Leasehold pitfalls – termination risks of leasehold development site structures

Author: Simon Elliott, Senior Associate, Real Estate, London

A number of recent transactions where we have acted for banks and lenders have emphasised that care needs to be taken by developers at the outset of a project when buying into or putting in place a leasehold structure of the site. We have seen how important it is to be aware of the effect that the provisions of a headlease can have on the liquidity and bankability of underleases (for example, of sub-plots within the site). In particular, thought is needed around provisions that could bring any underlease to an end for reasons beyond the control or influence of the undertenant and thereby threaten the existence of a charge over the underlease interest. I explain below how forfeiture rights and contractual termination rights in favour of a head landlord in particular should be approached with caution, as both provisions can be of concern to a lender taking security over such an underlease.

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On Election Day

Author: Matthew White, Partner and Head of UK Planning, London

I'm sure I am not alone in finding it difficult to be enthusiastic about today's general election. From a development perspective, there is little in the main parties' manifestos that stands out as new or innovative. The pledges that our would-be prime ministers have made are heavy on promise but light on detail, and deafeningly silent on deliverability. It is easy to commit to building a million new homes when there is no depth or substance as to exactly how this will be achieved. And with both parties ruling out any review of the green belt, I am left wondering what politicians think they will be doing in the next Parliament that hasn't already been definitively proven not to work in the last one.

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The impact of purdah on planning and a recent decision on judicial review

Author: Fiona Sawyer, Professional Support Lawyer, Planning, London

This week, we have links to two pieces of interest to developers:

  • "Getting away with purdah" – an article in EG by Matthew White, Head of Planning, and Annika Holden, Associate (Australia), Planning, London discussing the impact of the convention of purdah, brought into play by the unexpected announcement of the snap general election. Purdah has the potential to severely disrupt and delay the planning process; recent experience has shown that it is often inconsistently applied, can cause confusion and can be invoked as an excuse to avoid controversial decisions. The article comments on the history, status and potential exploitation of purdah, highlighting relevant caselaw. For the full article, see here.
  • "Failure to comply with statutory conditions will lead to quashing unless it is 'highly likely' the error would have made no difference" – an ebulletin by our London Administrative and Public Law team, discussing the impact of a recent planning judicial review case concerning a council's decision to adopt a document setting out an interim approach to negotiating affordable housing contributions. Key points include that the High Court must generally refuse relief on an application for judicial review if it appears "highly likely that the outcome for the applicant would not have been substantially different if the conduct complained of had not occurred". For the full ebulletin, see here.

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Grants of planning permission against officer recommendation – managing the legal risk

Author: Annika Holden, Associate (Australia), Planning, London

The Court of Appeal has recently upheld challenges in two cases where planning permission was granted by planning committee against officer recommendation (see Oakley v South Cambridgeshire District Council & Anor [2017] EWCA Civ 71 and Campaign To Protect Rural England, Kent (CPRE), R (On the Application Of) v Dover District Council [2016] EWCA Civ 936). From a legal perspective, Oakley is particularly interesting as a rare look by the Court of Appeal at the question of whether planning authorities have a general common law duty to give reasons on the grant of planning permission – see the excellent e-bulletin from my public law colleagues here for more on that. On a practical level, the cases represent a good reminder of how carefully all parties need to tread whenever planning permission is granted against officer recommendation.

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Supreme Court rules on the correct interpretation of the phrase “relevant policies for the supply of housing”

Author: Charlotte Dyer, Senior Associate, Planning, London

On 10 May 2017, the Supreme Court handed down its eagerly anticipated judgment in respect of two housing appeals against decisions made by Suffolk Coastal District Council and Cheshire East Borough Council.  The case centered on the appropriate interpretation of paragraphs 14 and 49 of the National Planning Policy Framework (NPPF).  Both appeals had been brought on the ground that the decision-maker in each case had misunderstood the key NPPF phrase "relevant policies for the supply of housing". 

This is not the first time that this had been the subject of judicial consideration.  On seven separate occasions between October 2013 and April 2015, the Administrative Court ruled on this, with little consistency between the judgments.  One expects that the Supreme Court judges were rather pleased that they would finally get to have their say on this when these appeals finally landed on their desks.  Indeed Lord Carnwath explained at the very beginning of his judgment that this was an issue of "controversy" in respect of which the court had been urged "to bring much needed clarity to the meaning of the policy".  Below I will explain the judgment and consider its wide ranging implications.

1. What does the NPPF say?

2. How had this been interpreted previously?

3. How did the Supreme Court interpret this?

4. What else did the Supreme Court say?

5. Conclusions

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An unusual consequence of the housing crisis – or, when is it against public policy to enforce a hospice’s privacy?

Author: Jerome Temme, Trainee, Real Estate Dispute Resolution, London

Take a hospice, a restrictive covenant preventing development next door which, at the time of the development, served to protect the privacy of the sick children, their families and visitors, and a developer in knowing breach of that restrictive covenant. Usually, parties acting in deliberate breach of their obligations will not find favour in the courts. Yet, in the recent case of Millgate Developments and another v Smith and another [2016] UKUT 515 (LC) a Tribunal used its discretion to modify the restrictive covenants and effectively let the developer keep its building up. So what made the difference in this case?

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Election ‘purdah’ is no excuse for non-publication of revised air quality plan

Author: Julie Vaughan, Senior Associate, Environment, London

Yesterday, a spokesman for the Prime Minister announced that the Government won't be pursuing an appeal to the High Court's decision of 27 April 2017, in which the Government failed in its attempt to delay publication for consultation of its revised air quality plan until after the 8 June 'snap' general election. Yesterday's announcement confirmed that the Government will meet the new 9 May deadline. The saga is an interesting example of what may post-Brexit become the only available route to hold the Government legally to account for compliance with national level obligations, once the threat of legal proceedings before the European Court of Justice is removed.

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Raise your (MEES) standards: new government guidance provides clarity and confusion

Author: Deborah Caldwell, Professional Support Lawyer, Real Estate, London

 

In February 2015, we reported on Regulations introduced by the Government to prohibit the letting of commercial properties in England and Wales rated F or G on their Energy Performance Certificates ("EPC"s) (see our blog post here). With some exceptions, these Regulations, known as the Minimum Energy Efficiency Standard ("MEES"), affect the majority of commercial leases. The Regulations will come into force from 1 April 2018 for new leases (including lease renewals) and 1 April 2023 for all leases. "Sub-standard properties" is the new label that will attach to properties with an energy efficiency rating below E.

What's new?

There are two recent developments for landlords to be aware of:

  • Government guidance on the MEES Regulations has recently been published; and
  • The opening date for the centralised self-certification register known as the PRS Exemptions Register ("PER") has been delayed.

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The limits of good faith

Author: Michael Mendelblat, Professional Support Lawyer, Construction and Engineering, London

 

The NEC Form of Contract is now in wide use in construction projects. The first clause says that the parties "shall act as stated in this contract and in a spirit of mutual trust and co-operation", often referred to as "good faith". What this means in practice is a question of importance for the development industry, both in relation to this particular contract and to the numerous other standard form or bespoke arrangements where "good faith" obligations are included.

 

The extent of the good faith obligation was considered in a recent case, Costain v Tarmac. Here the Court was not prepared to allow a contractor to escape the effect of an express time bar clause by relying on the duty of good faith as imposing a positive obligation to point out its effect. The court commented that the express duty in this case said little more than was previously thought to be implied into all construction contracts in terms of a duty to co-operate. So, whilst a good faith obligation prohibits unreasonable conduct which is without regard to the interests of the other party, it does not, it would appear, extend to informing the other party about the adverse effect of a particular term of the contract of which it should already be aware.

 

Good faith clauses, therefore, do not prevent parties from relying on express terms of the contract. The effect is confined to a restraint on unreasonable conduct amounting to improper exploitation of the other party.

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Time to respond to the Housing White Paper

Author: Matthew White, Partner and Head of Planning, London

There is just over one month left to submit responses to the Government's Housing White Paper and Build to Rent consultations. Published on 7 February 2017, the consultation period closes for the Build to Rent consultation on 1 May 2017 and for the Housing White Paper on 2 May 2017. The outcome that the Government seeks from its proposals is an increase in the supply of appropriate housing in England to meet demand. It aims to achieve this by planning for the right homes in the right places, building homes faster and encouraging diversification of the housing market.

Those in the property industry are assessing whether and how to respond to the Government's proposals. Many summaries of the Housing White Paper and Build to Rent consultations have been produced by the property press and industry bodies for this purpose. We have produced our own analysis of the main issues that impact the clients we serve. Please get in touch if you would like help assessing how these consultation proposals affect you.

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