Property Development Documentation

Welcome to the 20 minutes section on property development Options. Conditional contract on over it. Well, if you're dealing with this kind of work, you're lucky because it's the most interesting work. I think you could do a commercial property, give you much more of an opportunity to understand the physical way in which buildings were put together. And even sometimes you get a chance to guard. Look at them. Look, buildings, look at the site. It's important also to realize that this is not just in academic exercise, that there is no standard option conditional contract of average, that he treated it, that it's more likely to go wrong. And you're missing all the interest you can have from understanding the way in which these put together. So do try and get involved as early as possible in negotiation of these things, because very often you'll then more about it, certainly than the average land agent, although the other end of the scale commercial surveyors very, very kind of people. But often you'll be dealing with a builder who probably hasn't done this sort of thing before, thinks it will standard the land. Asian doesn't die either, so really one of the things you might come across. First of all, you might come across options or rights of preemption. You might come across conditional contract conditional upon planning, commission or test factory with some sort of environments or grand conditional other requirement on. You might also find that in any of the others you might sell the land subject to average, meaning that the purchaser won't just pay the amount of money, their pain on the first on the transaction on buying it, that when the property is developed in years to come, it may be that further money is paid to the seller. That's what's called average on this probably is massive litigation going on about badly drafted over its provisions. So again, it's understanding of the outside what people say. So let's start off options. What's the advantage for? A builder went about abusing an option from Orlando. That rather conditional contract? Well, under an option agreement the builder, but call him a photo is a developer. From now on, the developer won't actually have to commit itself to Boeing, the mind at all, so it will simply taken option, pero to the small amount of money is an option. C possibly only 5000 possibility. Couple £100. So that may or may not be a bundle. Very often. It's not refundable on the option. He has seen something that the seller gets for entering into the option agreement. Now the builder may or may not have obligations to do something regarding the site. They may have obligations of it planning applications. Andi, you know, it may be that they do that, but point about an option. Green is that usually the developer doesn't have to do anything if they don't want to. So they may decided to take options off three or four sites, just in case one of them comes forward for development in the local plan. And they used to do one, but they they actually think it would be more profitable. What I've seen 70 times, sadly, is the seller has signed adoption agreement. They had any legal advice on me whatsoever. Andi. They just think I straightforward. Why don't need to see a lawyer? It might only be one page long, and they don't realize that being carefully drafted by a lawyer to make sure that they are completely stitched up unable to sell it to anyone else. They won't be able to sell that house all moved from that house, even if somebody dies or there's divorce or change your job because nobody's going to buy a property, which is subject to an option agreement. But on the other side of the coin, the development of any obligation to do anything at all so often there's a mismatch in negotiating strength and understanding between developers and landowners, particularly when you're doing with small residential side assembly type things on. The developer acting for will have little short option agreements stitch up, so the seven then finds 234 years down the road. Nothing happens, but probably is not developed on. They get nothing. So if they were properly advised, what would be saying to develop is we won't give you option agreement, but we will enter into a conditional contract. Now. What's the difference? You might ask? Well, the difference is very much that the developer is tied down as much as the seller. The developer will be required to make an application for planning permission to promote that application in some cases to even appeal, and your refusal of the application and assuming that the application for planning permission is finally successful in the ground to panic Vision, then the developer that will have to buy the land at normally a market value of the land with a discount probably 20% 30%. Even more to reflect the fact that they've taken a risk off Hispanic lots of money on promoting a site so much more serious for the developer to enter into conditional contract that an option agreement because they are going to be committed to spend a lot of money on promoting site on. Ultimately they may well have to buy it. Whether they want to or not, obviously, is the option. The meaning of the word says they could if they wanted to get a planning commission. But they might decide it because it's not profitable up not to proceed with it, however, a conditional contract. If they had that panic aggression, as long as it doesn't have other risk conditions, we will talk about that later, Then they will have to buy it, and whether they're likely to make profit or not, you can see that developers rules want to take options and service rules want to grant a conditional contract on. There are a number of things that are common to all of these in the drafting, obviously at the outset of its conditional contract. Then all of the things will apply. It's an option agreement, possibly very few of them apply. It's not impossible for adoption agreement to also include an obligation on developed, replaced by a machine. It's rather unusual. First thing common to both is how long is the option period or conditional contract to be These days? It's gonna take at least two years to get any decent planning commission through. Even if there is no substantial political objection, there often need to be negotiations on the precise nature of the development elevations. Five infrastructure. They will have to have highway service, environmental surveys. They will also have to provide social housing and affordable housing. Etcetera, all of which was extremely expensive, will take time to negotiate. So don't be optimistic and take six months should do, except for probably four years is more likely to be the and the result two years, maybe the initial period, but that the figure it might be extendable by the option of either party should usually developer should seem like this take longer than expected to get the Planning Commission? Now? Next question is, Is there in Africa? Is there an obligation, all the developer to make an application for planning permission that may not be in relation to an option? There is very likely to be in relation to a conditional contract. But what definition of applying for missionary talking about here? And it could very from anything, such as a very vague definition, such as will obtain vanquish before residential development. Full stop. Or it might be very detailed, it may say, to make the attached tally application attached as appendix A within three weeks from the start, any of this agreement so where you are really depends very much on the circumstances and how much they worked up proposed application. It could be that certain aspects are clear and certain aspects aren't it could be somewhere in the middle, such as to apply for Planning commission of not less than 50 residential units being mix of 1 to 3 bedroom flats, the minimum density of so much per hectare, etcetera, etcetera. So really, you'll need to understand what The effect is or value on also what celebrity in the marketplace from talking to your clients, planning experts or others. So how much do you stipulate the Nature Planning Commission? The next thing to think about is, will the developer be entitled to change that application at any time? It's often the case that whatever seems likely to grant planning permission, the local committee members might say, Well, we don't like this way. We would like that. So it may be necessary if the developers going to proceed to make a further application or amend the application or withdrawal the application or changed elevations. Areas, sizes, a sector, etcetera. Is there something that's going to keep committed under the terms of the option agreement or conditional contract care needs to be taken in the definition of what is defined as the planning application stars to ensure that includes any amended or resubmitted planning applications. It sort of nightmares, an idea that you might get. It's one that protecting for a household name developed a couple of years ago. Andi. They have attempted to a conditional contract whereby provided they got thank which they could buy the land on, they don't like mission and they wanted to figure young conditionality to buy land. Well, when I looked at the planet question, they can't. It was not in accordance with what they were supposed to apply for what is happening. They had made the original at the case, and the locals are said no, we weren't allowed to do that would allow this. So without getting the consent off the seller, they just withdrew my application and submitted available for something different, thinking that did it out. What developed was thinking about timing. Question presidential vote be, obviously have read the document, understand the importance, not realizing that if this ever wanted to, they could refuse to sell the land even though they had obtained planning permission, because it wouldn't be the planning commission that complied with the requirements off the document. Now, why would the seller refuse? Because they're gonna get a lot of money. The answer is because the developer had negotiated a discount on the price to reflect the investment, go to making promoting site, so they were going to be able to buy the land for something like 50% of its market value. So if you're a seller, and you could point out that they were entitled to do so, refused to agree that they could buy the land. You could then tell it for someone else, with the benefit of the planning permission that the developers had obtained free of charge. But as far as you're concerned for the full market value on So I realized this, and I told him that if a seller sister had that which they point this out on, as it happens, they didn't have the other. Is this really what they're doing? And they didn't make it out, so it completed. But until the very moment of completion, I could be certain that they wouldn't suddenly realize that they were able to pull a possible developer point. There's no ability to trigger on traditional that development agreement, so think carefully about as a buyer on what exactly the condition is, how it's defined. And if you do have any needs for approval or planning applications etcetera by sellers, make sure that the developer realizes the importance of going through the procedures, set out documents to get the approval Now, what about refusal of planning application? It could well be that the initial applications turned down on. It might be that the local authority being unreasonable about that. Now what you do. They're usually provisions in the conditional contract, saying that provided on appeal has a reasonable prospect of success. Then the builder must appeal. Sometimes they have the right to appeal. Sometimes they must appeal depends upon the negotiating strength. If you have a situation where the seller has a very strong position, they may insist upon the developer appealing and anything now. Obviously, the developer doesn't want to throw good money after bad. It's obviously going to be a points appeal. So they will normally have some sort of resolution provisional, which will say that if the development could show that the chances of successful people less than 30% by referring it to experience council, then the developer would not be forced to do that. So think of it further than just the documentation. Think about reality. So what next state is the draft has got this time commission assume that is compliant with any obligations in the document? Is it unacceptable Planning Commission because you can't guarantee that could make money out of every application development it may be that the only way to get funding commission was to commit to an extremely expensive prevision off infrastructure or roads or play areas, or extremely expensive contributions towards low community schools and so on. Or it could be that the only way to get it would be to agree to a very high percentage being given to housing associations affordable housing for free. So what you need then is have a definition off an acceptable final question. This will normally say that it could say, for example, that any fine tradition of not less than 50 units at Midwest so much per hectare, with no more than 25% social as he will be deemed to be acceptable. But on the converse of that, it may have a list of things called onerous conditions that will talk about later, which is the only panic wish they get contains these elders conditions. Then the developer is ableto pull out is not going to be forced to buy the land. So OK, it's a very much spoke drafting for that particular situation. They're also, if you do have a conditionality, think yourself how objective is this condition? I think cases Where the condition, What's the grant of a planning commission acceptable to the builder? Well, in that case, the builder can really treat it as an option agreement, rather conditional contract if he doesn't like the the planning Commission obtains. Next thing. But is the price How is the price goes? Be calculated. Normally it's a percentage of market value in the market. Value will be assessed. To see him in the property can be about with languishing. Now today, parties will have an opportunity to negotiate this, but there should be some dispute resolution procedure that I'm able to do that. Then what about the deposit? Well, about the options we are they wanted insane. The developer Rock say that any option p that he's paid is a part payment towards the purchase price. The seller only say no. That's an additional payment in addition to the purchase price. Again, this is often not clarified. So what happens if they don't agree? Then they need to be a dispute resolution procedure so that someone could decide what the price will be, and it may then be the builder has to buy it and some other minor things think about to. What control does the developer have over the sellers? Actions is, for example, the seller precluded from any again the objection to any application that about the building makes on. What about planning obligations? Almost every case you'll have a need for a planning obligation entered into by the landowner. If you have this tripartite arrangement whereby the landowner existent, developed being sexually six agreement which would be negotiated and then it has provided to the local planning authority who then, having received a satisfactory sexual six Plenty agreement will then release the Planning Commission to the developer, who will then use the Planning Commission to trigger the UN conditionality of the contract you make and then call for a transfer of the land to a developer and any obligations under the sexually on his ex agreement. Well, then it properly drafted for Paul, the developer of the landowner, and it'll normally an indemnity in that, too. But that's a much more complicated area. Then what about possibility of works on retained land? It could be development could see there might be need for unease, mint or infrastructure, or something like that over the retained land is the seller going to be obliged on paternity agreement to provide such other rights easements. Rights of entry etcetera over any retained land is in addition to the options or conditional contract land. So something to think about having started planning consultants and infrastructure advice is to then what about other conditions may be conditioned relating to, for example, grand conditions or grant of easements, etcetera or environmental? Make sure that all of these are sufficiently closely drafted, so they're not able to use by converting a AM conditional contract into a subjective option. Green conditions and usually problematic. And again, it could be anything from percentages of social housing to contributions towards works on. But again, it should be guided by physical requirements that your clients professional team suggests the local authority requiring and whether or not it's a straight sale. Whether it's sold common, conditional, unconditional contract, it is extremely likely that there will be an over provision required now, as I said before, the concept here is that even after the builder developer has bought the land, if there was a further intensification of the use which results in increasing value, then a further payment repayable to sell it now a day. There is massive litigation on this. So careful drafting is essential. The first point gonna think How am I going to structure this? Isn't gonna be protected by a restrictive government is protected by a positive obligation. Is it going to be protected by a mortgage of securities protected by creating the reversion release is in fact going to be created by a ransom strip. All of these have problems and advantages. The only decent book on the subject is by Christopher Jessel Development land over its lands and crawl back. I strongly recommend any of on who's involved in this to read that book carefully before they don't drop anything. There are some common issues. Too many of these subjects, however personable advantages. What about trigger beds? What about a method of calculation off the value? It is a one bite of the cherry. So once the planet wish has been granted for residential development, does the over its collapse or is it triggered by any future intensification off the original commission on again that something could easily trip up with If you don't make sure that the average captures every time there was a trader event and then the trigger events. What the trigger is it? The same of the land is at the disposal of the land is granted. Freehold interest is the ground of leasehold interest or any other minor interest doesn't include, perhaps transfers off. The beneficial interest in the property by share could tell CSL transactions of the company that owns the land. I've seen situations where over two provisions have been completely circumvented by deals like that, and they calculation itself could cause problems with the beams of high profile cases where very well regarded firms of ministers have failed to notice that they have bean two ways of reading. There particular drafted Clause one, in which case, the seven Homes case. The figure was either 800,000 or 3.6 million. So again, create care in the drafting. Don't use long, rambling paragraphs. Use formula. Make sure that you run the numbers through. Make sure the client running numbers through and think about ways in which some devious withdrawn the other side might try and get runs the over bridge. So there you go. If you find this interesting overview but well done, if you're doing with this work? Because it is really interesting. But take care because there are lots of traps. Finally, best book generally on the subject of property development is my gavel. Is Chad published a couple years ago? Simply call proxy Development takes office. President. Well, worth every panic, Eric From the More Societies Bookshop. Thank you very much.