Avoid being time barred from claiming extensions of time in development agreements

'Baby, baby, you're out of time' (Rolling Stones 1966)

Avoid being time barred from claiming extensions of time

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:

1. Are you entitled to an EOT as a result of a delay event?
2. What should you consider when claiming an EOT?
3. What should you do if you realise you are out of time in claiming an EOT?

Are you entitled to an EOT as a result of a delay event?

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:

• industrial action;
• force majeure events;
• inclement weather;
• delays caused by a tenant carrying out fitout works, where such fitout works interfere with the developer's program;
• variations to the developer's works, requested by the tenant or other counterparty;
• authority delays, such as delays in obtaining planning approvals; and
• the lasting effects of the COVID-19 pandemic, such as delays caused by shortages of materials manufactured overseas.

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.

What should you consider when claiming an EOT?

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.

1. Delay to critical path
   EOT regimes often require the developer to demonstrate a delay to the critical path of the developer's works. When submitting an EOT claim, developers should include evidence of how the critical path has been impacted and the likely extent of the delay.
2. Mitigation of the delay
   The developer is often required to show that it has used reasonable endeavours to mitigate the impact of the delay. What 'mitigation' means in the circumstances can be unclear – for example, does mitigation require the developer to accelerate works or import alternative materials from overseas, even if this would significantly increase construction costs and potentially do away with its profit margin? This is an issue that needs to be considered and addressed at the time the development agreement is negotiated so that the extent of 'mitigation' action that may be required in order to satisfy this requirement is clear.
3. Strictly comply with timing requirements
   One of the most important steps that the developer should take in order to claim an EOT is to strictly comply with the form and timing requirements of the regime. This is not always easy. It may require close monitoring by the project manager. It may require formal written notices to the counterparty at the start of, and at the end of, the delay, and not just raising the delay at a PCG. It may require including details in notices (eg. the anticipated length of the delay and the steps taken to mitigate the delay) which may not be easy to identify at various times. As there may be circumstances where it is not clear if an event, such as inclement weather, will actually cause a delay to the critical path of the developer's works, it is usually safest to provide notice of a potential delay regardless.

Uh oh! I'm out of time. Now what?

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:

• PCG or other meetings, where meeting notes are recorded;
• submission of updated construction programs that clearly set out the delay; and/or
• other regular reporting on progress.

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.

Final thoughts

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.