Vancouver Commercial Real Estate Podcast

Providing real-time insight into today's commercial real estate industry.

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March 29, 2023
VCREP #90: The Secrets to the Development Business with Tim Sportschuetz

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Ever wonder about all the potential legal pitfalls that you might find in the development business?

This week, Cory and Melisa welcome Tim Sportschuetz of Sportschuetz & Co construction lawyers to talk about all the things you would have never guessed that go into a real estate development in BC.

From securing air right for a crane to swing underpinning the neighbour property to ensuring the land doesn't give way for your underground parkade, Tim shows us everything that goes into the legal side of the development process that we would have never known about. He also dives into tenants TI work and how you need to legally protect your property as a landlord.

This is one of the most interesting episodes to date and a must listen to, no question!

What is construction law and how will it affect your commercial real estate project? Construction lawyer Tim Sportschuetz breaks down construction law for us and shares the secrets to the development business!

Who is Tim Sportschuetz?

I went to Florida State University where I studied accounting and real estate finance. I then moved to Vancouver in 2009 and started working with construction firms in the Interior and on the coast. I would often have to brief construction lawyers on our work and they kept telling me I should go back to law school. So I did!

In 2014 I enrolled at UBC Law and in 2017 I started working at a boutique construction law firm. I then moved over to a national firm before launching my own firm in 2020.

What is construction law? 

A lot of lawyers specialize in specific areas. Usually solicitors draft agreements while litigators go to court. But construction lawyers do both because the work flows into one another. I work with some of the largest developers around town, trade contractors and material suppliers in all aspects of the construction process.

Lots of things come up in construction like the flow of payments, collection of money, lien claims and enforcement, etc. You can see how drafting agreements would then flow into going to court, such as when drafting and amending contracts.

It’s a very interesting area of real estate law – at least I think so!

What are CCDC and CCA contracts?

In construction, there’s always been a problem of how to structure contracts. Traditionally you have the owner of the land, a general contractor and then the trades underneath them.

If I’m representing the general contractor, I’m going to have their best interest in mind. But if a lawyer doesn’t understand the dynamics in this industry, they may draft a contract that is so inequitable to the other party that it creates a lot of friction for everyone. You need an equitable agreement from day one.

So what the industry did was draft these standard form contracts. The CCDC (Canadian Construction Documents Committee) and CCA (Canadian Construction Association) are the entities behind these documents. Owners, consultants, trade contractors and general contractors all contributed to creating these standard form documents so they would be fair to all of the parties involved.

There are many agreements under each of these entities, which are then required to be amended for each project by a construction lawyer.

Why are issues like underpinning and air space so important for developers?

If you own a property, you have strict borders that flow into the air and below ground. I cannot start digging and stick something underground into my neighbour’s lot without their permission. If I want to enter their land, I need permission. And it’s best to get it in writing to register on title.

This would apply to both digging an anchor underground and crane overswing agreements aboveground. You need the neighbouring lot’s authorization. You want to discuss the situation with your neighbour proactively and explain how you’re reducing the risk to their lot and property.

You want to create an idea of reciprocity between the properties. The neighbouring lot will receive a right of reciprocity; if they ever want to build their own tower, they would have a right to swing their crane into your lot just like you did to theirs. That way, their land benefits too. This would be the same thing for underpinning anchors underground.

You want to always treat your neighbour with respect and reach out to them proactively. Or else your site could be shut down for nuisance or trespassing.

What happens if a neighbour says no to cranes swinging over their property?

This happens all the time. The truth is money talks. You may be able to get the neighbour to agree for a certain amount of money.

If they still don’t agree, there is law developing in this area. The courts have acknowledged that if you decide to live in a densifying area, you must reasonably expect construction to take place. They will weigh the benefit of stopping a massive development of 175 units vs one person who doesn’t want a crane swinging over their backyard.

Before it reaches the courts, you try to send letters and make reasonable offers. But if someone doesn’t want to play ball, such is life. The developer will then have to make a business decision about whether to go ahead with the construction or not.

If the developer does go ahead and the neighbour decides to seek out a court injunction to shut down the site, the developer could rely on their paper trail in a court hearing. They could show they tried to give the neighbour reasonable opportunity and compensation.

Is speaking with neighbours typically part of a developer’s due diligence before making a purchase? 

That’s probably a better question for someone in development who purchases properties. But in my experience, this process usually happens once the land has been purchased and rezoned.

These conversations usually happen once the signs have gone up for an input hearing from the community. Before then, you don’t know where your crane paths will be, what excavation you’ll do, etc.

What are the chances the court will side with the developer over the neighbour who doesn’t want cranes swinging over their backyard? 

It depends on if the neighbour has a strong argument. For example, if the neighbour has a laneway unit tenanted by a family with kids and the developer wants to swing over it 10 times a day with a 10,000 lb counterweight, they might have a reasonable case.

But if the neighbour is being unreasonable, the court will likely not grant the injunction. And even if the court did grant it, it would only be for a limited amount of time to amend the proposal or allow the parties to come together.

The neighbour may even be ordered to pay costs if they shut down a site and it’s later found to be unreasonable. They may have to pay thousands or hundreds of thousands of dollars in delayed costs.

What type of contracts are needed in the tenant improvement process?

Tenant improvement is generally done via the CM (construction management) model where you pay someone a fee of the cost of construction. There’s a cost plus model or stipulated sum model. With the cost plus model, a contractor may approach you and say you’ll pay all of the costs of construction plus a percentage fee for overhead and profit. With a stipulated sum model, there would just be a flat rate for the work.

A lot of the TI (tenant improvement) agreements are drafted from scratch. The scope is undefined, so many contractors will do a cost plus model to limit risks for both themselves and the owner. The cost plus model in most cases is the best way forward.

What needs to go into a contract between a landlord and a tenant if the tenant is doing TI work? 

With newer units that are commercial-strata, landlords need to be extremely careful. When a tenant starts their tenant improvements, it’s up to the owner to make sure the base building components are not damaged in a way that impacts the building or other tenants.

You also want to make sure tenants are aware of any by-laws that might arise and that they have firm start and end dates to the work. The owner needs to make sure their contract is up to date on tenant improvements. They need clauses that will deal with any potential problems. It’s smart to consult a good lawyer who specializes in leases.

What happens if a tenant finishes half of a build out, damages the building and then just leaves?

Generally under a lease agreement you’d have indemnification clauses and you’d ensure tenants take out construction insurance. The contractor would also have liability insurance. So the landlord could collect from those insurance policies.

There would be damages to be claimed from a broken lease and loss of rental income. But then you have the issue of a specialized build out, such as lab space, that may not work for the next tenants. It’s a complicated issue. The first step would be to try and resolve it amicably with the tenant but if that isn’t possible, it might result in the landlord taking a significant loss.

The 6 Pack: Getting to Know Sportschuetz & Co construction lawyer, Tim Sportschuetz

Favourite bar or restaurant?

Without a doubt, Joe Fortes.

What would your last meal be on death row?

Two large Carano pizzas from Fraser Street.

Favourite band?

It has to be Nickelback! Jokes aside, I love Elton John. I just went to his concert with my wife and he was amazing.

What is your go-to karaoke song?

I have no idea. My favourite song is Working Class Hero but I think that would put everyone to sleep. Maybe Tiny Dancer so everyone sings with me.

A book recommendation for our listeners

Anything Hemingway. To Have and Have Not and For Whom the Bell Tolls are both amazing.

What is something you’ve purchased recently for under $1500 that has positively impacted your life? 

I would say my stationary bike. It might not be under $1500 but it’s close. I ride it every day and it’s great.

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Vancouver Commercial Real Estate Podcast

For all the curious minds interested in commercial real estate investing, grab a coffee and pull up a chair because we have exclusive stories and tips from commercial real estate brokers, investors, developers, economists, urban planners, and everyone in-between. From the successes and failures to the motivations and lessons learned, the Vancouver Commercial Real Estate Podcast is your insight into commercial real estate in Vancouver, Victoria, Kelowna, and beyond.

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.