Builders are seeking to cover rising construction costs and uncertainty right now, and are increasingly insisting that developers agree to “rise and fall” clauses in construction contracts.
The rise and fall clause provides some flexibility and padding on prices, which allows for a margin of cost fluctuation, with the risk shared between the financier, developer and builder.
The result of these clauses means developers and their respective financiers struggle to act with certainty. Working with the right finance partner, with expertise in property and construction law, is essential to mitigate risks and increased costs for your project. We have put together this month’s Property Development Insight with the assistance of our friends at Construction Legal and share a number of options that can be reviewed to mitigate risk to the developer.
- Against the environment of increasing costs in the construction industry, the majority of building construction contracts have historically been on a fixed, lump sum basis.
- Developers are increasingly faced with contractors requiring, as a minimum, some type of 'rise and fall' clause for an increase in the cost of material and labour during the project.
- Should the developer find that the builder is insisting on protection against rising costs, there are a number of options that can be reviewed to mitigate risk.
DFP are specialists in property development and construction finance and are well versed in working with developers to understand how risks are assessed and managed. Get in touch with us if you need help negotiating the best property finance solution suitable for your project.