Land Banking & Lot Takedown Structures

 

Land banking — also called lot banking — moves land off a builder's balance sheet. A capital partner buys and holds the land; the builder takes lots down on a schedule under an option, paying for them as it needs them. It converts an equity position in dirt into a contractual right to buy lots, and it is now how a large share of residential land is controlled in the Mid-Atlantic.

 

We have closed more than twenty institutional land-bank transactions covering more than 4,200 lots, homesites and residential units — under five different land-bank programs, each with its own document architecture. We act for builders taking the option side, and for developers and sellers on the other side of them.

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Where we act

 

Our land-bank and lot takedown work covers property in Maryland, Virginia, Delaware and West Virginia. Our attorneys are admitted in Maryland, Virginia and the District of Columbia, and in New York and New Jersey. Where a matter involves property in a state in which we are not admitted — including Delaware and West Virginia — we associate local counsel admitted in that state for the state-specific work, and continue to run the transaction.

 

The documents

 

• Option purchase agreements and lot option agreements

• Development agreements between the land banker and the builder

• Takedown schedules, minimum takedowns and lot release mechanics

• Memoranda of option and title clearance

• Guaranties, deposit and option payment structures

• Completion and finishing obligations, and who performs them

• Assignment and collateral assignment provisions

• Multi-stage closings combining a direct takedown with successive land-bank closings

• Substitution of one land banker for another mid-project, including termination of the option of record

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What is actually negotiated

 

• The takedown calendar. Pace, minimums, acceleration, and what happens when absorption does not match the schedule.

• Lot price. Escalators, carrying cost, and how price moves if delivery slips.

• What a finished lot is. The single most litigated definition in these deals, and the one most often left to a cross-reference.

• Who performs the development. Seller, builder or land banker — and who carries the bonds.

• Entitlement and permit risk. Allocation between the parties when an approval, a permit or a sewer allocation does not arrive on time.

• Remedies. What the builder loses on a failure to take down, and what the banker owes on a failure to deliver.

• Exit. Termination, put rights, and disposition of undeveloped remainder.

 

A drafting point worth raising early

 

When a purchase agreement is signed today for lots that will not exist until a plat is recorded two years from now, the contract still has to say how those lots will be identified. Agreements that defer identification to a future exhibit, or to a plat "to be mutually agreed," are the ones that produce disputes at the first takedown. We prefer a defined method — a recorded plat reference, a numbering convention, or a stated release sequence — fixed at signing.

 

Contact Ryan C. Day, Anthony J. Clark or Douglas M. Irvin to discuss a land-bank structure or a takedown agreement.