COVID-19 | Development agreements – protecting against COVID-19

COVID-19 | Development agreements – protecting against COVID-19

The real estate sector has been one of the hardest hit industries as a result of the current business climate. With commercial development facing a multitude of issues, what can developers do to keep their projects moving forward?

This webinar will look at land acquisition and reaching unconditional agreements, highlighting the current issues parties are facing with obtaining signatures to complete property transactions. We’ll also cover planning considerations and how delays in obtaining planning permission could affect the ability for developers to meet their contractual deadlines – all of which increase the risk of incurring additional losses which may not be able to be passed onto contractors.

We hope that this webinar will help developers put things into perspective during these difficult times and offer solutions and practical considerations where they may not have been so apparent.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

Welcome to today's webinar on development agreements protecting against covid-19. I'm Pete Dilks a partner in the real estate team at Shakespeare Martineau with 15 years experience in dealing with development a grievance.
So today's webinar is aimed at commercial developers. Although it might be the members and professional team or contractors or even invested in commercial property might find this useful something to bear in mind is that we're not really looking at Public Health England guidance or practicality that working on site. We're looking really at the documentation around development transactions such as development agreements agreements police and development bringing agreements see our covid-19 right environment some players Koreans.
His policies this webinar is going to be to looking at the one conditionality of deals and getting the site acquired any issues that might be faced their second part being with the actual construction side. Once we've got the site leading to practical completion. So reaching them conditionality. The land agreement is like to be conditioned on a few points, maybe sight assembly funding or home owner of things. The one we're going to focus on today is obtaining Planning Commission that's going to problem.
And be the top of the agenda for most developers at present. The Agreements are likely to have various obligations on the developer is better planning firstly respective submission of the application and ba-zing win landowner by a consultation on the planning strategy or master plan. And the right the good news is that most agreements you've drafted correctness probably K to the any delays experienced by the landowner during this process.
So if there are delays during the During this period of covid-19 where the laser experience from a landowner perspective. It shouldn't impact on timelines for the developers submission for the check, you know, as all Agreements are different. I should make that point generally throughout these that whilst I'm talking about development agreements in general. Each document is bespoke and is be read carefully depending on the greens contained within it. So other than submission and consultation with the landowner in it, which generally should be okay.
The covid-19 is obtaining plan commissioned by the long. Stop date. One of the usual greeting development agreement is extensions of time for judicial review challenge resubmission planning appeals up type of thing and that won't be affected usually by the gate to obtain planning. But the difficulty is that the long stop date itself May well be subject to no extensions before seizure. It's not like a construction.
And contract where you have both of your extensions and land side of the deal might not have any extensions for that and probably won't so there's find out whether or not we do actually think we're going to experience difficulties in the planning process and invited one of my colleagues and Igor who's a partner moans running fine consultant. He's going to give a review on his experience with the planning process itself whether he sees there are any delays life is suffered. What you can do to mitigate those delays.
Yes, we will Out a shadow of a doubt the covid-19 situation has impacted on planning and the ability to secure planning consent and the best summary I can give really is to say the reaction the planning system is mixed fortunately it patchy.
There's a isn't a consistent response sun burning authorities are well setup dealing with Vote working and video conferencing and or easy to get hold of other officers are not and it varies on a council by counsel basis. What is fairly consistent is the lack of planning committee meetings that were able to hold so whilst we may be able to push playing.
Applications along through the system what most authorities are struggling to do is take applications to planning committee most appalling committee that works and doesn't Prejudice the interests of interested parties who aren't set up home about working particular demographics and Society.
With reliably assured that many authorities are exploring opportunities for communities videoconferencing committee, but it's it's still a way off in my view. I think there's there was a trial done and it was abandoned recently. So didn't really get off the ground government to try to facilitate committee.
These video conferencing by relaxing legislation around committee procedure vertical so they've made an attempt terms to overcome that.
The big issue is planning inspectorate. The response has been fairly clear the most recent advice on the website is that all hearings inquiries and site visits office phoned and they're exploring opportunities for holding those remotely as well. But again, no evidence.
It's that anything is taking place. So there's a there's a complete stop on those sort of gatherings at present which is having a big impact on local plan preparation and the appeal system inevitably will lead to backlogs that that's decision making in respect of the the pre-submission element of the planning system.
Part of the process where we're all very active is Consultants.
This is difficult as well because clearly we can't obtain highways data because we can't do traffic counts because there's no cars on the road ecological assessments are often giving verse results because ecology Habits habits of shifted and detective species of moved around on are more prevalent in on some sites and there were six months ago.
So Actually mapping the the sort of impact the Baseline positions when you're looking at having a planning application. It's very difficult as well. So I think at the moment is much as I would like to be able to provide some certainty around this matter.
It really is a case of authority by Authority though if you are at an appeal it was the funny inspector and I think you will experience some delay that Okay, thanks very much. And it sounds like it's more of a side-by-side Authority by parity basis. So anyone does want to get in touch with Andy further with details of be published at the end of the webinar. So let's assume that we did manage to get through that and we we got planning we have achieved on conditionality. We now just need to proceed to acquire the land. This would normally be a price rate forward position. One of the issues with land Acquisitions with property is it's going to be by deed.
And we all know that you'll execution of dudes are two directors director covid secretary or witness witnessing a doctor's signature. Unfortunately with the way the land registry of approach this it's not been straightforward and the things like DocuSign the e-signatures are not being accepted by learning registry for executing on fields and likewise when it comes to witnessing signatures witnessing over FaceTime or Zoom or other media.
Form not been accepted either down to the street where your legislation is drafted back on 1925. So one way we can look at getting around. This is by way of a power of attorney and it might have been you want to consider authorizing your solicitor to sign a particular document or documents on your behalf. We do have separate materials on it. We can send to you separately if that is of Interest.
The good news for development transaction is usually they're doing the jail period We have time to get documents signed reminded me so much of a practical issue. However, if we have eaten into our lungs stopped bait through some of the reasons and you mentioned earlier, it could be that we need to we need to acquire the side straight away and wave that period possibly looking insurance policy and which case we won't have time to keep talking to be signed beginning of our attorney. Lionel could really be beneficial.
So assuming that we now acquired the site we now and in the construction phase we're going to look at those Target dates and are they lead to the great advantages and also long stop dates with the ultimate stick against any better at all simulation. So firstly on the target dates is going to be extendable in each agreement usually for a certain set of criteria, which we expect to see a mobile development agreements. And first one is tenant or good sir variations, which could well be the case given the current covid-19 crisis. You might get one of those parties looking to burn the specification each of those should carry an extension of times Jinping rise.
Likewise extension permitted under the building contract and expect even agreement mirror and extension method that the developer should be put into a neutral position provided as extensions of grounds of rooms of the building contract. What would be nice to see and your agreements is a provision allowing extensions for any matters beyond the reasonable control their developer doctrine of contested provision for one which would be very helpful and almost certainly Grant you an extension.
I'm dreaming Covid-19 crisis. I have mentioned here. The employers agent has are going to be critical in certifying any particular extension of time under the development agreement. And usually that would be an uninfected extension of time which they can grant given a purchaser or fun drama certain. You have a warranty from that party over we have seen in recent years and Burgesses off ones wanting further control on extensions of time and certification by employees agent.
So please review Agreement carefully on that firms. It might be the first consultation has to be had if the quality's before those and before the employee agent can actually search by the extension. So use the touch back on the building contract and that's the most common extension. We think we would see and Link that to extensions of time between development agreement under building contract to introduce Alex Smith doozer construction partner cheeks been wanting to say a few words and how these two agreements might interact and it thanks face.
He's in our experience to majority of the building contracts entered into pursuant to that agreements. Take it form the JCT 2016 design and build usually with a scheduled amendments as a developer usually wishes to place single point responsibility for the design and construction of the works with the contractor development agreements. Usually provide the target dates for completion and the development may be extended weather extensions of time given under the building contract as just mentioned by piece.
And the JCT has separate mechanisms for determining whether or not a contractor is entitled to extensions of time to completion dates and lost an expense. In addition to the safety contract price are many really going to look at the extensions of time for the purposes of this webinar. Now in relation to the covid-19 pandemic construction sites in England and Wales can remain open if they meet the conditions set out in the guidance issued by public health England, which align with the construction leadership councils sites operating.
Just imagine two extensions of time. The JCT uses a long list of relevant events, which Trigger Time extensions, but before being allowed an extension of time, if the delay event fits one of the relevant events, the contractor still has an owner has hurdle to go through this is usually that the contractor has to use his best endeavours to prevent it delays the progress of the works or any section.
However caused Looking at potential relevant events in the current circumstances. We thought that there would be to force module and intervention by UK government or Public Authority in the circumstances.
The one that's most likely to be applicable now is that in relation to force majeure as presently the government or other public authorities haven't closed construction sites now for some of y'all is undefined in JCT contracts and hasn't been a subject of extensive do Should comment in those of England and Wales whilst this creates a degree of uncertainty as to how Provisions could be interpreted the cases. We've seen give us a general understanding Force module, which is essentially that force majeure is an event which is beyond the responsibility control of either party the tributes will either two forces of nature or other circumstances, which aren't confined in their effects principally to the parties to employers persons contractors persons the site all the works in these circumstances is rationed.
To force majeure and covid-19 the effects are applicable to everyone. So you think therefore that it would be relevant and apply.
The second one as I mentioned is a relation to exercise by UK government or Public Authority of of powers. Now this hasn't been done at all in terms of exercising statute powers to close sites and many ended in the industry is expected this to happen sometime ago, but it hasn't happened and we aren't aware of any enforcement Powers provided by the coronavirus actor 2020 being used in respect of construction sites consequently in some relationship covid-19.
19 and extensions of time contractors May seek to apply for extensions of time due to force majeure and if they are successful in doing that's then this would apply for the purposes of the developers be entitled to extensions and time under development agreements going forward. We're building contracts that entered into pursuant to development agreements being put together now, then we'd expect those to be specific provision simulation to covid-19 which would entitle contractors to extensions.
Time but not too lost an expense.
That's it relations of building contracts and development agreements from my perspective plans you back to peace Thank you very much, Alex. And again, if anybody wants to contact Alex afterwards, we'll put his details up at the end so you can get in touch with him directly. So the finally see that I wanted you to touch upon was was not necessarily the target dates, which would usually allow an extension of time. It's the long stop dates in the agreement, which will usually be there drop dead date for the developer truth finish the transaction the issue with long stop dates.
I'm only is it they won't be extendable in the I asked Toby date. Will these are there to get the purchaser or fund certainty that science going to be constructed by that date? So this is really where the developer runs the risk of the biggest losses to it largely because the building contract is unlikely to have any type of long stop dating as long as the relevant event exists as Alex just explain contractor will be granted an extension time. Whereas the developer will have a drop headlong. Stop me.
It's not all complete during going to be available. However, these long stock dates are usually built in with a sufficient period of time to cater for these type of event will not necessarily this event or just delaying events the usually minimum twice bill period however on smaller projects with a smaller long story short along start date and bill period the disproportionate effect of covid-19 might make this more likely to be missed.
So what we've got to look at is is that long stop dates that are achievable With a Slowdown in construction on site and is possible and practical solution to renegotiate that bait if it's going to be missed in all bodies documented in the deal. No reason why one I shouldn't be the case and step in is really something they know God wants to do they own themselves. However, if the crisis has led to one or more parties wanted to get out of the deal is where it's going to be quite tricky, but I'm renegotiating in place.
So assuming that we can't renegotiate because remedy for a a tenant for a and 37 would be termination and with that comes problems with a developer in how it gets its cost back from working printed scheme. So if we if the developer has Miss along start date and a party looks to terminate developers got to try and get back its costs from what he's carried out. It will largely from these works on third-party land. I mean transfer disappearance to an end go to Sur and therefore may have carried out the entirety of the build without being paid yet the first week.
Guys is a developer to being paid for some practical completion. Will it get its market value in the works when it get the cost of the work? I said find by employing agency in their profit element or indeed an element of profit with it get a percentage of either of the above all women looking for each full development V and all costs less the cost the complete to might include purchases margin on the cost of completed. Well either way spider final bullet.
Point looking more attractive they're probably not going to lead to a huge amount of coffee table to the developer giving them two more additional costs of stepping in finishing off a build. So it's it depends on how an agreement is drafted. But as this is essentially You could argue a no-fault event on the part of the developer do to covid-19 that would have ordinarily granting extension time. But with a long stock date night with it some of these development agreements you allow payment no circumstance.
Second point on Jan 19 a stage paintings. It's the same greens as a bulldog you be less risk the developer has you will all leave extra its money by the better than stage or in terms of good. So in case of looking at what your documents looking that way final point, I wanted to mention was this point I'm talking here about how the developer might extract its value as of the scheme.
They're also going to be additional losses to the tenant or the fun and that's not to say that those losses won't our way or being greater than The losses suffered by many better bring not being paid for it works. So it depends on how these clothes are stretching your documents range critical to ensure that those losses payable to attend or to a on and on termination or quantifiable and hopefully we'll still need to remember getting some of the other scheme. So just to summarize here. We spoke about the impact of planning and I only spoke earlier that this is quite an uncertain time and each local Authority might be acting differently also.
The education of Deeds that could be problematic in the Chrome times not just the development transaction before all property transactions try and get your ducks in a row already complications in the coming up Target dates. Generally I'm going to be what he achieved liquidated damages in the minutes provided. You've got suitable drafting in everyday extensions of time. So these things don't hit long stop dates could be major issue in we've got a relatively short bill period and haven't packed into account any extensions of those long stop beads.
I can't reiterate in author. Each switch document is different theories different. Please read your agreements or contact if there are still over yours. Look at those agreements for you to see what your position is and these factors should be taken into account in the future drafting or learning agreements. So you want to contact either is details to be appearing on screen now by the time you Alex for myself finally, we've got a free helpline which offers 20 minutes.
Guidance from a senior member of our team which could help cover any of the issues that we've discussed today, which hopefully you may find useful. Thank you very much.

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