NOTE 15 • COMMITMENTS AND CONTINGENCIES

Ground Leases. As of April 30, 2014, the Company is a tenant under operating ground or air rights leases on twelve of its properties. The Company pays a total of approximately $500,000 per year in rent under these ground leases, which have remaining terms ranging from 1.5 to 87 years, and expiration dates ranging from October 2015 to October 2100. The Company has renewal options for six of the twelve ground leases, and rights of first offer or first refusal for the remainder.

The expected timing of ground and air rights lease payments as of April 30, 2014 is as follows:

		(in thousands)
Year Ended April 30,		Lease Payments
2015	$		506
2016			478
2017			449
2018			449
2019			449
Thereafter			21,213
Total	$		23,544

Legal Proceedings. IRET is involved in various lawsuits arising in the normal course of business. Management believes that such matters will not have a material effect on the Company's consolidated financial statements.

Environmental Matters. It is generally IRET's policy to obtain a Phase I environmental assessment of each property that the Company seeks to acquire. Such assessments have not revealed, nor is the Company aware of, any environmental liabilities that IRET believes would have a material adverse effect on IRET's financial position or results of operations. IRET owns properties that contain or potentially contain (based on the age of the property) asbestos or lead, or have underground fuel storage tanks. For certain of these properties, the Company estimated the fair value of the conditional asset retirement obligation and chose not to book a liability, because the amounts involved were immaterial. With respect to certain other properties, the Company has not recorded any related asset retirement obligation, as the fair value of the liability cannot be reasonably estimated, due to insufficient information. IRET believes it does not have sufficient information to estimate the fair value of the asset retirement obligations for these properties because a settlement date or range of potential settlement dates has not been specified by others, and, additionally, there are currently no plans or expectation of plans to sell or to demolish these properties, or to undertake major renovations that would require removal of the asbestos, lead and/or underground storage tanks. These properties are expected to be maintained by repairs and maintenance activities that would not involve the removal of the asbestos, lead and/or underground storage tanks. Also, a need for renovations caused by tenant changes, technology changes or other factors has not been identified.

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 April 30, 2014, the Company is committed to fund $9.7 million in tenant improvements, within approximately the next 12 months.

Purchase Options. We have granted options to purchase certain of our properties to tenants in these properties, under lease agreements with the tenant. In general, these 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 to us. As of April 30, 2014, 15 of our properties were subject to purchase options, and the total investment cost, plus improvements, of all such properties was $120.5 million with total gross rental revenues in fiscal year 2014 of $9.8 million.

NOTE 15 • continued

Restrictions on Taxable Dispositions. Approximately 110 of the Company's properties, consisting of approximately 5.5 million square feet of our combined commercial segment's properties and 4,953 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 approximately $814.5 million at April 30, 2014. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally prevent us from selling the properties in taxable transactions. The Company does not believe that the agreements materially affect the conduct of its business or its decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and its other properties for investment purposes, rather than for sale. Historically, however, where the Company has deemed it to be in its shareholders' best interests to dispose of restricted properties, the Company 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 April 30, 2014 and 2013, the aggregate redemption value of the then-outstanding UPREIT Units of the operating partnership owned by limited partners was approximately $185.7 million and $209.7 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 these agreements do not generally require that the Company buy its partners' interests. During the third quarter of fiscal year 2012, IRET acquired its joint venture partner's interest in the joint venture entity owner of the Company's Golden Hills office property in Golden Valley, Minnesota, at that time the Company's only joint venture which allowed IRET's unaffiliated partner, at its election, to require that IRET buy its interest at a purchase price to be determined in accordance with the terms of the agreement. The Company currently has one joint venture, the Company's Southgate apartment project in Minot, North Dakota, in which the Company's joint venture partner can, for a four-year period beginning twelve months after the last certificate of occupancy is received for the project, compel the Company to acquire the partner's interest, for a price to be determined in accordance with the provisions of the joint venture agreement.

Development, Expansion and Renovation Projects. The Company has various contracts outstanding with third parties in connection with development, expansion and renovation projects that are underway or recently completed, the costs for which have been capitalized. As of April 30, 2014, contractual commitments for these projects are as follows:

NOTE 15 • continued

			(in thousands)
Project Name and Location	Planned Segment	Square Feet or Number of Units	Anticipated Total Cost		Costs as of April 30, 2014⁽¹⁾		Loans Closed or Committed		Anticipated Construction Completion
Dakota Commons - Williston, ND	Multi-Family Residential	44 units	$	10,736	$	9,013	$	0	FY2015 Q1
Commons at Southgate - Minot, ND⁽²⁾	Multi-Family Residential	233 units		37,201		28,065		24,480	FY2015 Q2
Cypress Court II – St. Cloud, MN⁽³⁾	Multi-Family Residential	66 units		7,028		1,580		4,200	FY2015 Q3
Arcata - Golden Valley, MN	Multi-Family Residential	165 units		33,448		13,018		24,250	FY2015 Q3
Red 20 - Minneapolis, MN⁽⁴⁾	Multi-Family Residential and Commercial	130 units and 10,625 sq ft		29,462		13,980		21,726	FY2015 Q3
Renaissance Heights I - Williston, ND⁽⁵⁾	Multi-Family Residential	288 units		62,362		39,017		43,672	FY2015 Q4
Chateau II - Minot, ND⁽⁶⁾	Multi-Family Residential	72 units		14,711		2,098		0	FY2015 Q4
Cardinal Point - Grand Forks, ND	Multi-Family Residential	251 units		40,042		6,829		24,500	FY2016 Q1
Other	n/a	n/a		n/a		2,496		n/a	n/a
			$	234,990	$	116,096	$	142,828

(1)	Includes costs related to development projects that are placed in service in phases (Renaissance Heights I - $11.5 million).

(2)	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.

(3)	The Company is an approximately 86.1% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity.

(4)	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.

(5)	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.

(6)	On December 5, 2013, this development project was destroyed by fire. As of April 30, 2014, $6.1 million of expected insurance proceeds were included in accounts receivable on the Company's consolidated balance sheet. 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.