It is a challenging market for developers right now: increased construction costs, shifting demands in our post-pandemic world, increased regulation (e.g. the Building Safety Act), and uncertainty surrounding banking arrangements. Good legal planning at the earliest stage of any development is therefore critical. Kathryn Coveney and Frances Edwards identify four areas to prioritise...
Mitigate later delays
Any land assembly issues such as title ownership and boundary discrepancies should be identified and rectified or otherwise protected against (e.g. through insurance) early on. The proper identification of any third-party rights and constraints to delivery of the development should also be a high priority. Easements, including rights of light enjoyed by neighbouring owners, may need to be released or insurance obtained. Complexity can arise with residential neighbouring properties where tenants occupy under assured periodic tenancies with short rolling periods (i.e. a week), but rights of light have not been excluded or reserved to the landlord. These third-party negotiations to ensure that the development is fully de-risked for delivery can add substantial time and cost to the project, particularly if there are multiple parties or parties with a ransom position, so it is important that these are programmed for full investigation and resolution upfront.
Appreciate site nuances
It is not uncommon for due diligence of sites, particularly the more complex ones, to reveal nuances that have not been factored into the development programme. Any such nuances should be considered fully and factored in, ideally before settling on the site holding structure. For example, until we receive clarity from the Court of Appeal in the Vodafone v Gencomp case, intermediate leases should not be used where there are any telecoms apparatus on site with protected rights under the Electronic Communications Code which need to be terminated for the development to proceed. At present, both the superior landlord and any intermediate landlord would inadvertently find themselves unable to obtain possession under the Code and the land potentially could be sterile to development unless the rights are compromised (i.e. bought out). Another consideration should be whether there are any business tenancies protected under the Landlord and Tenant Act 1954. Following the Supreme Court's judgment in S. Franses Ltd v The Cavendish Hotel (London) Ltd [2018], certain holding structures put in place to allow the developer and landowner (to the extent they are not the same person) to prove a landlord's intention to redevelop to recover possession from the tenants may find themselves under increased scrutiny, again leading to delay and additional costs.
Ensure full liquidity
In the current economic climate, with increased interest rates and the pricing gap between seller and buyer expectations, developments must be increasingly attractive and versatile from an investment and funding perspective. The fullest structuring optionality and flexibility should be offered, both at asset-level and corporately, to both attract and cater for the needs of incoming funders, investors, partners and other stakeholders. For example, consider phased delivery, the creation of different interests (whether of parcels or tiered), appropriate development and investment vehicles, co-investment options, any interface requirements and early tax structuring. Maximising future liquidity is key so developers should seek to resist undue restrictions on assignments, sublettings, corporate disposals, etc. Financiers will also want full mortgagee protections, so these should be included across the development documentation.
Embrace ESG
The growing demand for sustainable and technology-driven properties means that, for both new development and refurbishment projects, ESG is going to remain an important consideration. Genuine regard should also be given to retro-fitting to reduce the risk of challenge to planning applications. One small but significant point that can trip up the unwary is the requirement for compliant energy performance certificates (EPCs) across a development, particularly where there is a desire to evidence compliance to incoming partners and funders or this is required on any pre-development structuring transactions. There is a common expectation that EPCs are not required where a site is earmarked for development, however the terms of the development exemption under the regulations should be checked carefully to ensure that this applies.
This is an expanded version of an article first published by Property Week on 15 June 2023:
https://www.propertyweek.com/legal/four-areas-of-legal-planning-to-prioritise-in-any-development/5125471.article (subscription required)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
