Developer's Podcasts

Have you had a look at our new web site yet? It can be found at http://www.trethowans.com/ and on the commercial property page you will find a link to some podcasts I have made with 2 of them specially for developers and all those involved in commercial and residential property. I am sure all of you will have got an MP3 player , ipod or otherwise but even if you haven't the podcasts can be played from the comfort of your desk by clicking on the player available via the website. If you would like to receive all future podcasts automatically to your MP3 player, just go to the ITunes web site and search for Trethowans Podcast and then click on subscribe and then all future podcasts will be downloaded to your MP3 player. Keep an eye out for future podcasts later this year which will feature interviews with members of the Commercial Property Team and with leading movers and shakers in the property development industry. I might be tapping you up soon to contribute so have a listen to see what you are letting yourself in for!

No need for Company Secretaries

Great news for companies especially smaller companies is that from 6 April 2008 private companies may choose not to have a company secretary (section 270(1), Companies Act 2006) and may be comprised of nothing more than a sole director. All that is needed is that the usual form 288b needs to be filed with Companies House and, in the case of Companies whose articles specifically provide for the role of company secretary, they will need to be revised. So all those mad panics for gettings deeds and Transfers executed by 2 signatories can be dispensed with. If you need any help lodging your Form 288b's or amending your articles, let me know and I will put you in touch with one of my company colleagues.

Getting restrictive covenants released in the County Court

A recent Court of Appeal case is going to highlight to developers another route for getting restrictive covenants that prohibit a single dwelling from being converted into multiple residential units released. The normal route is an application to the Lands Tribunal under Section 84 of the Law of Property Act 1925 but it is much simpler to make an application to the County Court under Section 610 of the Housing Act 1985. The Court of Appeal in the case of Lawntown v Camenzuli have just confirmed that the county court has discretion under Section 610 to give permission for a developer to proceed with development notwithstanding a covenant prohibiting a single dwelling from being converted into multiple residential units.

There are 2 criteria that the court can consider in granting permission:

• that changes in the character of the neighbourhood mean that the premises cannot easily be let as a single dwelling house but it could be readily let for occupation if converted into 2 or more dwelling house; or
• planning permission has been granted for conversion into 2 or more separate dwelling houses (instead of a single dwelling house).

The thinking behind this legislation is that the Government is trying encourage an increase in the number of living units in other words allow more intensive use of existing premises. What the courts will have to do with a Section 610 application is weigh up the competing interests of the parties but that can include taking into account matters of public interest. It remains to be seen if developers will exploit this new avenue of challenge.

Zoopla! Property Valuation Web Site

Just discovered this amazing new web site (which can be found at http://www.zoopla.co.uk/ ) which appears still be in beta testing. You just pop a postcode into the box on the home page and it then comes up with all the prices of houses sold in that postcode with an image of the property taken from Microsoft Virtual Earth. Presumably, the prices achieved and date of sale have been taken from the Land Registry information. It has an estimate of your property which is calculated using a clever algorithm. You can then claim a property and add more details and then invite people to make an offer on that property.

The site also has a social networking element to it via the My Zoopla button. This logs properties you have claimed as your own, tracks other properties you would like to buy or are just plain curious about. You can link with other registered Zoopla users and upload personal details and photo.

I think this site is going to be big. I can see this being of great interest to developers who can research properties near to their developments or even identify potential target properties and make offers via the web site. It could be anther worry to agents because it links buyers with sellers directly. Whether putting your property on this site constitutes marketing of your property such that it invokes the HIPs legislation is an interesting question yet to be answered. Bank and building societies might even save the money on valuations and use this site instead! Could be open to abuse though, if you managed to claim a property as yours and give it a low value. This might result in someone suffering financial loss if it put buyers off making offers.

Generating Plot/House Sales in a downturn

As the full horror of the credit crunch begins to unfold, do we get gloomy and hope for the best or do we see this as a golden opportunity? The fact is that estate agents and developer's sales teams are bracing themselves for a very tough year.

We at Trethowans have been thinking how we can help our clients and agents we work with and have been discussing the idea of a having a forum over a few beers in which we can explore all of the possible incentives that can legally be offered to prospective buyers. We believe that a basket of incentives will be the best solution because one size definitely does not fit all when it comes to generating sales. Some buyers are cash-strapped and would be interested in cash backs, gifted deposits or even having their mortgages subsidised for a year or so. Buyer's solicitors may have concerns and there are ways to overcome these concerns. Some lenders are growing reluctant to approve these schemes but the lender's consent is vital to avoid allegations of foulplay.

Solicitors have had a monopoly on legal services since time immemorial but with the passing of the Legal Services Act 2007 which received Royal Assent in October last year, the market is to be opened up to commercial companies and the likes of Tesco, Sainsbury, RAC, Co-op and Virgin have all expressed a desire to enter the market to provide legal services. Solicitors have been responding to this threat in different ways. Trethowans has decided to respond by raising the standard of their service to a level way beyond its competitors by launching a legendary client service strategy. This was launched a year ago and has involved an ongoing firmwide training programme which I was involved in designing and providing. The programme draws on the latest wisdom from the service champions in retail and leisure throughout the world. Karl Reynolds, my fellow partner in the property development team has even written a thesis on this for his MBA. It is not something that can be achieved overnight but we are firmly committed to delivering it over the next few years.

If this would be of interest, please let me or your usual contact at Trethowans know and we can fix some dates up for a forum/open discussion. You can post a comment to this posting by hovering your mouse over the comments heading at the bottom and then typing in your comment.

For the last few years, plot/house sales have been relatively bouyant but in the next 12 months at least, it is clear that we are all going to have to work at generating and maintaining sales. Whilst we do not profess to be experts in legendary service, it surely cannot harm to listen to some ideas and you never know it might give you a killer idea which means you ride the leaner times with greater ease than your rivals.

Looking forward to hearing from you.

EPC's Compulsory for Commercial Property

Under the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 (as amended), there is a requirement for Energy Performance Certificates (EPCs) to be issued by an accredited assessor (subject to some exceptions noted below) on the construction, sale or renting out of non-dwellings and the implementation timetable is as follows:

6 April 2008 - where there is a total useful floor area over 10,000 sq. metres
1 July 2008 - where the area is over 2,500 sq. metres
1 October 2008 - for all the remaining buildings within the scope of the Regulations.

EPCs are NOT required for:
-places of worship,
-temporary buildings with a planned use of less than 2 years,
-certain types of building with low energy demand including, industrial sites, workshops and
-non-residential agricultural buildings
-stand-alone non-residential buildings with a total useful floor are of less than 50sq. metres.
The Regulations specify the point at which (subject to some limited exceptions) certificates are to be made available

For non-residential property EPCs have a validity of 10 years.

There is also a requirement in the Regulations for there to be inspections of air-conditioning systems. This applies from 1 January 2008 and is implemented as follows:

If the system is put into service after 1 January 2008, the first inspection must take place within five years of the system being put into service.
If the system is in service before 1 January 2008, the date of the first inspection depends on the output of the system:
systems with an output of more than 250 kW must be inspected before 4 January 2009;
systems with an output of more than 12 kW must be inspected before 4 January 2011.Finally, from 1 October 2008, occupiers of certain buildings will be required to show a Display Energy Certificate (DEC) in a prominent place. The requirement to display a DEC only applies to buildings with a total useful floor area over 1,000 square metres occupied by public authorities and by institutions providing public services to a large number of persons and therefore frequently visited by those persons.
Circular 02/07: The Energy Performance of Buildings (Certificates and inspections) (England and Wales) Regulations 2007 (www.practicallaw.com/4-253-3952) states that public museums and swimming pools will fall into the latter category of buildings required to display a DEC, but hotels and retail outlets will not. According to Circular 02/07, further guidance on establishing whether a building requires a DEC will be published shortly.

Free 3D Modelling Software from Google

Google Earth is a thing of wonderment and beauty but did you know that there is a piece of free software from Google called Google Sketchup in which you can easily design a building of any shape or dimension then place the building in a physical location on Google Earth and then invite others to view your building. This could be a housing development or even an extension on to an existing building. It is possible to render the outside surfaces with photos stored as JPG's so that the external appearance looks like one of your houses. Apparently, the software only takes a couple of hours to get to grips with. If your building is noteworthy, you can submit it to 3D Warehouse and they will include it in their catalogue of 3D Models.

This could be an incredibly powerful way of marketing your new development to the public. Using the Google Earth flight sim software users could fly around your development and zoom in to get a virtual tour of the development.

Check out the site for further details.

http://sketchup.google.com/

Tax Incentives for Development of Brownfield land

In October 2007, the Government published a summary of all of the responses it received from its consultation on tax incentives for brownfield land. The Treasury is proposing to extend tax relief for the remediation of contaminated land to include long-term derelict land and the cost of removing Japanese knotweed and withdraw the existing landfill tax exemption for waste arising from the remediation of land. Most responses to the consultation were supportive of the Treasury's proposals. They have said that they are committed to bringing the changes in time for the March 2008 budget.

Under the land remediation tax relief scheme, companies can claim a deduction in corporation tax for capital expenditure incurred in the remediation of certain contaminated sites. At present, the deduction is an amount equal to 150% of the qualifying clean up costs. The proposal is that this is now extended to long-term derelict sites. To qualify the site must have been derelict since 31st March 1998 and the Government would use the English National Land Use Database as its primary source of evidence.

There is a concern by the Treasury that landowners are claiming relief on land which has been remediated but not developed. The Government was thinking of making the relief dependent on the expenditure having been incurred in accordance with the planning permission or obligation. Most respondents thought this was a bad idea.

I will keep you posted on the proposals when these are published.

SDLT relief on Zero Carbon Homes

SDLT relief on Zero Carbon Homes ("ZCH") has just come into force on 7th December 2007 and will apply for all ZCH's acquired from 1st October 2007. On properties costing less than £500,000, there is a complete exemption for SDLT if this is the first acquisition of a ZCH. ZCH must meet the standards set out in the 2007 Regulations.

To qualify as as ZCH, the home must have:

• a heat loss parameter of no more than 0.8 watts per square metre
• a carbon dioxide emission rate of no more than 0 kg per square metre over the course of a year
• net carbon emissions not exceeding 0 kg per square metre over the course of a year

The latter is calculated by taking the annual CO2 emissions per unit floor area for space heating, water heating, ventilation and lighting and those associated with appliances and cooking and deducting the CO2 emissions saved by the use of energy generation technologies in or on the home and additional "allowable electricity". "Allowable electricity" means electricity generated from a zero carbon energy source. A "zero carbon energy source" includes wind, photovoltaic and hydro-electric power.

A potential ZCH has to be inspected by an accredited assessor and if satisfied a ZCH certificate will be issued.

Once the ZCH is built, the vendor of the property has to get the ZCH certificate from an accredited assessor and give it to the purchaser who can then use it to get the relief.

Although the relief has attracted a lot of publicity, it should be noted that the relief is only available until 30th September 2012 and the technologies required to make a property zero carbon are very expensive at present and may be more than the relief. Also, it is all very well having a zero carbon property and quite another thing to run a home using energy efficiently. It's all back to turning off lights, shutting doors and windows so that heat doesn't escape and using the right light bulbs, and making sure monitors, TV's and eletrical appliances are turned off at night just as much as having an energy efficient building and using renewable energy sources. Time will tell if we see these properties in any great number on the market.

Carbon Footprint Calculator Launched by Environment Agency

The Environment Agency ("EA") has just made its carbon footprint calculator available to the UK construction industry. This calculator measures the amount of carbon dioxide generated by construction projects. It was developed by the EA for its major construction projects and it has now made it available to other construction companies, consultants and government bodies. It can estimate the amount of carbon dioxide emitted by:
-the raw materials used
-the transportation of raw materials and employee travel
-site activities, such as earthworks and excavation
The tool allows comparison of waste management options and saving to be made.
The Carbon Trust has also recently launched a carbon footprint calculator for all business sectors.
The EA's calculator will be especially useful for large-scale construction projects where the developer is required to prepare a Site Waste Management Plan which is compulsory from 2008.

Fast Track Option Agreements

We keep hearing horror stories about deals and opportunities lost because of the delay in the legal process and we think we have found a possible solution which would be of interest to developers and landowners alike. We can get an option agreement exchanged on hotly sought after site in as little as 24 hours. This fasttrack service obviously requires us to drop everything and attend an all parties meeting to accelerate the usual lengthy process of drafting, negotiating and amending an Option Agreement and so there is a slight premium added to the standard fee for this special expedition. Searches and title investigation can either be left till after exchange or an exchange can proceed on the basis of title investigation only. If searches later prove to be adverse, then the Agreement gives the developer a right to rescind. We have been using a precedent from an organisation called PLC which attempts to strike a fair balance between landowner and developer and most large firms would instantly recognise the agreement. This greatly speeds up the process of agreeing the document. If a landowner does not have a particular solicitor who he insists on using, we can recommend some small firms who are familiar with the PLC option agreement and would be happy to drop everything to see a rapid exchange of the Option Agreement. When negotiating the option with the landowner, it might be a further incentive for the landowner to use one of the smaller firms we can recommend if the developer offers to pay their legal fees. If you would like further details contact me via the blog or my partner, Karl Reynolds at karl.reynolds@trethowans.com.

Changes to VAT treatment of serviced building plots

A serviced building plot is bare land in respect of which civil engineering works have been carried out to provide access to essential services such as gas, electricity, water, main drainage, street lighting and sewerage. HM Revenue and Customs has just announced that there will be a change in the treatment of these serviced building plots. Following the recent VAT tribunal decision in Douglas Virtue and Sonia Virtue trading as Lammermuir Gaming Services, the supply of a serviced building plot of land will be treated as a single exempt supply of land by the landowner. Prior to this decision, the Revenue had treated the supply of land as an exempt supply and the civil engineering works to install the service connections as a standard rated or zero rated supply. This will be bad news for landowners because if the supply of the works is standard-rated, rather than zero rated then any VAT will be an irrecoverable cost to the landowners. Landowners may try to increase the price of the plots but this might mean that the land is not competively priced compared to non-serviced plots and those where the installation of service connections was zero-rated.

Overage Agreements-Recent Reported Cases

Overage agreements are always a ripe source of litigation because there are can be such large sums of money at stake and because they are difficult documents to make absolutely water-tight. There are 2 reported cases this year on overage agreements and there are some interesting principles emerging from these recent cases.

In the case of Ross River Ltd (1) and Blue River LP (2) v Cambridge City Football Club Ltd, the High Court held that a football club was entitled to rescind an overage agreement with the developer of its football ground, because of fraudulent misrepresentations made by the developer's agent. What is interesting about this case is the court based its argument on an academic essay which suggested that the way in which rights and powers are allocated in a contract can show whether a party to a contract is to act in its own interests, the parties' joint interests or the interests of the other parties. Conflict of interest should be a constant concern of professional advisers during a transaction.

In the case of Berkeley v Pullen a landowner signed a contract with a developer under which the developer agreed to obtain planning permission for some land and then would receive a fee when the land was sold. In the overage agreement, the landowner agreed to use all reasonable endeavours to assist with the planning process as well as act with the utmost good faith. However, the contract was drafted in such a way that it did not bind successors in title and there was no wording preventing a sale. So in 2007, the landowner agreed to sell elsewhere for £35m. The developer sought an injunction on the basis that the landowner was not free to sell until the planning permission had been granted or refused. Surprisingly, the court found in favour of the developer saying that whilst there was a specific "good faith" clause in this contract, the courts would be prepared to imply a duty of good faith even if there was no such wording. The court said it would intervene to protect the commercial purpose behind the contract. This is a significant departure from prior cases in this area.

HIPS Packs for all properties from 14th December

As if the residential property market in the UK was not in a bad enough state, with successive interest rate rises, the credit crunch following the US subprime collapse, the Government deals the killer blow by making HIPS packs compulsory for all properties from 14th December 2007. This will make it an offence to market a property without a HIPs pack comprising local search, drainage search, title documents, Energy Performance Certificate, an index to the HIPS and a sales statement. Trethowans has teamed up with HIP Homes (http://www.hiphomes.co.uk/index_main.cfm) to provide a quick online solution accessible by buyers and agents via the web. For developers, the pack is free and a small fee will be charged to buyers for providing the pack. So, whilst an enormous pain, at least compliance will be fairly effortless.

New Blog for Developers

Hi! I'm Dominic Beeton and I am a partner in the Commercial Property Department of Trethowans, a major law firm in the UK with offices in Southampton and Salisbury.

This blog will contain up to date information on cases and legislation affecting commercial and residential developers in England and Wales and will be of value to anyone working in that sector including investors, professional advisers, funders and brokers.