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“Great!” I hear you say, “where do I sign?” And that’s exactly what the developer/landowner wants you to do, with as little fuss and extra expense to them as possible.
It’s at this point that we need to do the reality check. Whilst you may think the hard work has been done for you (and in some cases this could well be true), beware! Deals aren’t always as straightforward as they may outwardly appear, and there are a number of traps for the unwary that could cause headaches and unexpected costs further down the line.
The following is a quick checklist of matters you should consider when presented with this type of deal.
Due diligence undertaken by the developer will invariably be “light touch” or could be downright non-existent as there is no incentive for them to delve any deeper than absolutely necessary. The developer’s main driver is being beating the competition to secure the land whilst keeping costs to a minimum, and they hope the rest will follow with minimum fuss. But this could leave you spending significant amounts of time and money sorting out problems on the title or dealing with adverse search results.
Developers will often only have an option on the land. What they want is the building contract, so there is no incentive for them to actually purchase the land. You need to be sure that on your contract with the developer you are able to enforce/compel them to exercise the option and call for the land.
Developers may want a back to back arrangement whereby on the completion date there is a transfer between seller and developer and a simultaneous transfer between the developer and RP. This is usual were the developer is taking a ‘turn’ or uplift on the land price. The contract should reflect this and place an obligation on the developer’s solicitors to register their transfer promptly and to provide evidence of this to the RP.
To a certain extent you are paying for the convenience, and the developer has the right to expect a profit from the deal. A lot can be ‘hidden’ in that sum or clawed back - planning costs and fees for instance - but this is accepted practice. However, make sure that that the sum covers abnormal costs (such as site remediation), that the obligation to deal with this lays squarely with the developer, and that they can be held to the agreed price despite what they later find. This is particularly important on sites where there are no site investigation reports available, or little due diligence,
Where the site has an existing S106 or it looks likely that as part of the planning one will be required, you can bet that the developer has not gone beyond the commuted sums they may have to pay. Any affordable housing provisions will have likely gone clean over their heads, so you need to know that the terms are acceptable before going any further, or that the developer is obligated to obtain a variation as necessary.
Does anyone else have an interest in the land? Other options or charges could be on the title, and these will need to be cleared off.
Another issue which often arises is sites which are tenanted. Obviously you cannot complete unless vacant possession is given, or the process for obtaining that possession is agreed and enforceable. Make sure that the cost of any surrender or incentives for tenants to leave is not passed onto you.
Where there is a lack of due diligence, defects in title are commonly dealt with via indemnity insurance but this is not always the case and it’s not a panacea to cure all ills. For instance you cannot adopt a road on the basis of insurance alone.
The requirements of an RP should not come as a shock to an experienced developer. RPs have strict audit and compliance requirements as well as Homes England funding conditions to satisfy. Make sure that a developer has your handover/defects/practical completion requirements as soon as possible, as well as your standard employer’s amendments to JCT land and build contracts.
The developer will seek to shift the risk in the land to the RP. Therefore, you will need to make sure appropriate environmental clauses are included in the contract to protect the buyer from liability and costs of clean up, and also risk on costs generally. As stated above, the contract sum may well include all the developers’ upfront costs which they will look to recoup.
Package deals are a well-established part of the development landscape, and in many cases they may well offer RPs a very good deal. But that’s no reason to throw caution to the wind. Follow our checklist, and get legal advice early, and you should avoid potential headaches and hassles further down the road.
If you need further advice about package deals, or any other aspect of your property and development work, please contact Julie on 0161 214 4823 / firstname.lastname@example.org
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