COVID-19 | Development and construction | Preparing for the future
COVID-19 | Development and construction | Preparing for the future
It’s anticipated that the government will lock down building and construction sites before long. This is of course the right thing to do to protect workers from the coronavirus, but as self-employed individuals this will be a hard hit on them personally, and an enormous impact on house builders, developers and the construction industry overall.
In this webinar, we will look at what the industry can do to protect themselves and their assets from any further knock-backs. To prepare as much as possible, for a secure future when the disruption is over, now is the time to review all acquisition, sales and planning documentation, supplier agreements etc, as well as looking at new and modern ways of marketing housing sales in the new world.
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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Hi, I'm Neil Gosling. A partner here at Shakespeare Master note in the residential development team. Welcome to today's webinar on the development of construction industry preparing for the future. You will see on your screen that you are able to ask questions along the way so please do so and I'll answer as many as I can. We'll also be sharing a summary of those questions with everybody after the webinar.
I think it's fair to say that the occurrence of the coronavirus epidemic has blindsided everyone the government of had to act quickly setting out guidance as to how our nation will tackle. This unprecedented situation. The strategy has had to be both proactive and reactive to the circumstances. We face on a day-to-day spaces and consequently, the guidance can sometimes be confusing the impact on the housing and construction sectors is huge with the biggest issue.
Being the uncertainty. We have no clear guidance as to how long the country will be on lockdown how long that lockdown will be for and whether social distancing requirements will be relaxed for certain industries consequently for house builders to continue during this period of uncertainty. They will need to consider new ways of working to ensure that they can hit the ground running when the shackles are undone.
To give house builders the best chance of success during this turbulent period they should be reviewing their current liabilities and mitigating those risks most considering new ways of securing land and building and selling houses.
So now we're looking at the land and planning issues that you may encounter during this time. For those of you old enough to remember the recession in 2007 2008 a large proportion of time was spent reviewing historical contracts understanding the obligations that has Builders were legally Bound by and trying to find ways to delay or defer those obligations or in certain circumstances.
His terminate the contract currently we do not find ourselves in a position whereby termination of contract is at the Forefront of the business decisions being made. However, a full review of the legal documentation that has been entered into in respect of your development sites should be undertaken as a priority to ensure that any obligations relating to construction practicalities or financial payments are clearly identified.
Fide adhere to all varied as required. So looking at the acquisition contracts and deferred payments together. The first thing I suggest that you do is you dust off the old legal reports that were produced by your acquisition solicitors and give them a good read. Hopefully these reports will have identified all obligations that you are legally Bound By the time frames within which those obligations must be performed and the risk to you.
Should you fail to perform those obligations I'm specifically He thinking about matters such as construction of infrastructure time scales for submission of planning applications or time frames for payment of deferred payments. If any of these obligations are not adhered to they could be deemed as reasons for termination of the contract consequently. The house Builder will have one of two options being a third to comply with the obligation or to seek A variation of the contract.
To accommodate delays that arise as a result of the coronavirus outbreak at the same time. You should be asking your legal advisers to review all force majeure Provisions to determine whether the coronavirus epidemic is a ground for extension under the terms of your contract and whether there are any notice Provisions that you have to comply with in order to secure any such extensions in respective.
Planning permissions and section 106 applications.
It's pretty much the same process as Builders need a clear idea of the time scales and time frames within which they have to comply with certain planning conditions and make commuted some payments in some circumstances surveys will be required before implementation of the development can commence or occupations on-site can take place if the surveyors have shut Topshop as a result of the coronavirus epidemic this can naturally have an impact on your timeframe for complying with these planning requirements which in turn could add further delays to the house builders build a program and ultimately the anticipated date for completion of the sale of plots.
Once again, you should liaise with your legal advisers to ensure that they have provided a full review of your obligations under the Running documents to ensure that these are complied with or varied accordingly. So in these strange times what opportunities can as Builders expect to see well, undoubtedly, they'll still be an opportunity for strategic land with long-term promotion potential in these cases. The impact of coronavirus should merely be in relation to the logistics of getting the promotion agreement or option agreement agreed and exchanged submitting.
Planning applications and undertaking surveys can be accommodated within the legal document immediate land transactions may be a bit more difficult to progress due to the additional level of due diligence required in order to proceed to a point of exchange of contracts and ultimately completion.
From a practical point of view we are being advised that search providers are taking a significant amount of time to provide search results local authorities are down to skeleton staff and therefore the time scale for responding to inquiries and the planning issues is significantly increased and the ability to secure surveys in respect of sight due diligence is taking longer as a result of the impacts of Coronavirus.
On the Working Day there may well be opportunity to buy land off other developers who need a cash influx or to create joint venture opportunities with housing associations backed by Government funding. They will undoubtedly be an opportunity for the cash Rich developers if they can move quickly.
However, we can expect that landowners will hold fire for a few months at least before considering quick sales at lower prices. However, we may see an increase in inner-city manufacturing and Industrial sites becoming available for sale as a result of these businesses struggling in the economic downturn consequently. We may see a rise in land available for PRS schemes high-rise development and regeneration.
Following announcement is made by the government and subsequent advice given by the housing minister in relation to construction sites. We are expecting further clarification and guidance to be provided current guidance suggests that if you work in an occupation that cannot be continued from home, then you can go to work subject to following the guidance given by public health England in respect of social distancing.
My interpretation of this is that has Builders working on development sites can continue to do so provided social distancing is adhered to as a result. The problem is one that is more of practicality rather than regulation.
We are already finding that some contractors are now unable to continue with their works and services as a result of a number of issues surrounding coronavirus and the subsequent government advice and action So now I take the chance to look at contractual obligations and more specifically in relation to JCT contracts.
However, as a word of warning, I would suggest that a full review of all construction documents is undertaken, especially in relation to the terms of appointment of contractors, the permitted timeframes for suspending work on site and the reasons for such suspensions to ensure that you are Fully compliant with the terms of your legal documents top if you are bound by the terms of a JCT contract.
It is important to note that if the contractor were to seek an extension of time due to delays associated with coronavirus, whether due to force module or government action that in principle, the contractor would be entitled to an extension of time to complete the works but not to direct loss or expense if suspension of The Works continues for a prolonged period the JCT contract standard period being two months, but this may have been varied.
And following the issue of a seven-day notice from either the employer or contractor that the suspension is still continuing the notifying party May terminate the contractor's employment under the building contract the consequences of such termination are also set out in the contract. However, the point here is that the contractor wouldn't have a right to terminate their employment before the end of the prescribed period of suspension.
Consequently, there is no action for the employer to take at the present time stopped and the contractor should continue with the works until such time as they are unable to do. So either through Force measure which would need to be advised by the contractor to the employer through the contractual Provisions or the UK government exercises statutory powers to stop the works which as yet it has not decided to enforce a stop.
We are hoping that the government will Provide some further guidance in relation to this issue. However, as it currently stands the ability to work on site whilst adhering to social distancing requirement seems to be the underlying factor, which neatly brings us on to issues of health and safety in simplistic terms in addition to all of the usual health and safety requirements. You would expect of a development site has Builders now need to consider.
Or whether they can continue production whilst also accommodating the public health England social distancing requirements. Some house builders have already decided that to protect the welfare of their staff and employees that it is more suitable to shut down sights and suspend construction rather than try and create a working environment that complies with the social.
sentencing requirements ultimately until such time as the government provides clear advice as to whether sites that should remain open on not a site should only remain open if the has Builder can ensure that social distancing requirements are adhered to consequently it will be possible for has Builders to remain on site and complete the construction of houses that they have contracted to sell their by allowing them to comply with their tractor obligations without the need to vary the terms of the exchange contract. However, as you will hear in our section regarding sales the Law Society and has Builders seem to be taking a slightly different approach finally and what could be potentially the biggest problem for the has building and construction industry is the availability as a result has Builders are already finding that there is a material shortage.
And such material shortage could have a prolonged impact on the effect that coronavirus has had on the as building industry when the suspension of trade and Industry is lifted. There will undoubtedly be a lag in the availability of materials and until such times our stockpiles have been re-established not only could this result in a delay in materials being available to has builders.
But the increased demand could also lead to a spike in material prices in the short term. Although I would hope to see that material prices will rebalance over time. It may well cause some short-term pain to profit margins and the time frames for delivery of development sites. So now we turn to the sales process current Law Society guidance.
It's no additional contractual provision should be put into a plot contract in an attempt to counteract delays in the construction and sales of housing plots during the coronavirus outbreak. They would rather see the parties to a contract taking a more pragmatic view in light of the unprecedented situation that we find ourselves in.
However, we all know that In tough times if a party needs to find an angle to terminate a contract.
They will do all they can to do so consequently. Some PLC has Builders have already started to include coronavirus Clauses within their plot contracts to allow for delays in not only construction, but also the Sales completion process.
Now I strongly suggest that house builders review their exchanged sales contract in relation to plots in most cases. If a has Builder incurs delays in the build program, they are obliged under the terms of the contract to serve a written notice on the plot purchaser advising them of the delays if these contractual obligations are not complied with then anticipated completion.
Asian date cannot be adapted to allow for the temporary suspension in the build program consequently. You should be reviewing all contract obligations to ensure that you are not in breach and that you can legally extend the time frames within your contracts.
So when we find ourselves in a period of lockdown, how can we look at marketing strategies in a slightly different way obviously attendance on site it will be greatly reduced and therefore marketing strategies should be similar to those used when trying to find investment for overseas purchases consequently has Builder should be considering The use of video viewings Drone footage to show the development as a whole and maybe even working closely with the gaming industry to understand how virtual reality tours can give clients a true perspective of the product being sold and it's Dimensions.
One thing that is abundantly clear is that in order to Market properties remotely people will now need to think outside of the box in an attempt to overcome the underlying problem that purchasers want to see and feel what they are buying before making a very large Financial commitment. So what does the future hold for the hands building industry?
There will no doubt be a direct impact on developers and house builders who may struggle to keep open sites without critical staff. We have already seen that some of the PLC has Builders have shut down all sites and that plot pouches are reluctant to exchange contracts until there is more certainty around their ability to go about their day to day lives stock market Falls have created volatility and nervousness around investment some mortgage lenders have suspended.
The issuing of new lending products and the general uncertainty will be weighing on the consumers Minds to the slippage of completions which would inevitably impact on the profitability of the house builders.
And as a consequence small or indebted has Builders could be at risk the market analysts aren't expecting a shock contraction in sales during this initial period which will depend partly on the longevity of the virus and also the The confidence in the National employment status there will still be needs-based purchases and cash-rich opportunistic purchases, which may include overseas investment who are looking for a good deal. We may also see a rise in bulk sales to housing associations backed by Government funding. So although the initial impact of the coronavirus outbreak.
Will have a huge effect on the short term delivery of housing stock, but would expect the residential property Market to bounce back in the aftermath of the crisis.
However, as stated at the beginning of this webinar, the unknown is the timeframe the longer the crisis continues the more likely it'll be for structural changes to the market to occur with house builders having to adapt their product to facilitate working from home, which will Visibly become The New Normal consequently, we may find us at housing design with study facilities or access to Shared business facilities within developments becomes more of selling point as well as access to healthcare facilities and local stores. The impact of coronavirus will inevitably be a challenge for all house builders and contractors Because unless they are.
Able to quickly deploy resources to reopen and start on new sites. We may find a significant contraction in Supply in 2020. However, any delay in productivity at this stage will only enhance the housing shortage issues that the country faces and consequently, we will see a surge in pent-up demand which could lead to a significant bounce back in property prices.
There is most definitely an opportunity for house builders and Tractors to re-evaluate the way they go about business to ensure that they are best placed to maximize the opportunities available to them when we get through this period of uncertainty. So thanks for listening to this webinar you hope you found it useful and relevant in the current circumstances.
Unfortunately, I have run out of time, so I haven't got time to answer any questions now, but if you would like to raise any questions Please do so and I'll make sure to follow up on these after the session and share any answers with you. All in the meantime, if you would like any further advice or guidance on the coronavirus and how it might impact on development. Please feel free to contact our dedicated resource Hub at shma.co.uk and finally if you'd like any further information or would like to discuss any specific inquiry and more detail then please do of course get in touch.
Touch many thanks for listening. Good luck in these turbulent times and stay safe.