Entitlement Risk 101: How to Structure Land Deals When Approvals Take Time
ASK:
We’ve got a great site, but entitlements might take a year or more. How do I structure the deal so I’m not overexposed during approvals?
ANSWER:
Entitlements are where real estate deals are won or lost. You can find a perfect site, negotiate great terms, and still lose money if your structure doesn’t account for entitlement risk.
At I&D Consulting, we see it every week: buyers rush to contract without aligning risk, control, and timing, and end up trapped between a seller, a lender, and a city that move at different speeds.
Understanding Entitlement Risk
Entitlement risk is the uncertainty that your project will receive the necessary approvals on time or at all. It’s a financial and timeline risk rolled into one.
You can’t eliminate it, but you can design deals that protect you from it.
Three Structures That Work
- Option Agreements
Instead of buying the land outright, you secure an option to purchase once approvals are obtained. This keeps your capital protected while you work through the process. - Extended Escrows with Milestones
Escrow periods tied to entitlement milestones (like submittal acceptance or planning commission approval) allow you to stay under contract while limiting exposure. - Joint Development Agreements
In public-private or landlord partnerships, risk is shared. The landowner contributes the site, while you handle entitlements and construction. Compensation is tied to success.
Critical Deal Terms
- Feasibility Periods: Give yourself enough time to assess risk before deposits go hard.
- Automatic Extensions: Add automatic triggers if agencies delay approvals beyond your control.
- Refundable Deposits: Keep funds refundable until key milestones are achieved.
- Reversion Clauses: If approvals fail, ownership or rights revert cleanly without dispute.
Why Timing Is Everything
Most entitlement approvals take longer than anticipated. Deals collapse when timelines are rigid but approvals aren’t.
We help clients model “what if” scenarios: what if hearings push a quarter, what if redesigns are required, what if a condition adds cost. When those are built into your contract, they don’t become emergencies later.
KEY TAKEAWAYS:
- Entitlement risk is unavoidable, but manageable.
- Structure deals with flexible timelines and milestone triggers.
- Protect capital until approvals are secured.
People Also Ask
1) How long should an entitlement contingency last?
Typically 6–12 months depending on jurisdiction and complexity.
2) What happens if the city denies approvals?
Contracts with reversion clauses allow both parties to walk away cleanly.
3) How do I negotiate extensions with a seller?
Tie extensions to measurable progress like submittal dates or scheduled hearings to build trust.
