As a law firm with a Property team specialising in advising developers and landowners on all manner of development projects, the outlook six weeks ago was bleak. All sectors of the economy have been hit hard by the impact of COVID-19, but as so many elements of property transactions rely on social contact, from initial viewings, through planning committees to lender valuations, it was hard to see how the sector could continue to operate. While the market has undoubtably slowed, and residential transactions have been particularly hard hit, there are opportunities for cash rich parties who can be flexible and think outside the box, and we are seeing positive stories emerging and receiving new instructions.
The first point for parties to consider is the type of agreement they want to enter. Certain parties like a promotion agreement, while others will only enter options, and yet others insist on a conditional contract. They all have their advantages and disadvantages, and with proper legal and tax advice there is no reason why a party should not use a different form of agreement to their norm, if that is what it will take to get the deal through. Since lockdown started we’ve received instructions to act on promotion agreements, options, exclusivity agreements, conditional contracts, and other transactions which are a hybrid – flexibility is key.
Another change we are seeing, which is primarily helping developers, is to the funding structure. With lenders constrained in what they can do by social distancing, developers’ access to cash has decreased. Rather than let transactions fall apart, some owners are accepting a smaller deposit, or in some cases foregoing an upfront payment altogether, with the entirety following as deferred consideration. We are working with our landowner clients to ensure that we protect them as much as possible against the risks of relying on deferred consideration.
Timeframes and termination clauses are also at the forefront of everyone’s minds, and although some of the clauses that are drafted now are unlikely to come into play in the current pandemic, it is worth giving them some extra thought so that they do the job if we ever face another unprecedented event, or possibly another wave of COVID-19. Development agreements often allow for extensions to timeframes where works have been delayed for reasons beyond the developer’s control – some might list specific events, but the majority take a wider, more general approach. The availability of an extension to a developer will turn on the precise wording of those clauses and (in acting for a developer), it is important to check they are not too narrow. For contracts with a gap between exchange and completion, inclusion of a properly drafted Coronavirus clause (one allowing extensions to completion dates due to issues linked to COVID-19), is also of the utmost importance.
While we have been able to help some of our clients to continue operating, it is clear that there are still elements of the development process where further Government input would be welcomed. Scotland has introduced the Coronavirus (Scotland) Act 2020 extending those planning permissions which would ordinarily lapse if not implemented within the six months following the coming into force of the Act, but (at the time of writing) the same does not exist in England and Wales, leading to uncertainty for many whose planning permissions are nearing the implementation deadline. Further comment is also needed on Community Infrastructure Levy (CIL) payments. The obligation to pay CIL is triggered by commencement of development, which developers will be considering doing to prevent their planning permissions from lapsing, but in the current climate developers may struggle to make those payments.
Overall though, what we are seeing is a willingness to pull together to get things over the line, and a pragmatic approach in areas which often cause contention or delay – some lenders accepting virtual methods of giving independent legal advice to guarantors of loans, solicitors working together to overcome the difficulties of holding original documents, auctions proceeding online. It is far from an ideal situation, but hopefully other people are experiencing the same positives that we are, and that the steps everyone takes now to work together will help lead to a faster recovery in time.