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The latest missive from our friendly developer bloggers…When will Third + Bond be finished? We are asked this question at least as many times a week as there are Tea Party rallies. Our answer depends on who’s asking. If it’s the construction manager then we say, ‘When we have certificates of occupancy, temporary or permanent, the project will be substantially complete.

Completion at C of O doesn’t satisfy Kiska. They want to consider the project complete, or more specifically substantially complete today. They look around the site and say, Everything’s finished except for the punch list and some inspections. Why are they so eager? A certificate of Substantial Completion is typically signed by the architect and handed over to the construction lender. The lender uses this form, as well as a big pile of other paperwork like final lien waivers, to justify releasing the remaining funds held in retention until job completion (aside from some amount held for punch list). Often Substantial Completion is also used to demarcate the end of the contractor’s responsibility for general conditions which includes security, utilities, daily project manager oversight, insurance, etc. Putting the brakes on overhead costs for the construction manager is highly desirable, especially when they have new projects where they want to move personnel.

Substantial Completion is defined as…

…completion to the extent that the building can be occupied or used for its intended purpose. So, the elevator’s running, the electricity’s on, you can run a load of dishes, but the paint has to be touched up and there’s a couple of light switch plates to replace. We’re talking livable except for some nitty gritty punch list work. But what if there isn’t a certificate of occupancy so no one can actually move in?

Knowing the challenges of getting through the final paperwork at the Department of Buildings for a C of O, contractors argue that can be occupied refers to a physical state. Can someone live here in the manner of any other apartment building? But the developer is more likely to think of can be occupied in legal terms. If there’s no C of O, then buyers can’t close and that means the building can’t be occupied.
Handing over the certificate of Substantial Completion can mean losing the attention of the contractor, prolonging the punch list work. If they aren’t on the site all day, every day and if they aren’t worried about getting done quickly in order to minimize overhead, then final work can lag. That lag in work could further push the possibility of C of O and closings or even just the punch list work. The punch list work doesn’t have quite the same import as C of O but make no mistake, it does matter. In today’s sales climate, you want to put your best foot forward. You don’t want to tour buyers around a unit with a ventilation grate hanging by a screw over there and a fridge that needs to be hooked up over here. You want perfect, you want the punch list complete.

How do you solve this misalignment of interests? First you consult your contract for the precise language of substantial completion. Then you negotiate. It’s like everything else. When the context changes, you change with it. So long as you have a good business relationship and the challenges to completion are easily defined and cured, this is solvable. Don’t know if as much is true of the Tea Parties.

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Our legal fine print: The complete offering terms are in an Offering Plan available from Sponsor. File No. CD080490. Sponsor: Hudson Third LLC, 826 Broadway, New York, NY 10003.


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