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Greenfield Projects: Evergreen Projects

Although the COVID-19 pandemic results in a slowdown or even recession in the economy, there are still market players that are stable and even generating new investments, due to lack of available production, storage or other capacities.

Dr. Szilvia Andriska, Senior Associate Real Estate Investments, Noerr and Partners Law Firm

Many of these choose greenfield projects from the possible investment forms for realization of their plans. Indeed, numerous companies planning acquisition of existing production facilities have instead turned to greenfield projects because this allows to best realize tailor made plans. 

Companies undertaking greenfield investments are mainly closely involved from the very beginning. These projects require not only monitoring by the company itself, but the continuous and intense cooperation of all parties, such as the internal project management of the investor, engineers, designers, contractors, financial experts and lawyers.

The first step on this long road is the site selection process. The outcome of this is rather determined by business, logistic and other aspects aiming at the cost effective operation of the future plant, and of course by the availability of workforce. New investments providing a substantial number of new workplaces may expect state aid. With regard to that, the results of negotiations with different partners has a massive impact on the project; the involvement of participants, especially lawyers, from the beginning is crucial.

There are well known and favored cities which already have experience in attracting foreign investors, while others will be meeting this situation for the first time. Regardless, a feature of all greenfield projects is that they are time sensitive: the investor is bound by strict deadline, by which time the plant needs to be operational and delivery deadlines can be kept. Whether or not a site will be selected depends in many cases on the status of the given land: whether it is agricultural land or an area no longer used for this and thus removed from this classification, for example. The project can speed up if an economical, industrial property is already at hand with the right building parameters.

Although the time pressure is huge, a thorough due diligence procedure is essential. The process itself has to cover not only legal and technical questions, but also whether there are any environmental issues, how access to the plot can be ensured, whether there are any special rules to be met from water regulations or a nature conservation point of view, to mention a few. An accurate preliminary survey can help properly estimate the costs of the investment and prepare for future phases. Naturally, the purchase price will be clarified in the course of the negotiations and defined in the agreements to be signed.

In connection with construction on an untouched property, archaeology is also a factor: based on the current laws, in most cases the investors of greenfield projects need to procure preliminary archaeological documentation. The preparation of such a document in some cases requires certain archaeological excavation works, which, in the worstcase scenario, can take months. Places where the seller already has such documentation may be given a preference during the site selection process.

After the due diligence, the preparation and drafting of various agreements which have not been signed yet, can follow. The consultancy agreements, cooperation agreements generally are being performed by that time. All the agreements, such as the preliminary sale and purchase agreement, the sale and purchase agreement, and finally, the work and related contracts all serve as a tool for the investor to achieve the best and fastest way to implementation the investment. These agreements need to be worded properly with the purpose of completing the investment within the deadline prescribed. This includes that, although COVID-19 requires special health and safety conditions to be fulfilled, the agreements should not allow the construction companies to avoid their obligations by simply referring to the difficulties caused by COVID-19.

Greenfield projects represent the realization of a complex investment envisaged by the investor, with the addition of divergent efforts by all participants; this is one of the reasons making these projects evergreen.