Reducing Development Agreement Risks in Municipal Bankruptcies
Published in the spring edition of Commercial Real Estate Developement
As part of a bankruptcy, a city can assume or reject “executory contracts” — contracts under which material performance obligations remain such that a breach by a party would entitle the other party to terminate. However, if an executory contract, such as a Development Agreement, is rejected by a city, the developer has no ability to enforce its terms and conditions. Instead, the developer has a breach of contract claim against the city, which then becomes a part of the bankruptcy, meaning that the developer is usually able to recover a fraction of the investment.