Wednesday, February 03, 2010

When it comes to the Urban Room, the Development Agreement is confusing, confounding, and nonsensical

If you were trying to make sense of the Development Agreement allegedly negotiated at arm's length by the Empire State Development Corporation (ESDC) and Forest City Ratner entities, you might get confused, especially when it comes to the Urban Room, the dramatic entrance that's supposed to be attached to Building 1.

Building 1 is an office building with no timetable, but that's the least of it.

The language is confounding, sloppily drafted, since the contract provisions fail to make sense at more than one juncture. They pose damages where none exist and attribute such damages to the wrong party.

Urban Room deadline

Consider Section 8.6(e), reproduced below, in its entirety. (Click on all graphics to enlarge and see bottom for original documents.)

It states that the Interim Developer (a Forest City Ratner affiliate) should complete the Urban Room on or prior to the Outside Phase I Substantial Completion Date (12 years after the Effective Date, when vacant possession of property is delivered), subject to Unavoidable Delays.

Damages, Part 1

Now consider the damages if that deadline isn't met. That's apparently covered by two parts of Section 17.1, and that's where the confusion begins.
Part (j) sets damages if the Interim Developer fails to commence construction in accordance with the terms of Section 8.6(e).

The problem, however, is that there's nothing in Section 8.6(e) about commencing construction, just completing it.

Part (k) sets damages if the Atlantic Yards Development Company (AYDC) doesn't complete the Urban Room on time.

Damages, Part 2

What happens if there's a default under Section 17.1(j)?

The Interim Developer would have to pay $10 million over a 12-month period following the date on which the "such Project Building was required to be commenced."

However, there's no commencement date. Nor is the Urban Room actually a Project Building. By contrast, the agreement does include commencement dates for three towers, in Section 8.6(d). (See Section 8 text embedded at bottom.)

It could be that those requirements were mistakenly transposed to the Urban Room, given that the text under Section 17.1(j) does not refer specifically to the Urban Room and the text in the damages section below refers to a "Project Building."

Damages, Part 3

What happens if there's a default under Section 17.1(k)?

The Interim Developer would have to pay $10 million over a 12-month period following the date on which the "the Urban Room was required to be Substantially Completed." However, Section 17.1(k) refers not to the Interim Developer but the AYDC.

Can it be trusted?

Likely very few people have read the Development Agreement, much less tried to make sense of it. But it does not appear to have been drafted carefully.

If these mistakes jump out, how many others are there?



Atlantic Yards Development Agreement Section 8

Atlantic Yards Development Agreement Section 17.1

Atlantic Yards Development Agreement 17.2

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