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Improvement Exchange

The Improvement, Construction or Build to Suit Exchange occurs when the Exchanger uses exchange proceeds to improve (i.e. make capital improvements) existing property or to improve or develop new replacement property. The improvement exchange can occur in the context of a delayed or reverse exchange. In the context of the delayed exchange - the Exchanger first sells the relinquished property using a Qualified Intermediary. Once the sale of the relinquished property is complete, the Exchanger has 45 days to identify the replacement property. *Thereafter, the Exchanger enters into a purchase and sale contract for the replacement property and enters into a written Qualified Exchange Accommodation Agreement ("QEAA") with the QI's Exchange Accommodation Titleholder ("EAT"). The Exchanger then assigns the rights to the purchase and sale agreement to the EAT who uses the exchange proceeds to acquire title to the replacement property and complete the identified improvements. Upon completion of the improvements, or at the end of the 180th day, whichever is earlier, the EAT will transfer title to the newly improved replacement property to the Exchanger. If - in addition to the exchange proceeds - construction financing is required to complete the improvements, the EAT will become the borrower under a non-recourse note and deed of trust. When the EAT transfers the property to the Exchanger, the Exchanger is substituted as the borrower and assumes the construction financing.

*The same time frames apply to the improvement exchange in that the replacement property and its improvements must be identified within 45 calendar days. If the replacement property is to be produced, the identification requirement is satisfied if a legal description is provided for the underlying land and as much detail is provided regarding construction of the improvements as is practical when the identification is made. It is critical that the Exchanger receive improvements/replacement property that are/is substantially the same as the improvements/replacement property identified. Likewise, the improvements must be completed and title conveyed by the EAT to the Exchanger within the earlier of 180 calendar days from the close of the relinquished property or the tax filing date for the Exchanger - assuming no automatic extension has been applied for.

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