NOTE 18. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of its business. While the outcome of the legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon our financial condition or results of operations.

On November 21, 2011, the Company, Indigo Mallard Creek LLC and Indigo Development LLC, as owners of the property leased to Harris Teeter, Inc. (“Harris Teeter”) in Charlotte, North Carolina, were served with pleadings filed in the General Court of Justice, Superior Court Division for Mecklenburg County, North Carolina, for a highway condemnation action involving this property. The proposed road modifications would impact access to the property. The Company does not believe the road modifications provided a basis for Harris Teeter to terminate the Lease. Regardless, in January 2013, the North Carolina Department of Transportation (“NCDOT”) proposed to redesign the road modifications to keep the all access intersection open for ingress with no change to the planned limitation on egress to the right-in/right-out only. Additionally, NCDOT and the City of Charlotte proposed to build and maintain a new access road/point into the property. Construction has begun and is not expected to be completed before mid-2018 to 2019. Harris Teeter has expressed satisfaction with the redesigned project and indicated that it will not attempt to terminate its lease if this project is built as currently redesigned. Because the redesigned project will not be completed until mid-2018 to 2019, the condemnation case has been placed in administrative closure. As a result, the trial and mediation will not likely be scheduled until requested by the parties, most likely in 2019.

On April 5, 2018, a complaint was filed in the United States District Court for the Eastern District of New York (the “Complaint”) which alleges that certain aspects of Proposal 4 (the “Equity Plan Proposal”) contained in the Company’s Notice of Annual Meeting of Shareholders and 2018 Proxy Statement filed with the SEC on March 12, 2018 (the “2018 Proxy Statement”) do not comply with the disclosure requirements for proxy statements pursuant to SEC regulations. The Complaint alleges that the Equity Plan Proposal does not state the number of participants, employees, and nonemployee directors of the Company and its subsidiaries who may be eligible to participate in the Company’s equity incentive plan (the “CTO Equity Plan”). The Complaint seeks injunctive relief and an award of attorney’s fees and expenses. While the Company believes the 2018 Proxy Statement is compliant with applicable SEC disclosure rules and that the Complaint is without merit, the Company voluntarily made a supplemental disclosure in its additional proxy materials reiterating that the Company currently has 14 employees and 7 nonemployee directors, and that the Company’s subsidiaries have no employees, and therefore the total number of persons currently eligible to receive equity awards under the CTO Equity Plan is 21.

Contractual Commitments – Expenditures

In conjunction with the Company’s sale of approximately 3.4 acres of land to RaceTrac in December 2013, the Company agreed to reimburse RaceTrac for a portion of the costs for road improvements and the other costs associated with bringing multiple ingress/egress points to the entire 23-acre Williamson Crossing site, including the Company’s remaining 19.6 acres. The estimated cost for the improvements equals approximately $1.26 million and the Company’s commitment is to reimburse RaceTrac in an amount equal to the lesser of 77.5% of the actual costs or $976,500. The Company’s commitment to fund the improvement costs benefiting the remaining acres of Company land can be paid over five years from sales of the remaining land or at the end of the fifth year. In 2013 the Company deposited $283,500 of cash in escrow related to the improvements, which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of March 31, 2018 was approximately $288,000, including accrued interest. Accordingly, as of March 31, 2018, the remaining maximum commitment is approximately $689,000.

In conjunction with the Company’s sale of approximately 18.1 acres of land to an affiliate of Sam’s Club (“Sam’s”) in December 2015, the Company agreed to reimburse Sam’s for a portion of their construction costs applicable to adjacent outparcels retained by the Company. As a result, in December 2015, the Company deposited $125,000 of cash in escrow related to construction work which is classified as restricted cash in the consolidated balance sheets. The total amount in escrow as of March 31, 2018 was approximately $125,000, including accrued interest. Accordingly, the Company’s maximum commitment related to the construction work benefitting the outparcels adjacent to Sam’s land parcel is approximately $125,000, to be paid from escrow upon completion.

During April of 2018, the Company executed a contract with a third-party to complete tenant improvements at The Grove at Winter Park property in Winter Park, Florida for a total of approximately $626,000. The Company has not incurred any of these costs as of March 31, 2018, leaving a remaining commitment of approximately $626,000.

In connection with the Golf Course Land Purchase, each year the Company is obligated to pay the City additional

consideration in the amount of an annual surcharge of $1 per golf round played (the “Per-Round Surcharge”) with an

annual minimum Per-Round Surcharge of $70,000 and a maximum aggregate amount of the Per-Round Surcharges paid

equal to $700,000. The maximum amount of $700,000 represents contingent consideration and was recorded as an

increase in Golf Buildings, Improvements, and Equipment and Accrued and Other Liabilities in the accompany

consolidated balance sheets during the year ended December 31, 2017. The first annual payment of $70,000 was made in January of 2018, leaving a remaining commitment of $630,000 as of March 31, 2018.

Contractual Commitments – Land Pipeline

On April 16, 2018, the Company executed an agreement with funds and accounts managed by an investment advisory subsidiary of BlackRock Inc. (“BlackRock”) to sell, for $15.3 million, an approximately 70% interest in a to-be-formed mitigation bank joint venture, comprising approximately 2,500 acres of land. Closing is contingent on applicable permitting for a wetlands mitigation bank, which is expected to occur during the second quarter of 2018.

As of May 1, 2018, the Company’s pipeline of potential land sales transactions included the following seventeen potential transactions with fifteen different buyers, representing approximately 6,000 acres or approximately 74% of our land holdings:


		No. of	Amount		Price		Estimated
	Transaction (Buyer)	Acres	($000's)		per Acre		Timing
1	Commercial/Retail - O'Connor - East of I-95 (2)	123	$	29,250	$	238,000	'18 - '19
2	Residential (AR) - Minto Communities - West of I-95	1,614		26,500		16,000	Q4 '18
3	Residential (SF) - ICI Homes - West of I-95	1,016		21,000		21,000	'19
4	Mitigation Bank - BlackRock - West of I-95 (1)	2,492		15,300		6,000	Q2 '18
5	Mixed-Use Retail - North American - East of I-95 (3)	35		14,362		409,000	Q4 '18
6	Residential (Multi-Family) - East of I-95 (4)	45		5,200		116,000	Q3 '18 & '20
7	Distribution/Warehouse - VanTrust - East of I-95	71		5,000		70,000	'19
8	Commercial/Retail - East of I-95	20		4,250		213,000	Q4 '18 - '19
9	Residential (SF) - West of I-95 (5)	200		3,324		17,000	Q4 '18 & '20
10	Commercial/Retail - East of I-95	9		3,300		367,000	Q4 '18
11	Commercial/Distribution - VanTrust - East of I-95	26		3,215		124,000	Q4 '18 - '19
12	Auto Dealership - West of I-95	13		2,000		154,000	Q4 '18
13	Commercial (RV) - West of I-95	164		1,900		12,000	'19
14	Residential (SF) - ICI Homes - West of I-95	146		1,400		10,000	Q4 '18
15	Commercial/Retail - East of I-95	8		782		98,000	Q4 '18
16	Commercial/Retail - East of I-95	6		625		104,000	Q4 '18
17	Commercial/Retail - West of I-95	19		285		15,000	Q4 '18
	Total (Average)	6,007	$	137,693	$	23,000

(1)The amount for the Mitigation Bank represents the amount for buyer’s acquisition of approximately 70% of the joint venture that owns the Mitigation Bank, with the Company retaining 30%.

(2)Land sales transactions which require the Company to incur the cost to provide the requisite mitigation credits necessary for obtaining the applicable regulatory permits for the buyer, with such costs representing either our basis in the credits that we own, or potentially up to 5% - 10% of the contract amount noted.

(3)Pursuant to the contract, amount includes the reimbursement of infrastructure costs incurred by the Company for Tomoka Town Center plus interest accrued as of March 31, 2018.

(4)The acres and amount include the buyer’s option to acquire approximately 19 acres for approximately $2.0 million, in addition to the base contract of approximately 26 acres for approximately $3.2 million.

(5)The acres and amount include the buyer’s option to acquire approximately 71 acres for approximately $574,000, in addition to the base contract of approximately 129 acres for approximately $2.75 million.

As noted above, these agreements contemplate closing dates ranging from the second quarter of 2018 through fiscal year 2020, and although some of the transactions may close in 2018, the buyers are not contractually obligated to close until after 2018. Each of the transactions are in varying stages of due diligence by the various buyers including, in some instances, having made submissions to the planning and development departments of the City of Daytona Beach, and other permitting activities with other applicable governmental authorities including wetlands permits from the St. John’s River Water Management District and the U.S. Army Corps of Engineers and traffic analysis with the Florida Department of Transportation and Volusia County. In addition to other customary closing conditions, the majority of these transactions are conditioned upon the receipt of approvals or permits from those various governmental authorities, as well as other matters that are beyond our control. If such approvals are not obtained, the prospective buyers may have the ability to terminate their respective agreements prior to closing. As a result, there can be no assurances regarding the likelihood or timing of any one of these potential land transactions being completed or the final terms thereof, including the sales price.

Other Matters

In connection with a certain land sale contract to which the Company is a party, the purchaser’s pursuit of customary development entitlements gave rise to an inquiry by federal regulatory agencies regarding prior agricultural activities by the Company on such land. During the second quarter of 2015, we received a written information request regarding such activities. We submitted a written response to the information request along with supporting documentation. During the fourth quarter of 2015, based on discussions with the agency, a penalty related to this matter was deemed probable, and accordingly the estimated penalty of $187,500 was accrued as of December 31, 2015, for which payment was made during the quarter ended September 30, 2016. Also during the fourth quarter of 2015, the agency advised the Company that the resolution to the inquiry would likely require the Company to incur costs associated with wetlands restoration relating to approximately 148.4 acres of the Company’s land. At December 31, 2015, the Company’s third-party environmental engineers estimated the cost for such restoration activities to range from approximately $1.7 million to approximately $1.9 million. Accordingly, as of December 31, 2015, the Company accrued an obligation of approximately $1.7 million, representing the low end of the estimated range of possible restoration costs, and included such estimated costs on the consolidated balance sheets as an increase in the basis of our land and development costs associated with those and benefitting surrounding acres. As of June 30, 2016, the final proposal from the Company’s third-party environmental engineer was received reflecting a total cost of approximately $2.0 million. Accordingly, an increase in the accrual of approximately $300,000 was made during the second quarter of 2016. The Company has funded approximately $1.3 million of the total $2.0 million of estimated costs through March 31, 2018. The Company believes there is at least a reasonable possibility that the estimated remaining liability of approximately $700,000 could change within one year of the date of the consolidated financial statements, which in turn could have a material impact on the Company’s consolidated balance sheets and future cash flows. The Company evaluates its estimates on an ongoing basis; however, actual results may differ from those estimates.

During the first quarter of 2017, the Company completed the sale of approximately 1,581 acres of land to Minto Communities LLC which acreage represents a portion of the Company’s remaining $708,000 obligation. Accordingly, the Company deposited $423,000 of cash in escrow to secure performance on the obligation. The funds in escrow can be drawn upon completion of certain milestones including completion of restoration and annual required monitoring. The first such milestone was achieved during the fourth quarter of 2017 and $189,500 of the escrow was refunded leaving an escrow balance of approximately $234,000 as of March 31, 2018. Additionally, resolution of the regulatory matter required the Company to apply for an additional permit pertaining to an additional approximately 54.66 acres, which permit may require mitigation activities which the Company anticipates could be satisfied through the utilization of existing mitigation credits owned by the Company or the acquisition of mitigation credits. Resolution of this matter allowed the Company to obtain certain permits from the applicable federal or state regulatory agencies needed in connection with the closing of the land sale contract that gave rise to this matter. As of June 30, 2017, the Company determined that approximately 36 mitigation credits were required to be utilized, which represents approximately $298,000 in cost basis of the Company’s mitigation credits. Accordingly, the Company transferred the mitigation credits through a charge to direct cost of revenues of real estate operations during the three months ended June 30, 2017, thereby resolving the required mitigation activities related to the approximately 54.66 acres. In addition, in connection with other land sale contracts to which the Company is or may become a party, the pursuit of customary development entitlements by the potential purchasers may require the Company to utilize or acquire mitigation credits for the purpose of obtaining certain permits from the applicable federal or state regulatory agencies. Any costs incurred in connection with utilizing or acquiring such credits would be incorporated into the basis of the land under contract. No amounts related to such potential future costs have been accrued as of March 31, 2018.

During the period from the fourth quarter of 2015 through the first quarter of 2016, the Company received communications from Wintergreen Advisers, LLC (“Wintergreen”), some of which have been filed publicly. In investigating Wintergreen’s allegations contained in certain of these communications, in pursuing the strategic alternatives process suggested by Wintergreen, and in engaging in a proxy contest in 2017, the Company has incurred costs of approximately $3.0 million, to date, through December 31, 2017. Approximately $1.6 million of the approximately $3.0 million was incurred during the year ended December 31, 2017, of which approximately $1.2 million is specifically for legal representation and third-party costs related to the proxy contest. During the three months ended March 31, 2018, the Company incurred approximately $523,000, which includes legal representation and third-party costs related shareholder matters including the proxy contest in 2018. None of Wintergreen’s allegations, which included allegations regarding inadequate disclosure and other wrong-doing by the Company and its directors and officers, were found to have any basis or merit.