five years, or indefinitely for trade secrets.

Representations, Warranties, and Covenants

Include comprehensive representations and warranties from both parties to allocate risk and establish baseline assurances. The developer should represent and warrant:

• Proper organization, authority, and licensing to perform development work
• Compliance with all applicable laws, codes, and regulations
• Possession of necessary expertise, experience, and financial capacity
• No conflicts of interest or undisclosed relationships affecting the project
• Quality of work meeting professional standards and specifications

The owner should represent and warrant:

• Legal ownership or control of the development property
• Authority to enter into the agreement and grant necessary access
• Disclosure of known property defects, environmental issues, or encumbrances
• Financial capacity to meet payment obligations
• Accuracy of information provided regarding project requirements

Include ongoing covenants requiring both parties to maintain insurance, provide timely notices, cooperate in good faith, and refrain from actions that would impair the other party's performance. Address warranty periods for completed work, typically one year from substantial completion, and the developer's obligation to remedy defects discovered during the warranty period.

Insurance, Indemnification, and Risk Allocation

Require the developer to maintain comprehensive insurance coverage throughout the project, including:

• Commercial general liability insurance with minimum limits appropriate to project size
• Workers' compensation and employer's liability coverage
• Builder's risk or course of construction insurance
• Professional liability insurance for design-build projects
• Automobile liability for vehicles used on the project

Specify that the owner must be named as an additional insured on liability policies and loss payee on property insurance. Require certificates of insurance before work commences and notice of cancellation or material changes. Establish indemnification obligations requiring the developer to defend, indemnify, and hold harmless the owner from claims arising from the developer's negligence, breach of contract, or violation of law. Include reciprocal indemnification for owner-caused issues. Address limitation of liability provisions, excluding or limiting consequential damages while preserving remedies for direct damages. Allocate risk for unforeseen site conditions, environmental contamination, and force majeure events with clear procedures for notice and adjustment of time and price.

Permits, Approvals, and Regulatory Compliance

Clearly assign responsibility for obtaining all necessary governmental permits, approvals, and certificates required for the development. Typically, the developer bears responsibility for building permits, trade permits, and construction-related approvals, while the owner may handle zoning changes, variances, or entitlements. Require the developer to comply with all applicable federal, state, and local laws, including building codes, environmental regulations, labor laws, and safety requirements. Establish procedures for addressing permit denials, required modifications, or unexpected regulatory requirements, including allocation of additional costs and time extensions. Require the developer to maintain all permits in good standing and provide copies to the owner. Include provisions for final inspections, certificates of occupancy, and any post-completion compliance obligations. Address consequences of permit violations or stop-work orders, including the developer's obligation to remedy violations and associated delays.

Change Orders and Modifications

Establish a formal change order process to manage modifications to the scope, specifications, timeline, or price. Require all changes to be documented in writing and signed by authorized representatives of both parties before implementation. Specify that the developer must provide written notice of any conditions requiring changes, including a detailed description of the proposed modification, impact on schedule, and cost implications. Establish timeframes for the owner to review and approve or reject proposed changes, with deemed approval or rejection if deadlines are not met. Address how to handle emergency changes requiring immediate action for safety or property protection. Include provisions for pricing change orders, whether using pre-agreed unit prices, cost-plus with markup, or negotiated fixed prices. Prohibit the developer from performing changed work without approved change orders except in genuine emergencies. Establish that approved change orders become part of the contract and adjust the contract price and timeline accordingly.

Termination Rights and Remedies

Provide clear termination rights for both parties under specified circumstances while protecting against arbitrary termination. Grant the owner the right to terminate for cause upon:

• Material breach by the developer that remains uncured after written notice and reasonable cure period (typically 15-30 days)
• Developer insolvency, bankruptcy, or assignment for benefit of creditors
• Abandonment of the project or failure to prosecute work diligently
• Repeated violations of safety requirements or applicable laws
• Failure to maintain required insurance coverage

Grant the developer the right to terminate for cause upon:

• Owner's failure to make undisputed payments when due after notice and cure period
• Owner's material breach of agreement obligations
• Prolonged suspension of work by owner (typically exceeding 90 days)

Consider including termination for convenience provisions allowing the owner to terminate without cause upon payment of costs incurred, reasonable profit on work completed, and termination costs. Specify the consequences of termination, including the developer's obligation to cease work, secure the site, provide documentation, and remove equipment. Address payment obligations upon termination, including final accounting, return of unused materials, and release of retainage for completed work. Establish the owner's right to complete the project using other contractors and the developer's liability for increased completion costs if terminated for cause.

Dispute Resolution and Governing Law

Establish a multi-tiered dispute resolution process designed to resolve conflicts efficiently while preserving the business relationship when possible. Require initial good-faith negotiations between senior executives of both parties before pursuing formal dispute resolution. Consider including mediation as a mandatory prerequisite to litigation or arbitration, with costs shared equally and a specified timeframe (typically 30-60 days) for the mediation process. Specify whether disputes will be resolved through binding arbitration or litigation, considering the advantages of each:

• Arbitration offers privacy, specialized arbitrators, and potentially faster resolution but limits appeal rights
• Litigation provides full procedural protections and appeal rights but may be more time-consuming and public

If choosing arbitration, specify the administering organization (AAA, JAMS), number of arbitrators, location, and governing rules. Include provisions for interim relief and emergency procedures. Establish the governing law (typically the state where the property is located) and exclusive venue for disputes. Address whether the prevailing party is entitled to recover attorneys' fees and costs. Include a waiver of jury trial if disputes will be litigated. Consider carve-outs allowing either party to seek injunctive relief in court for breaches of confidentiality or intellectual property provisions without exhausting other dispute resolution procedures.

General Provisions and Execution

Include standard boilerplate provisions essential to contract enforceability and interpretation:

• Entire agreement clause superseding all prior negotiations and understandings
• Amendment provisions requiring written modifications signed by both parties
• Severability clause preserving the agreement if any provision is found unenforceable
• Waiver provisions clarifying that failure to enforce any right does not waive future enforcement
• Notice provisions specifying addresses and methods for formal communications
• Force majeure clause excusing performance for events beyond parties' reasonable control
• Relationship of parties clarifying that the agreement creates an independent contractor relationship, not partnership or joint venture
• Assignment and delegation provisions restricting transfer without consent
• Survival clause identifying provisions that continue after termination or completion
• Counterparts and electronic signature provisions enabling efficient execution

Provide signature blocks for all parties with spaces for printed names, titles, and dates. Include acknowledgment sections if required for recording in the jurisdiction. For entity parties, ensure signatories have proper authority and consider requiring corporate resolutions or certificates of authority. If the agreement will be recorded, ensure compliance with local recording requirements regarding formatting, notarization, and content.

Drafting Standards and Quality Control

Throughout the drafting process, maintain consistency in defined terms, cross-references, and formatting. Use clear, unambiguous language avoiding legalese where plain English suffices. Ensure all monetary amounts specify currency and all timeframes are clearly calculated (calendar days vs. business days). Verify that all referenced exhibits, schedules, and attachments are properly incorporated and attached. Review for internal consistency, ensuring that provisions in different sections do not conflict. Consider the jurisdiction's specific legal requirements, including any mandatory disclosures, consumer protection provisions, or statutory requirements for development agreements. Ensure the agreement reflects current law and industry standards while being tailored to the specific project and parties' needs.