Does Your Contract Have an “Eminent Domain” Clause?

By Rob Love, President

Good master planning shouldn't require a crystal ball.I was talking with the CEO of a Life Plan Community recently, and he told me how his community’s master planning process had come to a screeching halt. He had spent months working with an architect and a development consultant to create options for updating an older campus that had many dated residences. The resulting master plan did a great job of addressing a key campus need: Adding apartment-style residences that were directly connected to the community center, where the community’s dining, fitness, auditorium and most other major amenity spaces were located.

And then the plan—which was developed with resident representation and participation throughout—was presented to the full resident body.

The problem?

The new building was to go on a portion of the site that currently had a relatively small number of older, small cottages. And two of the affected residents immediately called their attorneys.

Turns out the community’s contract did not provide any ability for it to relocate residents, if needed, for reasons other than the health and safety of the residents themselves. Thus, that version of the master plan—for which the community had spent tens of thousands of dollars and a major amount of staff and management time—was shut down for good. He is now moving forward with a significantly different master plan, this one adding new apartments in two buildings that are several hundred feet away from the community center, with just a covered walkway connecting them.

This is an important lesson that you can and should act on now. Even if your community isn’t currently considering a master planning process, ensuring that you have the equivalent of an “eminent domain” clause in your resident contracts can save a lot of heartache down the road.

Many repositioning projects require migrating residents from older, unmarketable apartments or cottages to be able to create newer, more current inventory. And while relocating residents is rarely a simple process, it is made much easier if your contract provides you with some leeway to move them.

Here is sample language that we believe is fair to all parties, and which you can use as a starting point:

“You agree to move to a different residence if changes implemented by [Community] will eliminate or significantly change your residence. Such a move would only be required when deemed necessary by [Community] for the welfare of current or future residents, or for the continued successful operation of [Community]. You will be given at least sixty days (60) notice. All costs for your move will be paid by [Community]. [Community] will endeavor to provide you with a similar residence whenever possible. Improvements that you have made to your residence that you are vacating will be reimbursed by [Community] based on fair market value or, at [Community’s] option and expense, relocated or replicated in your new residence.”

Before adding this type of language to your community’s contracts, though, be certain to vet this with your legal team, as every state has different regulations.

While you most likely won’t be able to add an “eminent domain” type of clause to your existing contracts, doing so moving forward can make executing any future master plans or repositionings much, much easier when the time comes.

For more information on adding an eminent domain clause to your contracts or to discuss your master planning process, contact Tim Bracken at 410-207-0013, or Rick Hunsicker at 214-906-3801.

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