So – your site assembly is done, your finance is in place, and you’ve just got your planning permission approved. Time to crack on with the development! What could go wrong?
As any developer knows, property developments are complicated beasts. While you can’t always eliminate all of the risks, you can take steps to reduce them. Here are some of the more common disputes we encounter and how you can reduce the risk they pose.
Look out for unregistered rights
While most property rights need to be registered, some can exist even if they aren’t registered. Easements (like rights of way, rights of light or rights for services like electricity) can exist over land and not appear on the title. That can happen either because they were granted before the current registration system was introduced or because they have been acquired (or are in the process of being acquired) through long use. To reduce these risks, there’s no substitute for a detailed inspection of the site – underground utilities surveys can help find hidden pipes and cables, and spotting a gate leading from a back garden onto the site might tip you off that they have a right of way. Keep an eye out for anything that might suggest that a third party makes use of the land. You can even get insurance against the risk of unregistered rights, which can help cover legal costs or even a reduction in land value if there are unregistered rights.
Mitigate the risk of a judicial review
Planning decisions, and even appeal decisions, can be subject to review by the courts via a statutory process known as judicial review. While the court won’t investigate the planning merits of the decision, it can look at whether the decision-making process was fair and lawful. If the court decides the process was flawed, it can order the decision-maker (usually the local authority or Planning Inspectorate) to re-make the decision. Judicial reviews can be a costly delay to implementing planning decisions and risk the developer losing the substantial costs investment in they’ve made in getting planning permission. It’s difficult to wholly eliminate the risk of judicial review, but it can be mitigated. The better the quality of the planning application and supporting materials, the harder it will normally be to challenge the planning decision. If a challenge is made, the developer will be given notice of it and will have the opportunity to respond (but only has a short initial window to do so – 21 days). As judicial reviews can only proceed if the court gives permission, a robust response at the first stage of the dispute can sometimes knock the claim out.
Keep talking to your lender in times of financial pressure
Developments can be delayed for lots of reasons and delays increase costs. Even without delays, in the current market build costs can fluctuate widely from when the project was originally planned to when the building actually starts. That all puts additional financial pressure on developers, who can sometimes find themselves running out of funds as a result. Specialist development finance lenders are alive to this risk. If there are problems, the developer’s relationship with their lenders becomes paramount. Lenders will want to avoid enforcement if at all possible so that they can preserve their relationship with their developer clients. Lenders can often offer terms to give developers more headroom. When developers stop talking to their lenders, though, lenders will get nervous, so keeping communications open is key.
Well-drafted development agreements can help avoid valuation disputes
Many development agreements provide for additional payments depending on the value of the development. Overage might be payable once planning permission is obtained. A promotion agreement might allow the promoter to recover part of their costs. The purchase price in an option might depend on what planning is obtained. Well-drafted development agreements will have ways to resolve these disputes. Often, there’ll be provision for an independent professional like a valuer to determine valuation questions. That helps keep costs down and is usually less acrimonious than going to a court. If parties to the agreement have been open with each other throughout and managed expectations, that helps avoid nasty surprises.
Our Real Estate Disputes team has a wealth of experience in helping to identify, mitigate and resolve a wide range of property development disputes. Get in touch if you have any questions about the points raised in this article.