NOTE 6 • COMMITMENTS AND CONTINGENCIES

Litigation. The Company is not a party to any legal proceedings which are expected to have a material effect on the Company's liquidity, financial position, cash flows or results of operations. The Company is subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by liability insurance. Various claims of resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material effect on the Company's liquidity, financial position, cash flows or results of operations.

Insurance. IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties and are sufficient to achieve IRET's risk management objectives.

Purchase Options. The Company has granted options to purchase certain IRET properties to tenants in these properties, under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property's appraised value or an annual compounded increase of a specified percentage of the initial cost of the property to IRET. As of January 31, 2014, the total property cost of the 14 properties subject to purchase options was $113.4 million, and the total gross rental revenue from these properties was $7.2 million for the nine months ended January 31, 2014.

Environmental Matters. Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While IRET currently has no knowledge of any material violation of environmental laws, ordinances or regulations at any of its properties, there can be no assurance that areas of contamination will not be identified at any of the Company's properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to the Company.

Restrictions on Taxable Dispositions. Approximately 110 of IRET's properties, consisting of 5.5 million square feet of the Company's combined commercial segments' properties and 5,068 apartment units, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties. The real estate investment amount of these properties (net of accumulated depreciation) was $854.4 million at January 31, 2014. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally prevent the Company from selling the properties in taxable transactions. The Company does not believe that the agreements materially affect the conduct of the Company's business or decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and the Company's other properties for investment purposes, rather than for sale. Historically, however, where IRET has deemed it to be in the shareholders' best interests to dispose of restricted properties, it has done so through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code.

Redemption Value of UPREIT Units. The limited partnership units ("UPREIT Units") of the Company's operating partnership, IRET Properties, are redeemable at the option of the holder for cash, or, at our option, for the Company's common shares of beneficial interest on a one-for-one basis, after a minimum one-year holding period. All UPREIT Units receive the same cash distributions as those paid on common shares. UPREIT Units are redeemable for an amount of cash per Unit equal to the average of the daily market price of an IRET common share for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of January 31, 2014 and 2013, the aggregate redemption value of the then-outstanding UPREIT Units of the operating partnership owned by limited partners was approximately $186.9 million and $198.9 million, respectively.

Joint Venture Buy/Sell Options. Certain of IRET's joint venture agreements contain buy/sell options in which each party under certain circumstances has the option to acquire the interest of the other party, but do not generally require that the Company buy its partners' interests. The Company currently has no joint ventures in which its joint venture partner can require the Company to buy the partner's interest.

Tenant Improvements. In entering into leases with tenants, IRET may commit itself to fund improvements or build-outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and IRET is accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of January 31, 2014, the Company is committed to fund $7.3 million in tenant improvements, within approximately the next 12 months.

Development, Expansion and Renovation Projects. As of January 31, 2014, the Company had several development, expansion and renovation projects underway or recently completed, the costs for which have been capitalized, as follows:

			(in thousands)				Final or Anticipated Construction Completion
Project Name and Location	Planned Segment	Total Rentable Square Feet or Number of Units	Anticipated Total Cost		Costs as of January 31, 2014		Quarter	Fiscal Year
River Ridge - Bismarck, ND⁽¹⁾	Multi-Family Residential	146 units	$	25,863	$	24,818	3	2014
Cypress Court - St. Cloud, MN⁽²⁾	Multi-Family Residential	132 units		14,322		13,583	3	2014
Dakota Commons - Williston, ND	Multi-Family Residential	44 units		10,736		6,139	1	2015
Commons at Southgate - Minot, ND⁽³⁾	Multi-Family Residential	233 units		37,201		23,492	2	2015
Renaissance Heights I - Williston, ND⁽⁴⁾	Multi-Family Residential	288 units		62,362		33,934	2	2015
Arcata - Golden Valley, MN	Multi-Family Residential	165 units		33,151		9,250	2	2015
RED 20 - Minneapolis, MN⁽⁵⁾	Multi-Family Residential and Commercial	130 units and 10,625 sq ft		29,462		9,333	2	2015
Chateau II - Minot, ND⁽⁶⁾	Multi-Family Residential	72 units		14,711		1,741	4	2015
Cardinal Point - Grand Forks, ND	Multi-Family Residential	251 units		40,042		4,986	4	2015
			$	267,850	$	127,276

(1)	The project was substantially completed in the third quarter of the Company's fiscal year 2014.

(2)

The project was substantially completed in the third quarter of the Company's fiscal year 2014.The Company is an approximately 86% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. The joint venture's results are consolidated in the Company's financial statements.

(3)	The Company is an approximately 51% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. The joint venture's results are consolidated in the Company's financial statements.

(4)	The Company is an approximately 70% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. The joint venture's results are consolidated in the Company's financial statements.

(5)	The Company is an approximately 58.6% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. The joint venture's results are consolidated in the Company's financial statements.

(6)	On December 5, 2013, this development project was destroyed by fire. See Note 2 for additional information.

These development projects are subject to various contingencies, and no assurances can be given that they will be completed within the time frames or on the terms currently expected.

Construction interest capitalized for the three month periods ended January 31, 2014 and 2013, respectively, was approximately $778,000 and $157,000 for development projects completed and in progress. Construction interest capitalized for the nine month periods ended January 31, 2014 and 2013, respectively, was $2.1 million and approximately $438,000 for development projects completed and in progress.

Pending Acquisitions. As of January 31, 2014, the Company had signed purchase agreements for the acquisition of the following properties. These pending acquisitions are subject to various closing conditions and contingencies, and no assurances can be given that the transactions will be completed on the terms currently proposed, or at all:

·	two parcels of vacant land in Rapid City, South Dakota, totaling approximately 10.8 acres, for a purchase price of $1.4 million, to be paid in cash;

·	two multi-family residential properties in Rapid City, South Dakota, with 152 and 52 units, respectively, for a total purchase price of approximately $18.3 million, of which $6.0 million is to be paid in cash with assumed debt of $12.3 million;

·	an approximately 11.0-acre parcel of vacant land in Brooklyn Park, Minnesota, for a purchase price of $2.5 million, to be paid in cash; and

·	an approximately 35.0-acre parcel of vacant land in Bismarck, North Dakota, for a purchase price of $4.3 million, to be paid in cash.