The changing social, technological, environmental and economic landscape has led to increased legal exposure for contractors and real estate developers in California. However, developers can manage the risk and continue to build and develop successful projects with some foresight and careful planning.
Developments in technology have revolutionized the way people work and live. The availability of real-time information, resources and services has created an opportunity for contractors, developers and buyers to communicate more efficiently and effectively. A willingness to investigate and adopt technology and apps will make contractors and developers more successful in the tech-driven world.
One such development is building information management (BIM) technology. BIM is a process for creating electronic models that can be used for design and construction of a building. While this technology may be very useful, it presents novel legal questions including issues regarding ownership of created models, copyright and accuracy in the finished model product. This rapidly developing technology has not yet been considered by the courts and thus leads to uncertainty and caution is needed.
Contractors should consult with technology specialists in order to develop the most effective methods of communicating with the public for their business.
New social media and other online marketing tools are constantly coming onto the market, and there may be great opportunity for businesses to use these apps and resources. However, caution should be used to ensure that any representations made are accurate and that any comments or inquiries posted by customers are monitored and responded to appropriately.
Social changes have impacted where people are choosing to live, work and play. An increase in mixed-use in parts of California has created a new market for builders but has also created new legal problems, including outdated regulations regarding use and questions of licensing or permitting. Residents are drawn to communities with retail available near their desired places of residence and businesses are continuing to look for space that meets a variety of needs — multipurpose spaces that allow businesses to grow and evolve. These preferences implicate legal issues when the building space might not meet regulations or and issues regarding change in use of traditionally residential-only spaces.
Changes in lifestyle have also impacted transportation. Many Californians are seeking options in mobility aside from the traditional use of a car. Integrating mobility options with technology may help developers and contractors to meet the needs of homeowners and home buyers by providing innovative, efficient methods of getting around.
Changing climate conditions in California have exposed developers and buyers to new problems. Increasing regulations, such as greenhouse gas reduction targets recently signed into law by Gov. Jerry Brown, continue to place a burden on developers. A push toward building sustainable “green buildings” adds additional planning and expense for a developer. These changed regulations and use of green technology create exposure for developers.
Further, drought conditions now common to most of California may pose additional problems as contractors and developers determine appropriate building types and projects. A project soundly built in one year might come with dramatically different liability should the soil conditions or climate dramatically change. Developers ought to note throughout the project planning, development and sale process that changing soil and climate could change their legal liability, and should consult with legal counsel as need arises.
As illuminated in the 2016 election, Californians are concerned about housing costs, availability and local businesses. One study found that in 2014, California ranked 49th in homeownership rates among the states, with fewer than 54 percent of homes actually occupied by an owner. California renters spend an average of 36 percent of their income on housing. Municipalities across the state are enacting ordinances to help increase the supply of affordable housing. For example, Los Angeles City Measure JJJ, which recently passed, requires developers to pay construction workers an area wage standard and requires reservation of a certain percentage of units for affordable housing.
Similarly, a shortage of skilled construction labor has hurt many developers. The housing bust of the late 2000s led construction to sharply drop, and the construction jobs followed. Displaced workers have struggled to find similar work, and developers have in many cases been left short of qualified workers, while has led to a downturn in construction.
Minimizing These Risks
These challenges might dissuade some from venturing into real estate, but a savvy developer or contractor need not be put off easily. There are several ways to minimize these risks. Here are some tips:
Gather information. Contractors and developers should continue to educate themselves on changing regulations, community needs and buyer preferences as they develop properties. Targeting a project most closely to the geographic, social, and economic needs of the community will help to make projects successful, and may help limit exposure.
Hire wisely. Developers should continue to contact and hire good contractors, which can go a long way in limiting exposure. Becoming informed about contractors’ business history and employees may substantially limit a developer’s potential exposure. Associating with other businesses with a solid track record will limit the potential for problems.
Ask questions. Regulations and legislation can be complicated to understand. It is wise for developers to ask legal counsel or government entities questions in order to ensure their compliance with the law. Recognizing potential pitfalls before there is a problem can substantially limit risk exposure.
Update contracts. Again, in light of changing legal regulations and any changes to company policy, contractors and real estate developers should ensure that their written documentation is up-to-date. Making appropriate disclosures by contract may significantly limit exposure.
Consult legal counsel. Many law firms in California specialize in real estate issues, and that expertise can be tremendously helpful in avoiding problems or minimizing liability once a problem has occurred. It is wise to consult with legal counsel in updating contracts, developing criteria for hiring and compliance with regulations in order to ensure that real estate businesses are able to reach their full potential.