Court Interprets Obligation in a Standard Form Construction Contract to use all due diligence to obtain planning approvals

Authors: Nick Oury, Senior Associate, Disputes, Tokyo and Jean Hamilton-Smith, Associate, Disputes, Tokyo

A commonly encountered provision in the standard form JCT Building Contract (2005 edition) was interpreted by the Court of Appeal to include an implied obligation on a developer to use “all due diligence” to obtain planning approvals. The phrase “all due diligence” was held not to require the developer to ensure that planning approvals were in fact granted, or that they were granted within sufficient time to prevent delays. At most it required the developer to make a timely application containing sufficient information and to co-operate with the Local Authority during the planning process.

The decision demonstrates the limits of the obligations commonly entered into by developers in the UK in relation to planning approvals.

1. Facts of the case

2. Developer responsible for Planning Approvals

3. Obligation to exercise “all due diligence”

4. Delays caused by Local Authority

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TOUCHING THE VOID – Mazars Revisited

Author: Martin Dawbney, Partner, Real Estate, London

Not many outside the business rates bubble will have been following the twists and turns of the Mazars case and its aftermath.  Stripping away the jargon, the Supreme Court decided that each floor in a multi-occupied building should be subject to a separate rates bill even where immediately above or below another floor occupied by the same entity, unless linked by a private staircase or lift.  This is of relevance because especially large floors enjoy a discount, which only applies if all floors occupied by the entity in the building are taken into account.

The Government surprised the rating world by announcing in the Autumn 2017 Budget that legislation would be introduced to restore the practice of the Valuation Office (responsible for setting the rateable values of commercial properties) prior to the Supreme Court decision.

After a consultation process the draft bill has now been published.  In short, once it becomes law (intended to be before the end of the current session of Parliament) floors will be treated as one provided they are occupied (or, if vacant, were last occupied) by the same entity and are “contiguous”.  Contiguous means they either touch or are separated only by a void (e.g. a raised floor accommodating landlord’s services).

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Observations from MIPIM: The Public Dented Sector

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

Now that the annual decant to Cannes has drawn to a close, I am left wondering how to judge the mood of this year’s MIPIM – the world’s biggest property show. This was a year of contradictions: not just the capricious weather, but also the prevailing atmosphere of scrutiny that hung heavy over the enthusiastic hospitality.

Rumours of undercover reporters and elaborate sting operations were overblown, ‎with only the Guardian having written anything so far (in their article, here). But this didn’t stop it being a common theme of conversation on the roadside outside Caffé Roma and in the foyer at the Martinez regardless.

‎Comparing the London stand with five years ago, it was remarkable how far the pendulum had swung from the private to the public sector. Many exhibitors this year were local councils: alongside the venerable City of London Corporation, I spotted Barking & Dagenham, Bexley, Croydon, Ealing, Havering, Harrow, Hounslow, Newham and Kingston. Their presence at MIPIM is often criticised in the press. How can local authorities possibly justify spending council tax receipts on an annual jamboree in the south of France? Photograph a council officer holding a champagne glass or on a yacht; print it next to a millennial who can’t afford to buy a new home and you have an instant headline. This is despite the fact that developers actually chip in to cover council attendance costs through sponsorship.

There is actually a better story beneath the surface: why do local authorities attend MIPIM?

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Observations from MIPIM: logistics and prop tech

Author: Paul Chases, Partner and Head of Corporate Real Estate, London

In this post, Paul Chases, a partner in the HSF London Real Estate team comments on his experience of the Shedmasters event at the MIPIM real estate conference, and on the direction of travel of parts of the real estate industry.

  1. Continued Growth
  2. Future of the Shed
  3. Impact of Brexit

1. Continued Growth

The popularity of this year’s Shedmasters event at MIPIM (sponsored by Savills, Gazeley and Prologis, amongst others) is testament to the ongoing strength of the logistics sector, which, in 2017, saw record highs for investment in the industrial and distribution sector. The general view seems to be that this trend is likely to continue for 2018 and beyond with returns for the industrial and logistics sectors predicted to outperform those for office and retail (for example) over the next five years. Already this year, HSF has acted on a number of logistics deals. With such positive forecasts, the expectation is that new investor entrants will look to enter the market and there will be further consolidation by those already involved in the sector.

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Observations from MIPIM: Flexible workspace

Authors: Alice Dockar, Partner and Will Turnbull, Senior Associate, Real Estate London

New technology is changing the way people live and work, and flexible workspace is the subject of several events at this year’s MIPIM real estate conference. Debate at the conference has centred around whether the changes led by technology are temporary or permanent and how the industry and its participants, including landlords, tenants, agents and financiers, will adapt to this new world.

In this post, HSF partner Alice Dockar and senior associate Will Turnbull provide some observations from MIPIM on this debate.

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Closing the “viability loophole”? A return for the developer must be taken into account when setting local plans

Authors: Matthew White, Partner and Head of UK Planning; Catherine Howard, Partner; and Lucy Morton, Professional Support Lawyer, Planning, London

The Government is recommending that viability is assessed in detail by the local authority at the stage of setting its development plan and allocating land for certain uses, and that specific assumptions should be made at that stage regarding land value and what is a reasonable return for a developer – using the ‘existing use value plus’ (EUV+) land valuation method and assuming a return of 20% of gross development value (GDV) for the developer in appropriate circumstances.  It could then be more difficult for a developer to re-open negotiations on viability at a later stage.

The Government’s new Draft Planning Practice Guidance for Viability sets out more detail on the new proposals, as we explain in this post.  This draft guidance is one of a raft of new publications which the Government have released, including new draft National Planning Policy Framework (NPPF) and a consultation on developer contributions including Community Infrastructure Levy (CIL) which are all aiming to increase the supply of housing, provide certainty for developers, capture land value more effectively and improve and speed up the planning process.

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The road to MIPIM – podcast interview with HSF partner Matthew White

 

Matthew White, partner and head of the UK planning team in the London office of Herbert Smith Freehills talks to Lucy Morton, another lawyer in the planning team, about what he’s expecting from the MIPIM real estate conference in Cannes (13th – 16th March 2018) and about his forthcoming cycle ride to the conference. Please listen to this short (5 minute) podcast. Herbert Smith Freehills will have a team attending the MIPIM conference, please contact us for more details.

If you’d like to sponsor Matthew White on his cycle ride, he’s raising money in aid of Coram, a UK charity for vulnerable children and young people, here’s the link.

Matthew White
Matthew White
Partner and Head of Planning, London
Email | Profile
+44 20 7466 2461
Lucy Morton
Lucy Morton
Professional Support Lawyer, Planning, London
Email
+44 20 7466 2626

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A five step guide to calculating the level of affordable housing the Mayor considers viable

Author: Catherine Howard, Partner, Planning, Real Estate, London

In this blog post, we explain in simple terms how a developer is now expected to set the level of affordable housing which the Mayor of London deems viable for a particular site.  This is part of our ‘back to basics’ affordable housing series.

The Mayor is fed up with developers arguing that it’s not viable for them to deliver policy compliant levels of affordable housing due to the high prices they are paying for sites. In his Supplementary Planning Guidance (SPG) on Affordable Housing and Viability issued last August, Sadiq Khan refers to the ‘circularity’ this causes: land prices are higher than they should be because buyers and sellers are not factoring in delivering much affordable housing.

The Mayor wants to stop this by ’embedding’ delivery of policy compliant levels of affordable housing into land prices. To do this, he is going to have no regard to the price developers actually paid for a site. The maximum he will let developers factor in to viability calculations is the value a site has in its existing use plus a margin of 10-30% where appropriate (what he refers to as the “benchmark land value”).

Please read on for the five step guide to calculating the level of affordable housing the Mayor considers viable.

Herbert Smith Freehills is running workshops which talk through an example calculation to show how this approach to viability assessment works in practice. In the workshop we also run through calculations showing how early and late viability reviews work  (post-planning) under the Mayor’s SPG. This will be the subject of future blog entries.  Please contact us for more information.

Step 1: Gross Development Value

Step 2: Residual Land Value

Step 3: Benchmark Land Value

Step 4: Comparing Residual Land Value and Benchmark Land Value

Step 5: How much affordable housing can the developer afford to deliver on this site, factoring in the benchmark land value?

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Silence is Consent: Developers must pay attention to draft pre-commencement conditions

Author: Charlotte Dyer, Senior Associate, Planning, London

Developers beware – if you don’t agree with a pre-commencement condition in draft, you could have to express your disagreement in writing within 10 working days, or risk the authority imposing it in a planning permission anyway.

The government is currently consulting on changing the procedure for imposing pre-commencement conditions in planning permissions, with regulations expected to be in force in April 2018.  After this date, developers must be proactive in deciding whether or not they agree with the terms of any proposed pre-commencement conditions. If they do not agree, they must respond within 10 working days of receipt of a notice from the authority indicating their disagreement or providing comments. In the absence of a response, the authority can proceed to grant permission with the pre-commencement condition.

This is intended to prevent unnecessary delays to decision-making. However, it will create an extra burden on developers, particularly those with multiple applications being considered in parallel or where the authority is seeking to impose a large number of pre-commencement conditions. Given the continued extensive use of pre-commencement conditions, this is likely to have far reaching impacts on developers across England. The consultation is open for responses until 27 February 2018.

Set out below is a quick recap of the current position and a brief explanation of the latest proposals.

1.Restriction on pre-commencement conditions

2. Exemption from the need to obtain written agreement

3. Commentary

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“Women Leading Real Estate” – change is afoot

Author: Alice Dockar, Partner, Real Estate, London

Herbert Smith Freehills was out in force at a fantastic, thought provoking breakfast event yesterday at the Hilton, Park Lane organised by Bisnow and entitled “Women Leading Real Estate”.

There was a keynote interview with Alison Nimmo, CEO of The Crown Estate, and a panel session on “Driving Change & Building the Pipeline for Aspiring Young Leaders” with panellists:

  • Colette O’Shea, Managing Director at LandSec;
  • Sherin Aminossehe, Head of Offices at Lendlease;
  • Brian Bickell, CEO of Shaftsbury;
  • Lynda Shillaw, CEO of Magairports; and
  • Sue Clayton, Executive Director, Capital Markets at CBRE

Closing remarks were given by Vivenne King, Chair of Real Estate Balance and Andrea Carpenter, Director of Women Talk Real Estate.

The turnout was impressive – over 500 people attended this event, and the audience was predominantly female.  We are proud to be positively engaged with and part of the change taking place in the Real Estate industry.

For us, the key take home messages, for women and men in the world of real estate, were:

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