Public Sector Property Update Wednesday 12 th June Newcastle | Leeds - - PowerPoint PPT Presentation

Newcastle | Leeds | Manchester

Wednesday 12th June

Public Sector Property Update

Newcastle | Leeds | Manchester

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Housekeeping

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Newcastle | Leeds | Manchester

Viability and section 106 – a case study

Kamran Hyder Carolyn Akerman

Newcastle | Leeds | Manchester

• The importance of Viability Assessments
• Landowners
• Developers
• Local Authority
• NPPF
• Case Study

Introduction

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The Site

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• Outline application – up to 1,100 units
• 12 – 13 year development
• Appeal submitted for non-determination
• Viability the outstanding point

Case Study

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• Policy - 20% affordable housing on all brownfield sites greater than 15 dwellings
• Default position of 20% unless a viability reappraisal justifies less
• Viability to be assessed against profit on costs
• District Valuer instructed to advise the Council

The Council’s Starting position

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• Remediation costs of £55 million – “Master Developer Costs”
• 3 year remediation programme
• 0% Affordable Housing, subject to further viability reappraisals at reserved matters stage
• Benchmark Land Value assessed at £25m
• Viability reassessment to include a reassessment of abnormals – if lower than base cost

excess to go to Council

• Present day house sales values to be agreed (£2,900 sqm) with any future excess net of

build costs to be split 50/50 between the Council and the Applicant

The Applicant’s starting position

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• Viability to be assessed against BLV
• BLV key factor
• Applicant: £25 million
• Council: £7 million
• Few market comparables – one valuer’s opinion vs another valuer’s opinion
• Indexation?
• Master Developer Costs
• To be accounted across the development or up front?
• to be reappraised?
• Build costs agreed and subject to BCIS

Negotiations

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• Affordable Housing
• Subject to an overall cap 20%
• Council’s desire to see on-site provision and not a large commuted sum at the end of

the development

• The ability to elect to over-provide

Negotiations

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• Little / no trust between the parties
• Applicant offered BLV of £10 million days before Inquiry
• S106 drafting meetings late into the night
• Discussions between District Valuer and Applicant’s consultants throughout the inquiry

Negotiations – up to the wire

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• BLV
• agreed at £124,224 per net developable acre (capped at £8 million)
• Not indexed
• Master Developer Costs fixed and accounted for within phase 1
• Minimum 3% affordable housing on each phase
• Viability Reassessment to be submitted with each reserved matters application
• Residual land Value > BLV = increased amount Affordable Housing

The final position

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• Affordable Housing - Cap
• 20% Affordable Housing Phase 1;
• 35% on intermediate phases and final phase;
• Overall cap 20% across the development
• Overprovision of Affordable Housing up to 35% on any given phase

The final position

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• Surplus (above the Affordable Housing cap) / deficits carried over into the next phase
• Final phase
• Where:
• Cap (35%) for that phase has been reached
• Less than 20% provision across the development
• Applicant pays an off-site affordable housing contribution to bring total affordable

housing provision to 20% across the development

• Applicant retains any surplus after 20% provision across the development has been

provided (on or off-site)

The final position

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• Appended to the s106 Agreement:
• Viability Review Templates for the first phase and the intermediate phases
• Input Key
• Phase Fixed Inputs (professional fees, finance, profit, marketing)
• Phase Specific Input (private sale units and affordable housing)
• Phase Prevailing Rate Item (SDLT, RM application fees)
• Phase Index Costs (build costs, s106 contributions)
• Master Developer Works Agreed Position
• Valuer’s Aid

Documentation

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• Valuer’s Aid
• Step-by step guide to using ARGUS Developer
• Reference to the provisions within the s106
• Eg election rights to either construct new schools or pay commuted sums
• Trigger for the payment of contributions
• Blended profit guidance based on agreed profit rates
• Key appended

Documentation

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• The appraisal of a phase with 8 Net Developable Acres produced a positive Residual land

value (“RLV”) of £750,000

• Compared to a BLV of £993,792 (8 X £124,224)
• The Deficit = £750,000 LESS £993,792 = -£243,792
• £243,792 carried over into the next phase as a cost

Worked examples - Deficit

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• 80 houses within a phase with 3% affordable (78 Private and 2 affordable) with 5 Net Developable Acres = RLV of

£1,750,000

• Compared to a BLV of £621,120 (5 X £124,224)
• The Surplus = £1,750,000 LESS £621,120 = £1,128,880
• a Surplus → additional Affordable Housing within the phase.
• re-appraise the viability to establish the maximum amount of Affordable Housing Dwellings that can be delivered
• cap of 20% across the development
• maximum of 35% of the dwellings in that phase
• recalculating the blended profit until RLV = (approx.) BLV.
• Eg 10% affordable (comprising 72 Private and 8 Affordable) with 5 Net Developable Acres produced a positive RLV of

£650,000, compared to a BLV of £621,120 (5 X £124,224)

Worked Examples - Surplus

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• Based on:
• 6 phases
• growth assumptions:
• 3.38% p.a. house price growth
• 3.92% p.a. build cost growth
• 3% affordable housing Phases 1-4, 35% affordable housing phases 5 & 6
• 11% onsite Affordable Housing
• Off-site affordable housing commuted sum £14.08 million

Predictions

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• Revised NPPF – July 2018
• Amended viability guidance
• Viability to be based on standardised inputs
• Land value to be assessed at EUV +
• Market conditions should not be taken into account
• Assumptions of profit being 15-20% of GDV
• Executive summaries to include the GDV, BLV, landowner premium, costs, developer’s return
• Representations requested by PINS in light of the revised NPPF

The final chapter

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Newcastle | Leeds | Manchester

Business Tenancies and Case law update

Jeremy Hardy

Newcastle | Leeds | Manchester

• Tenancy contracted out of the Landlord & Tenant Act 1954
• Can be for any term over 6 months
• The tenancy will automatically end at the end of the term with the tenant having no

right to a new tenancy

• Need to be careful to ensure that the correct procedure is followed

Two Types

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• Protected Tenancy (not contracted out of the Landlord & Tenant Act 1954):
• If the lease is not contracted out the tenant will have security of tenure and an

automatic right to a new lease at the end of the existing lease unless the landlord can establish one of the statutory grounds for refusing a new lease.

• The landlord will have to serve a Section 25 Notice to terminate the lease or the tenant

can serve a Section 26 Request.

• When to do this?

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• The main grounds on which a landlord can seek to oppose a new tenancy are as follows:

1. Breach of repairing obligations. 2. Persistent delay in paying rent. 3. The tenant has been offered suitable alternative accommodation. 4. Landlord’s intention to demolish or reconstruct. 5. Landlord’s intention to occupy the premises itself.

• If the landlord opposes a new tenancy under 4 or 5 the tenant will be entitled to statutory

compensation.

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• Landlord’s intention to demolish and/or to redevelop the premises – ground (f):
• S Frances Limited v The Cavendish Hotel (London Limited) 2018.
• Landlord’s intention to carry out the works must be “firm and settled” and capable of

being implemented.

• Previously the Court was unconcerned about the landlord’s motives but only with there

being a “firm and settled” intention.

• The landlord put together a scheme of works designed purely for the purposes of

satisfying ground (f) and persuading the Court to refuse to grant the tenant a new tenancy.

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• The Supreme Court held that “the acid test is whether the landlord would intend to do the

same works if the tenant left voluntarily”.

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• Warwickshire Aviation Limited v Litler Investments Limited 2019:
• Concerned an airfield in Warwickshire.
• The Court considered the question of whether the landlord could demonstrate the

necessary firm and settled intention and ability to undertake the proposed residential development of the site.

• The local authority’s development plan contained a principle to retain and support

aviation-related facilities at the airfield.

• The local authority expected developers to contribute to achieving the principle where

it was “appropriate and reasonable”.

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• The developer argued that it was reasonable not to continue to use the premises for

aviation purposes due to this being uneconomic and that, because of this, there was a reasonable prospect of obtaining planning permission to demolish the buildings on the site to enable residential development.

• The Court accepted this and refused the tenant's request for a new tenancy.

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• Gaia Ventures Ltd v Abbeygate Helical 2019:
• Abbeygate, the developer, had covenanted in the Sale Agreement to make an
• verage payment of £1.4m subject to it obtaining an “Acceptable Planning Permission”

within 10 years, by July 2013.

• The site assembly conditions in the Agreement required Abbeygate to acquire or vary

a number of land interests and “to use reasonable endeavours” to do this.

• Abbeygate did not want to acquire the land interests until it had funding in place and

delayed in securing this meaning that the July 2013 deadline passed without an Acceptable Planning Permission being granted.

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• The landowner argued that Abbeygate had not used reasonable endeavours as it

could have secured funding.

• Abbeygate argued that it was in its own commercial interests to delay securing

funding, including a wish to secure an agreement with an anchor tenant.

• The Court of Appeal was of the view that the structuring of the agreements with the

various tenants was of Abbeygate’s own making and that any restriction on obtaining funding arising from this was self imposed.

• The Court therefore held that Abbeygate had not used reasonable endeavours and

awarded Gaia Venture Limited damages to the value of the overage it should have received.

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Public Sector Property Update

Jennifer Patterson

Newcastle | Leeds | Manchester

• General power of competence
• Background – wellbeing power
• Restraints of public law scrutiny and judicial review
• Specific legislative powers
• Drafting considerations
• Best price duty
• Secretary of State consent to sale at undervalue
• S77 SSFA 1998 consent

We're going to talk about

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• LA's have power to do anything that individuals generally may do, for example
• Buy/ sell land for road improvement scheme
• Lease a playing field to an academy trust on conversion from a voluntary aided school

to an academy

• Grant a 125 year lease to an academy trust on conversion from a community school

to an academy

• Statutory Transfer of playing field land to a diocese, prior to conversion of a voluntary

aided school to an academy

S2 Localism Act 2011 – general power of competence

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Newcastle | Leeds | Manchester

• Prior to general power of competence, specific legislation to permit action
• Inflexibility led to uncertainty
• Wellbeing power introduced (LGA2000)
• Lack of confidence in extent of power still existed
• Led to general power of competence
• Deliver more with less/ generate income
• Not obliged to identify particular benefit to area
• Remember constraints of public law
• Safeguarding against risk of power
• Judicial review

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• S9 Agriculture (Miscellaneous Provisions) Act 1954
• S38 Local Government (Miscellaneous Provisions) Act 1970
• S1 LG(MP)A 1970

Specific (statutory) powers

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• Title vested in statutory predecessor
• Deemed transfer
• Disposal of land S123 LGA 1972 – best price of duty
• Except with Secretary of State consent

Drafting considerations

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• Commercial value of the disposition to the LA
• Emerging principles
• Facts of each case
• Bird in the hand principle
• Ethical as well as commercial
• How far opposing bidders prepared to go
• State aid

Best price considerations

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• Consent required where limit exceeds £2 million
• LGA1972 unaffected by Localism Act 2011
• S77 SSFA 1998 also required
• Consent under Sch 1 Academies Act 2010
• Consent in respect of disposal of open space land

Secretary of State consent to sale at undervalue

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Neil Williamson

Your Obligations under CDM

Newcastle | Leeds | Manchester

• Under Health and Safety at Work etc Act 1974
• CDM Regulations 1994
• CDM Regulations 2007
• Changes from CDM Regulations 2007

Construction (Design and Management) Regulations 2015

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• Client (subject to caveat for domestic clients)
• Designers
• Contractors
• Principal Designer (previously CDM Co-ordinator and Planning Supervisor)
• Principal Contractor
• Workers

Who has duties under CDM?

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• “Any person for whom a project is carried out”
• Can have multiple clients, e.g. funder, purchaser, tenant, etc
• If multiple clients, can elect one to be responsible for main roles, but general duties apply

to all

• No exemptions for charities, public bodies, etc

Who is a Client?

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• To cooperate with others working on the project
• Report anything endangering health and safety of self or others
• Provide information requested as soon as practicable in comprehensible form
• Ensure competent to undertake role

General Duties Applicable to All

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• Make suitable arrangements for managing a project, including allocating sufficient time

and resources (to be reviewed and maintained throughout the project)

• Provide pre-construction information to every designer and contractor as soon as

practicable

• Appoint Principal Designer and Principal Contractor and take reasonable steps to ensure

they fulfil their roles

• Ensure Principal Designer prepares health & safety file and Principal Contractor prepares

construction phase plan

• Take reasonable steps to ensure contractors and designers have necessary skills,

knowledge and experience (PAS 91:2013)

Client Duties (1)

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• Notify HSE if notifiable:
• Scheduled to last longer than 30 working days and have more than 20 workers

simultaneously at any point; or

• Exceed 500 person days

Client Duties (2)

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• Notice must be sent to HSE and clearly displayed in construction site office noting:
• Date of notice
• Address of site and name of relevant local authority
• Brief description of project
• Name, address and contact details for client, principal designer and principal

contractor, and names and addresses of designers and contractors

• Planned construction start date and duration of construction phase
• Number of contractors and personnel on site
• Signed declaration

Notification to HSE

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• Civil and criminal sanctions
• Unlimited fines and up to two years imprisonment
• Highest fine to date £800,000 (£1.5 million under CDM 2007)
• Average fine £71,150

Consequences of Non-Compliance

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• Available at http://www.hse.gov.uk/pUbns/priced/l153.pdf

HSE Guidance

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Saji Bratch

Canary Wharf case re frustration of a lease due to Brexit: an update

Newcastle | Leeds | Manchester

• In 2014 the EMA signed a 25 year lease of 10 floors of office space at Canary Wharf
• A cumulative rent of £500m over the term
• Has now relocated its 900 jobs to Amsterdam due to Brexit
• Argued that Lease has been frustrated
• Canary Wharf T1 Ltd applied for a declaration that the Lease remains in force

A reminder of the facts:

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• Common law doctrine of frustration:
• a contract may be set aside if something happens that renders it physically or

commercially impossible to fulfil the agreement, or transforms the obligation into a substantially different obligation

• EMA argued that when they signed the lease it could not have anticipated that the UK

would decide to leave the EU and that it had been frustrated on two grounds, because:

• to remain in occupation would now be illegal; and
• the “common purpose” of the lease would be frustrated as the building could no longer

be the EMA’s headquarters if it was in London.

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• The High Court has now issued its decision: European Medicines Agency v Canary Wharf

[2019] EWHC 335 (Ch)

• The Declaration was granted
• The lease would not be frustrated on either of the grounds that the EMA had put forward:
• There would be no illegality: the EMA still had the capacity to deal with property in the

UK after Brexit and the EU itself could headquarter its agencies in a non-EU country

• There was no shared intention that the building would remain a permanent base for

the EMA which was capable of being frustrated (EMA had in the course of the negotiation of the lease itself proposed a break); each party had approached the lease from its own (as opposed to a common) commercial standpoint

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• Good news for Landlords!
• A very technical decision based on the specific facts
• Nonetheless no great surprise given the high threshold for demonstrating frustration of a

contract

• However, leave has been granted to the EMA to appeal
• And the outcome may have been different if the Lease had contained a force majeure

clause

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Saji Bratch

Overage update

Newcastle | Leeds | Manchester

• Mr Sparks granted Mr Biden an option to develop land
• Contained obligations to:
• Use all reasonable endeavours to obtain planning permission; and
• If the Option was then exercised, then to develop the land as soon as practicable; and
• To pay a minimum of £700k overage on the sale of any new homes
• PP secured, the Option was exercised and 8 houses built
• Mr Biden then moved into one of the houses and retained the others as investment

properties

Sparks v Biden [2017] – Overage Triggers:

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• No sale – no Overage payable?
• Implied a term into the Contract that Mr Biden must market and sell each of the houses

within a reasonable time

• However, heavily influenced by the facts here: Mr Biden was an experienced developer

and Mr Sparks a man of retirement age with no experience of development

• New commercial terms will not be implied lightly: they must be necessary to give business

efficacy to the contract

• A luck escape for Mr Sparks and his lawyers…..

High Court findings:

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• Developer obliged to use reasonable endeavours to satisfy the relevant conditions to

trigger an overage payment as soon as reasonably practicable

• Retained considerable control (to ensure that the development remained financially viable)
• The conditions were eventually satisfied 4 days after the Long-Stop Date had passed, and

as such the overage was no longer payable

• Landowner sued the Developer for breach of its obligation to use reasonable endeavours
• High Court held that the Developer was in breach (NB some decisions had been taken late

to avoid overage liability)

Gaia Ventures v Abbeyfield Helical (Leisure Plaza) Ltd [2018] – reasonable endeavours

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Newcastle | Leeds | Manchester

• Developer to pay £750,000 on receipt of planning for the development of 60 residential

units

• PP secured but could not be implemented because it would breach building regulations
• Developer argued that because “residential units” was defined as “dwellings… for

residential use for sale or lettings”, the intention was that the development must be commercially viable before the overage became payable

• Court of Appeal disagreed:
• this was a contract between two sophisticated developers
• the condition re planning had been satisfied – there was no separate condition

requiring that building regulation approval was also needed London & Ilford Ltd v Sovereign Property Holdings Ltd [2018] – contractual interpretation

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• Clarity, clarity, clarity!
• Drafting must be as comprehensive and clear as possible
• Do the triggers cover all possible scenarios?
• Include timescales
• How far must the developer go to ensure that the conditions are met?
• Also incorporate enforcement and dispute resolution mechanisms

Lessons learnt:

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