One thing that nearly everyone can agree on is that California is expensive, especially the real estate. Some developers may search for ways to keep costs under control without sacrificing the quality they envision. It may be worth exploring whether to act as both the developer, or property owner, and the construction contractor.
Having more control over the construction process may be on nearly every developer’s list, but it is not always a good idea. Wearing these two hats requires finesse. Without establishing some clear lines between the two roles, that monetary savings could quickly disappear.
If a developer wants to handle construction as well as ownership, setting up separate companies could keep the roles compartmentalized. This means entering into contracts with each entity as a party. The expectations of both sides get outlined in writing, which keeps each side accountable to the other.
Each party involved in the project needs the ability to assert its own rights under the applicable laws. In contrast, each side must respect the rights of the other. Separating the two roles into separate companies also helps keep costs low since construction contracts will outline cost estimates, materials estimates and deadlines. Without these parameters, a project can spiral out of control.
It is possible for California developers to also act as construction contractors, but the process requires delicate handling to keep a project on track. Even when the separation is more on paper than in reality, often the documentation makes or breaks the relationship. Contracts keep everyone and everything in line. In order to properly set up this relationship between the roles of developer and construction contractor, developers will more than likely need professional assistance with business formation, contracts and more.
