by Hardwick Legal | Oct 30, 2015 | Purpose Built (LexisNexis)
What property issues have been causing nightmares this year? Our panel of experts give their views.
The experts
James Styles, real estate consultant at Stephenson Harwood
Ben Stansfield, environment and planning partner at Stephenson Harwood
Miri Stickland, property business support lawyer at Forsters
Brie Stevens-Hoare QC, barrister and mediator at Hardwicke
Joanna Bhatia, solicitor in the Lexis®PSL property team
What legal ghost from the past is still haunting you and just won’t go away?
James Styles: My ‘trick or treat’ topic would be exclusivity agreements—where sellers give buyers a window of time to do their due diligence, during which time the seller won’t negotiate with anyone else.
Commercially, exclusivity agreements sound like a no-brainer and should be easy to document. In reality, this is a trick, as sellers and buyers both want, and think they are getting, different things. Sellers think the buyer will definitely buy unless they discover something so fundamental that the property is unsellable (which they’re confident there won’t be because they’re sure their lawyers did a great job when they bought the property, right?). Buyers think they have a definite right to buy the property if they want to, but don’t want to be under any obligation to do so (because while the property looks good they haven’t decided whether they want to buy or if they’re really happy with the eye-watering price that they agreed to secure the deal). Therefore, in reality there is no meeting of minds.
Explaining to the parties that, instead of killing all the goodwill and wasting vast amounts of time (and money), the best thing to do is to simply set a tight timetable and get on with it is a treat. The cherry on the top is getting to an actual exchange in less time than it would have taken to agree the exclusivity.
(Editor’s note: For some further reading, check out our earlier blog post “Lock-out Agreements & Exclusivity - 6 key drafting points“)
Ben Stansfield: My ‘trick or treat’ topic is permitted development rights (PDRs)—the ability to undertake development with the express grant of planning permission from the local planning authority.
PDRs demonstrate just how political town and country planning really is. PDRs change frequently—I can’t think of any other statutory instrument which has been amended as often in the past five years. The trick posed by PDRs is the uncertainty surrounding them and the frustration that commercial developers have when trying to rely upon them. A few years ago, changing the use of a building from office to residential use became a PDR. There was a great deal of excitement in the market, until developers saw the residential use had to have ‘begun’ before the end of May 2016. The works to change the use did not need to have begun (like implementing a planning permission), but the use needed to have started ie someone had to be living there, eating rich tea biscuits and making cups of tea.
Fortunately, the political nature of PDRs means that changes can be effected speedily—earlier this month, the Housing and Planning Minister, Brandon Lewis, announced that office to residential changes become permanent PDRs and my ‘tea and biscuits’ test will never be tested. Hurrah for common sense. In addition, the cherry on the top with PDRs, is that there will now be a right to demolish offices to bring forward residential uses—no need to work with the constraints of a 1960s office block any longer.
(Editor’s note: For some further reading about the office to resit PDRs, check out our earlier blog post “It’s “office”ial! Office to resi permitted development rights here to stay“)
Miri Stickland: Although it is not entirely specific to property, I would say one of the key concerns is the sophisticated fraudulent activity that law firms are encountering—requiring further protections and procedures to be put in place at law firm level. The interplay between this and the Land Registry’s push to move to an entirely paperless registration system is an interesting one, with original documents no longer required to be submitted for the bulk of Land Registry applications.
While the Land Registry has already moved to put increased anti-fraud measures in place (such as the free property alert service which allows you to monitor significant activity that may result in a change to the register of up to ten properties) no doubt further steps safeguarding the security of the system will be required on an ongoing basis.
Brie Stevens-Hoare QC: Currently for me the scary bits of the legal framework in which property development takes place are:
- the growing reach of right to buy legislative provision, and
- the disparity between the need for housing that is actually affordable for ordinary working people and the shrinking provision for largely unaffordable ‘affordable housing’
I worry that our amazing vibrant capital city will be changed by too many flat-sized safety deposit boxes and not enough homes for the diversity of its residents.
Joanna Bhatia: One area that certainly puts the shivers up many a property lawyer is the law on former tenant and guarantor liability. The decision in K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904, [2011] All ER (D) 262 (Jul) provided clarity to some extent, but the decision has affected business, particularly in relation to the assignment of leases between group companies. Unfortunately, while the proposals for The Law Commission’s twelfth programme of law reform suggested addressing the property sector’s concerns in this area, the issue did not make the ‘final cut’ and so is not part of the twelfth programme.’
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
Trick or treat! 5 property issues that haunted lawyers in 2015!
by Hardwick Legal | Oct 29, 2015 | Purpose Built (LexisNexis)
 LexisPSL Property will be hosting a networking breakfast seminar: Breakfast and Brexit, on 24 November, in conjunction with our expert and experienced speakers, Tim Eicke QC of Essex Court Chambers, James Roberts of Knight Frank and Chris de Pury of Berwin Leighton Paisner.
This networking event and seminar is designed to bring together interested parties to discuss, debate and make sense of what a Brexit, or a renegotiated position within the EU, could mean for us in the Property industry and our key clients and stakeholders.
We know some of the reasons prompting a review of our relationship with the EU. David Cameron is in talks with his counterparts to try to bring back sovereignty, cut red tape, curb immigration and reduce our unequal contribution to the pot.
What is less certain in the run up to a 2017 referendum is whether we will be able to negotiate a better position. If so, what would that look like? If we can’t, and we vote Out, what impact will this have on the Property industry immediately and longer-term?
We hope this seminar will go some way to pooling the collective intelligence and equipping us all with a sound sense of the pros and cons and potential impact of a Brexit on our industry.
Location:
Lexis House
30 Farringdon Street
London
EC4A 4HH
Itinerary:
8.30am: Arrival and breakfast
9am: Brexit seminar
10am: Coffee and networking
Spaces for this event are limited, so please do register your place as soon as possible by emailing events.inbox@lexisnexis.co.uk.
Regards,
The LexisPSL Property team
LexisPSL Property provides up-to-date legal practical guidance with industry insight for property professionals. In the face of pressure to work profitably in a competitive marketplace, LexisNexis tools equip you to work smarter and faster. All our guidance comes with direct links to the underlying case law and authority in LexisLibrary, the UK’s most authoritative and comprehensive legal library. |
Source: LexisNexis Purpose Built
Upcoming event: “Breakfast and Brexit” – register now!
by Hardwick Legal | Oct 29, 2015 | Purpose Built (LexisNexis)
On-site issues can lead to delay and crippling costs, but what can be done to minimise the risks posed by site disruption? Jonathan Hosie and Chris Fellowes, construction and engineering partners at Mayer Brown International LLP, consider the challenges facing construction sites and the best ways to mitigate the risks.
What are the challenges facing large-scale construction projects in terms of site management?
There are a number, for example:
- logistics planning, particularly for brown field city centre developments
- highway closures
- neighbourhood issues, including rights of light and crane over-sailing
Cranes are a continual problem in cities. If a crane is to over-sail a property proper agreements and indemnities have to be put in place which can affect the timing of a project. To avoid such issues, luffing jib cranes, which don’t over-sail neighbouring sites, can be used instead but they are more expensive. Practical issues like this present a range of problems.
Well organised sites tend to have a better health and safety record and better productivity rates. On-site accidents necessarily lead to investigations by the Health & Safety Executive, sometimes site closure and inevitable production delays. They are therefore costly in financial terms, as well in terms of the physical injury caused to the victim.
A lack of skilled site management resources is also a problem. We don’t pay experienced and skilled site managers enough in the UK and so there is a shortage of them. This is being partly addressed through apprenticeships, but generally there are just not enough skilled people around to do the job.
How can lawyers assist in negotiating with the local authority as to terms of access, disruption etc?
Lawyers can help client developers with the negotiation and drafting of ‘section 38’ agreements (Highways Act 1980). These are used for the adoption of new estate roads. Local authorities tend to have a wish list of things they want developers to provide in terms of municipal amenities—from new roads, to roundabouts, walkways, open community spaces—all of which will be part of the planning consent process. Developers build them and later the authorities take them over and maintain them. An important part of section 38 agreements is the date on which the local authority adopts responsibility for the roads which is also the date for the completion of the work. This is a watershed date and the contractor usually can’t get its final payment until this time.
Ensuring that neighbouring property owners also get early notice of plans so you can manage party wall issues is something lawyers can help with. They can also help deal with rights of light and crane over-sailing licences. A lack of objection in the early planning and consultation stages will affect the neighbour’s right to get an injunction to stop the development later on.
How can developers insulate themselves from claims from residents/business owners?
As discussed above—failing to plan is planning to fail. However, the passing of the risk of claims onto contractors is becoming increasingly difficult. This is just due to market forces. If a contractor decides it does not want to assume the risks which are intended to pass onto it, the developer has less of a choice of contractors. Currently, therefore, contractors can drive a harder bargain. Developers should also fully investigate the possibility of insurance from such claims.
Should potential litigation costs be factored into any funding arrangements?
If a proper risk analysis is undertaken (culminating in a matrix with risks ranked small, medium and high in terms of both likelihood of occurrence and effect), this should inform the developer as to the prudent allowances to include for high probability/high impact risks. This could include a litigation cost allowance (or more likely, adjudication risk).
However, it is better to plan for risk mitigation. For example, early consultation with neighbours, adopting proper party wall procedures and addressing problems before they mushroom out of control are all perhaps obvious points but are not always observed in practice. These practical decisions can have a high impact on the potential for litigation. Having early consultations and operating a charm offensive with neighbours are also an important part of community dialogue and may indicate a robust process which will form an important part of the developer’s pitch when it comes to obtaining finance—credit committees need to be persuaded the developer has addressed the likely risks and has a clear strategy for mitigation and control of that risk.
What have been the key cautionary tales in terms of disputes around construction sites?
Inadequate resourcing—both on the contractor and client side—can really lead to problems and delays and litigation.
Also, a lack of pre-planning—that is, entering into a construction contract with insufficient information—leads to problems that could have been avoidable. Rights of light and party wall risks—if not allocated to the party best able to manage them—may end up with the developer being held to ransom by neighbouring owners. The ‘ransom strip’ may literally be the only means of access to realise the development potential of an otherwise stranded site or it may be the consent needed to avoid an injunction to protect other proprietary rights. These are risks that need to be identified in advance by proper due diligence. Where that due diligence is not undertaken, problems arise. These are most commonly on brown-field developments.
Interviewed by Diana Bentley. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
No ‘site’ for sore eyes: managing on-site disruption
by Hardwick Legal | Oct 27, 2015 | Purpose Built (LexisNexis)
Image credit: Steve Partridge
In R (on the application of Lafarge Aggregates Limited) v Secretary of State for Environment, Food and Rural Affairs, [2015] EWHC 2388 (Admin), the High Court dismissed a judicial review application of a decision to uphold a refusal of Lafarge’s application for a standard rules environmental permit for the restoration of a quarry using inert waste.
In considering whether the proposed operations were ‘waste recovery’ operations, the court held that Lafarge had not shown that if waste could not be used for the proposed operations, they would otherwise have taken place using non-waste materials.
Background
Lafarge, a building materials supplier, had applied for planning permission to extract sand and gravel from the Methley Quarry in Leeds. The planning conditions included the restoration of a public footpath which had originally crossed the site. As Lafarge proposed to use recovered waste materials to reinstate the footpath, it applied to the Environment Agency (EA) for an environmental permit. This application and the subsequent appeal to an inspector from the Department for Environment, Food and Rural Affairs (Defra) against the decision were refused. Lafarge argued that the inspector had been wrong in his interpretation of art 3(15) of the revised Waste Framework Directive 2008/98/EC (rWFD).
Judicial review application dismissed
The key issue was whether the proposed operations were ‘waste recovery’ operations under art 3(15) of the rWFD, and therefore fell within the criteria for a standard rules permit, or whether they involved ‘waste disposal’ operations, and therefore required a bespoke environmental permit.
The High Court held that Lafarge’s proposed operations did not clearly fall within one of the recovery operations listed in the non-exhaustive list of recovery operations in Annex II to the rWFD. As a result, it was necessary to ascertain whether the proposed operations otherwise fell within art 3(15).
This hinged on the concept of ‘useful purpose’ contained in art 3(15). The crucial question to ask was whether the waste served a useful purpose in replacing other materials, which would have been used for that purpose. This approach had been established by the European Court in Abfall Service AG (ASA) v Bundesminister für Umwelt, Jugend und Familie: Case C-6/00 [2992] ECR I-01961.
The planning condition requiring footpath restoration was relevant but not conclusive in ascertaining whether the waste served a useful purpose. It was still possible for the conditions to be varied under the Town and Country Planning Act 1990. The inspector had been entitled to take alternative approaches in fulfilling the local planning authority’s aims for restoration of the site into account in his decision letter. It was further open for him to have concluded, on the balance of probabilities, that non-waste materials would not be used in the circumstances and so waste materials were not required to substitute those non-waste materials that would otherwise have been used. Larfarge’s arguments were therefore related to matters of weight, not the lawfulness of the inspector’s decision.
Additionally, the court held that the burden of proof was on a claimant to demonstrate that its proposed operation was a ‘waste recovery’ operation and met those relevant tests.
Implications of the decision for other projects/developments
This case illustrates the complexity of dealing with waste and determining whether an activity is a waste recovery or waste disposal operation.
As in all judicial review cases, the court will not intervene in the merits of the decision, but only whether the evaluative process behind the decision was exercised correctly. Practitioners who carry out such assessments should particularly note the judge’s support for the inspector’s ‘adequately reasoned decision letter’. This had clearly demonstrated his understanding of the relevant planning background, his assessment of Lafarge’s application using the EA’s Regulatory Guidance Note 13 on the Environmental Permitting Regulations, and his regard to commercial realities. A decision with clear and sound reasoning may be less vulnerable to challenge than one with less substantiated conclusions.
However, the Lafarge case cannot be disposed of just yet. Arguments for permission to appeal to the Court of Appeal commenced in mid-October. Time will tell if there are further lessons to be unearthed.
Source: LexisNexis Purpose Built
Waste operations: Recovery vs Disposal – the Lafarge judicial review
by Hardwick Legal | Oct 26, 2015 | Purpose Built (LexisNexis)
A referendum on whether the UK should remain a member of the EU is scheduled to take place by the end of 2017. Jonathan Lewis, head of real estate at Olswang and Richard James, partner at Pannone Corporate, looks at the possible impact of the referendum on property lawyers and their clients.
How could your practice area be affected by the EU referendum?
Jonathan Lewis (JL): The importance of the EU to the commercial real estate investment market is primarily twofold.
The first relates to capital flows both to and from the rest of Europe. If the outcome was to withdraw from the EU there is likely to be less cross border investment which would adversely affect the market.
The second relates to the macroeconomic sentiment. If withdrawal is perceived as likely to slow growth of the UK economy this will mean investors become more cautious and occupiers become more cautious in committing to leasing more space.
Richard James (RJ): The political uncertainty surrounding the EU referendum, due to take place before the end of 2017, threatens the stability of the commercial property market in the UK, but the threat may well be temporary and part balanced by other factors.
The property sector experienced strong capital growth throughout 2014 and the first quarter of 2015 which has continued, albeit at a slower rate, for the second and third quarters of 2015. Economic projections do not presently show the pending referendum as a factor affecting investment in the UK for 2015. However, the effect of this perceived increased risk and uncertainty may be more apparent in investment over the next two years.
Particularly in the occupier market, overseas firms looking to establish access to the European market may choose to position their facilities in countries with guaranteed member status as opposed to the UK. Similarly, expansion within the UK from overseas investors may be delayed pending the outcome of the referendum. However, recently Nissan appeared to dismiss this consideration, investing a further £37m in the northeast to expand their operations.
What would a vote to leave the EU mean in practice for the property sector?
RJ: Following a decision to leave the EU, there may be an initial detrimental impact on demand and a potential to slow the current growth of commercial property sector. However, this is likely to be temporary during the transitional period after the referendum, while an assessment is made by investors as to the overall economic impact.
With an ever increasing demand from overseas investors, supply may be a more compelling issue affecting the UK property market than the uncertainty surrounding the forthcoming EU referendum.
The demand for property in the UK continues to outweigh the supply. The comparatively high returns, access to financial and European markets in the UK means that longer-term investment is being made in the UK commercial property sector—ultimately impeding the supply—with the potential to hamper future investment.
The current lack of supply is increasingly being met by speculative development in regional centres. Such investments may suffer as a result of the perceived risk of the referendum, due to restrictions developers may face from institutional and other lenders during such times of uncertainty.
There is also the potential for the demand to ease. Membership of the EU has been cited as an important factor attracting and incentivising both local and overseas investors to the UK market which currently offers unrestrained access to the EU market.
In practice, both local and investors from outside the EU view commercial property in the UK as a good investment, being a country with a reasonably stable economy in which such an investment is relatively lightly regulated, compared to other areas in Europe. These factors will continue to facilitate movement in the market. However, the transitional period may see a reduction in the number of clients looking to undertake developments and longer-term investments, in favour of short-term investments with high yield offerings.
Practically, the repercussions of a decision to leave the EU may make lenders more cautious in the short term meaning investors would potentially struggle to obtain funding for more speculative development opportunities. Funding generally may be subject to prohibitively high premiums or the client’s themselves may be more reluctant to invest in a transitioning market place.
What would a vote to leave the EU mean in practice for lawyers in your field?
JL: In terms of property lawyers, the reality is that whether or not we are in the EU will make little difference on a day to day basis due to the fact that we already have our own very distinct legal system.
Of course, the role of the EU in setting Europe wide legislation and regulations does affect real estate lawyers, but I wouldn’t bank on the government having fewer rules and regulations if we came out of Europe.
What are your key concerns about a future EU referendum?
JL: The impact of regulations from Europe in relation to matters such as the environment is important, but many of these are considered of importance to the UK government so I don’t envisage radical change.
The free movement of people within Europe has meant that there are massive resources in terms of human capital available to the booming construction industry. If free movement was restricted in some way there would be a significant increase in construction costs due to the shortage of construction workers.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
Source: LexisNexis Purpose Built
Leave or remain? What the EU referendum means for property lawyers
