A winning combination

Article

02 July, 2014

Development package deals can lower risk and cost, but there are pitfalls.

A land inclusive, back to back or package deal may be an attractive option for social landlords as they look to meet their house building targets, because the developer brings the land and build contract to the social landlord in one package. However, there are some thorny issues all landlords should be aware of. They should ask the following:

How are these deals typically structured?
The parties involved are the landowner, the developer or land agent who puts the deal together and the social landlord.

The developer either finds the site and offers it to the landlord with a build contract package, or the landlord wants a particular site and approaches the developer to make it work for them.

The developer enters into a conditional contract or option with the landowner and will initiate the planning process. The social landlord then enters into a conditional contract with the developer to purchase the site, and that contract will contain an obligation on the landlord to enter into a design and build contract with the developer on completion of the purchase of the land.

Once contracts become unconditional (the contract is usually at least conditional on planning), completion of the purchase of the land by the landlord typically follows very shortly afterwards. The land is either transferred from the landowner to the developer and then to the landlord, or direct from the landowner to the landlord.

As a social landlord, why don't I deal with the landowner direct?
There's no reason why you can't, but some landlords are risk averse so may not want to enter into the option or conditional contract direct with the landowner and stand the risk on planning. A package deal will also usually be a better deal financially speaking.

What is the contract usually conditional on?
Nine times out of 10 it's conditional on planning permission being granted - ensure though that the contract only becomes unconditional at the end of the judicial review period rather than when planning is granted, because it could still be challenged. Also, ensure it is conditional on a satisfactory section 106 agreement.

The contract could also be conditional on board approval, confirmation of Homes and Community Agency funding, or the developer's contract with the landowner becoming unconditional.

Aren't there procurement issues with this type of deal?
This is perhaps the big question and the answer is too extensive for this Q&A. In short, yes, there are issues. The best advice? Speak to your lawyers on each deal to mitigate your risk.

The bottom line is social landlords will want to continue with these deals as they can offer the sites landlords want and a financially advantageous deal wrapped up in one package.

For further information please contact Lucy Worrall on 01254 222399 or by email Lucy Worrall

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