Land inclusive deals - a need to know FAQs for RPs

Article

01 August, 2014

  • What is the common structure of the deal?

The parties usually involved are the landowner, the developer/land agent who puts the deal together and the RP.

The developer either finds the site and offers it to the RP as a land inclusive deal or the RP wants a particular site and approaches the developer to make it work for them.

The developer will enter into a conditional contract or option with the landowner and will initiate the planning process. The RP then enters into a conditional contract with the developer to purchase the site and that contract will contain an obligation on the RP to enter into a JCT agreement with the developer on completion of the purchase of the land.

When contracts become unconditional (which is usually, amongst other conditions, when planning is granted) the RP acquires ownership of the site and the land is either transferred from the landowner to the developer and then to the RP or direct from the landowner to the RP. If you are using this second structure (which is likely to be for VAT or SDLT reasons), be aware as it raises further issues. Ensure your lawyers see (and agree) the legal transfer before you exchange contracts - they are unlikely to have contact with the landowner's solicitors but nonetheless need to agree the transfer with them (or via the developer's solicitors) to ensure it contains the requisite charities' clause and doesn't contain restrictive covenants which could affect value or prevent you using the land as you require.

  • As a RP, why don't I deal with the landowner direct?

There's no reason why you can't, but some RPs are risk averse and may not want to enter into the option or conditional contract direct with the landowner and stand the risk on planning. Although a sensitive issue the other comes down to cost - it is often more cost effective to enter into a JCT with the developer than a contractor under the RP's framework. This of course raises the procurement issue with these type of deals - see Q5.

  • What is the RP's conditional contract usually conditional on?

It depends on the particular transaction but 9 times out of 10 its conditional on planning - ensure though that the contract only becomes unconditional at the end of the judicial review period (6 weeks) rather than when planning is granted as it could still be challenged.

The contract could also be conditional on board approval, confirmation of HCA funding, and of course the developer's contract with the landowner becoming unconditional.

Beware the s106 agreement - always ensure the planning condition includes the RP being satisfied with any s106 agreement, you don't want to be in the position where planning is granted without the s106 being completed and the s106 then containing unsatisfactory provisions relating to affordable housing but you are still bound to take the site.

  • What else do I need to be aware of?
    • There are numerous practical issues too extensive for this Q and A which include:-
    • Timing - get the deal into legals quickly and exchanged so the developer can't seek to renegotiate terms later, particularly once you have HCA confirmation and are bound to proceed.
    • Require a pre-planning sign off meeting
    • Attend the pre app planning meeting
    • Carry out your due diligence on the contractor and then ensure there is a clause in your contract so the developer cannot change the contractor at the eleventh hour
    • Your lawyers may get limited practical information on the site. The usual replies to enquires are likely to be limited at best as the developer does not own the site. The quality of replies depends on what is supplied by the owner to the developer and if the owner is in receivership the receivers will not provide any replies to enquiries.
    • At the outset ensure the developer has "control" of the site ie that they have entered into a conditional contract or have the benefit of an option. Not only will any HCA bid will require this confirmation but you don't want to expend time and money only for the developer to lose the site.
  • Aren't there procurement issues with this type of deal?

This is perhaps the big question and the answer is too big for this Q and A! In short, yes there are issues but they haven't been challenged yet. The best advice? Speak to your lawyers about each deal to mitigate your risk.

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