27 June, 2014
The hot topics this week may be the debate of key housing issues but at the recent Forbes' Development and Regeneration seminar on Partnership Working, we debated the not quite so exciting (!) yet still hotly debated topic of options vs conditional contracts.
It won't be news that over the last few years there has been a marked increase in RPs entering into land inclusive back to back deals, but a reminder of the issues involved together with practical tips to be used when negotiating deals and key points not to missed were keenly debated at Forbes' recent briefing.
On a land inclusive deal, the land agent/ developer is likely to have entered into an option or conditional contract with the landowner. As a RP, you will then be entering into a conditional contract with the developer. The conditions precedent are likely to be planning, board approval, HCA grant and the developer's contract with the landowner becoming unconditional or the developer exercising its option. You will then be obliged to enter into a JCT contract with the developer on completion of the land purchase.
Key need to know points include:-
Ensure the planning condition in the contract includes planning agreements as well as the planning consent itself. Planning agreements include s106 agreements and it is vital that you are satisfied with the s106 agreement before you are obliged to proceed. Planning may be granted without the draft s106 agreement being issued or agreed, so beware of being in the position where your contract has become unconditional due to a satisfactory planning consent being granted, but the s106 is not satisfactory yet under the terms of the contract you must complete the purchase of the land.
Will the land transfer go from landowner to developer to RP or landowner straight to you as RP? One reason it might go straight from landowner to RP is if the landowner has opted to tax as a RP can disapply the option whereas the developer cannot. If that is the case take careful VAT advice and ensure that the notice to disapply the option is correctly served as otherwise you run the risk that you may have to pay VAT on the purchase price.
If the transfer is straight from the landowner to you as RP, check whether there are any requirements in the documents between the landowner and developer as to the transfer document itself. The landowner might have sought to insert covenants as to the use of the land which are not acceptable to you. Additionally, if you are a charitable RP, you will need to ensure the correct charitable clauses are included.
Once you have agreed terms with the developer, put the scheme into legals as soon as possible to secure the exchange and secure the terms of the deal you have negotiated.
Once the scheme is in your HCA programme some developers seek to renegotiate once you are bound to proceed.
For more information or to discuss any of the issues, or if you would like us to
deliver this seminar in house for your development team, please contact Lucy Worrall, Partner and Head of Housing & Regeneration (Property) at Lucy Worrall or 01254 222393.