Main Title

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IBB Solicitors rated a Regional
Heavyweight Source Legal 500 2007
The directory of leading UK law firms

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Mixed-use developments the opportunities,
pitfalls constraints

• Vivien Rimmer
• Residential Development
• Vicky Stokes
• Commercial Development

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Mixed-use developments the opportunities,
pitfalls constraints

• Vivien Rimmer
• Residential Development

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Development

• A mix of politics, geography, economics and
• Salesmanship
• Source Nigel Hugill (Chairman Lend Lease Europe)

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Shaping a new cycle

• Three key drivers to understanding the
• changing UK urban landscape
• Willingness of local authorities to sub-contract
  masterplanning and delivery direction of major
  new urban quarters to the private sector
• 20 year movement in relative values across
  classes and uses
• Density has become a political imperative
• Source Nigel Hugill (Chairman Lend Lease Europe)

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Housing development government targets

• 3,000,000 new homes by 2020
• Annual house building target to increase by
  40,000 to 240,000 by 2016
• Over 60 of new homes to be built on brownfield
  land
• Source Housing Green Paper

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Affordable/social housing

• 180,000 new affordable homes over the next three
  years
• 70,000 more affordable homes each year by 2010-11
• Source Housing Green Paper

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Mixed-use developments the opportunities,
pitfalls constraints

• Vicky Stokes
• Commercial Development

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The right of first refusal

• Landlord and Tenant Act 1987 (as amended by
  Housing Acts 1988 and 1996)
• The problem
• Timing
• Failure to comply

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The tests

• Premises comprising the whole or part of a
  building containing at least 2 flats
• More than 50 of the internal floor area (not
  including the Common Parts) occupied for
  residential purposes
• More than 2 flats must be held by qualifying
  tenants AND number of flats held by qualifying
  tenants more than 50 of the total number of
  flats

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The tests

• A relevant disposition by the landlord occurs
• More than 50 of the qualifying tenants must want
  to take up the offer

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Problems with application of the tests

• Problems with the 1987 Act
• What is a building?
• What constitutes common parts?
• What is 50 internal floor area?
• What are residential purposes?
• What is a qualifying tenancy?
• What is a relevant disposal?

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Example

• Building 1
• 30 Flats wish to buy
• 35 Qualifying tenants
• 40 Flats
• 60 RESI

• Building 2
• 30 Flats wish to buy
• 40 Qualifying tenants
• 80 Flats
• 30 RESI

Total 60 Flats/120 50 75 Tenants/120
63 120 Flats Average 45
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The right of collective enfranchisement

• Leasehold Reform Housing and Urban Development
  Act 1993 (as amended by Housing Act 1996 and
  Commonhold and Leasehold Reform Act 2002)
• The problem
• Implementation of estate management regime
• Loss of value to developer
• Failure to comply

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The tests

• Premises comprising the whole or part of a
  self-contained building containing at least 2
  flats
• More than 75 of the internal floor area (not
  including the common parts) occupied for
  residential purposes
• More than 2 flats must be held by qualifying
  tenants AND number of flats held by qualifying
  tenants more than two thirds of the total number
  of flats and
• More than 50 of the qualifying tenants must want
  to enfranchise

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Structuring to avoid the 1993 Act

• Avoid 75 residential threshold
• Manage the building well
• Give the tenants a say

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Right to Manage (RTM)

• Commonhold and Leasehold Reform Act 2002
• RTM Company
• Process relatively simple
• No Ls consent
• No court order
• No mismanagement required
• Just serve a notice

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The tests

• Building must meet set criteria (similar to
  Collective Enfranchisement)
• - Self contained
• - At least 2 flats
• - 2/3 of flats must be let to qualifying
  tenants
• - Commercial portion of building cannot exceed
  25
• RTM and the commercial occupier

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Commonhold

• What is it?
• What are the benefits?
• What are the disadvantages?

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The Landlord Tenant Act 1954

• What is it?
• When can it apply?
• What difference does it make?

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Mixed-use developments the opportunities,
pitfalls constraints

• Vivien Rimmer
• Residential Development

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Structuring to avoid the 1987 Act

• Avoid making a relevant disposal
• Put freehold into SPV on day 1 forward thinking
  dispose of shares in SPV (subject to 2 year
  rule)
• Lease of residential parts to management company
  before the 1987 Act applies
• Exchange contracts to dispose of
  freehold/commercial investment before the 1987
  Act applies
• Avoid 50 residential threshold

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Management companies

• Basic structuring who gets what? Who wants
  what?
• Estate management regime exit route strategy
• Estate management options
• - Estate rent charge
• - Deeds of covenant (protected by a
  restriction on title)

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Management companies

• Block management company/Estate management
  company
• Competing interests of occupier types

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Constraints on service charge

• Landlord and Tenant Act 1985 (as amended by Part
  2 commonhold and Leasehold Reform Act 2002)
• Service charge recoverability issues for
  landlord/developer
• Impact on values resulting from legislation

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HIPS

• Home Information Pack Regulations 2006
• To be introduced piecemeal
• From 10th September 2007 applies to all
  properties of three or more bedrooms being
  marketed for sale
• Only required for residential property
• Not required for mixed sales
• Not required for portfolio sales
• Energy performance certificate required

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Carbon emissions

• In 2004 UK carbon dioxide emissions were split
• - Business sector 40
• - Household 27
• - Transport 27
• - Public 6
• Household sector responsible for 30 of UKs
  total energy consumption
• Government aims to achieve zero carbon status for
  all new homes by 2016

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Energy performance certificates will

• Indicate how energy efficient a property is on a
  scale of A to G (similar to energy labels
  required for domestic appliances)
• Provide information on a propertys carbon
  dioxide emissions
• Provide advice on what energy efficient measures
  can be put in place to reduce energy bills and
  carbon dioxide emissions (such as the
  installation of cavity wall insulation and solar
  panels)
• Only be valid for a period of ten years, after
  which a new EPC will need to be produced

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Energy performance certificates

• Article 7 of the Energy Performance of Buildings
• Directive requires that
• When any building is constructed, sold or rented
  an EPC must be made available
• - in the case of a newly constructed building to
  the owner and
• - in the case of a sale or rental by the owner
  to the prospective buyer or tenant

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Problems with the applications of the tests

• Similar problems to those for the 1987 Act on the
  whole
• What is a building the 1993 Act is slightly
  more specific

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Energy performance certificates

• EPC is to be produced by qualified/accredited
  experts
• An EPC is to be placed in a prominent position in
  all buildings with a total useful floor space of
  over 1,000 square metres that are occupied by
  public authorities or by institutions that
  provide public services to a large number of
  people
• Partially implemented through Home Information
  Packs Regulations 2006

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CML Lenders Handbook

• Requirements of the Council of Mortgage Lenders
• www.cml.org.uk
• Handbook in 2 parts
• Part 1 General (all) mortgagee requirements
• Part 2 Specific mortgagee (additional)
  requirements
• Regularly updated

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Part 1 deals with lease form/scheme requirements

• No forfeiture on insolvency of Tenant
• Insurance, maintenance and repair of common
  services
• Ground rent increases
• Insurance
• Rebuilding or reinstatement frustrated
• Insured risks definition
• Newly built or newly converted property (NHBC
  etc)
• Road and sewer adoption

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NHBC/Zurich warranty

• Which property company led and undertook the
  development (housebuilder or commercial
  occupier)?
• Housebuilder
• Build out their own schemes using in-house
  capability
• No warranties
• NHBC Rules and Standards
• 10 year warranty (mechanical and electrical not
  covered)
• Zurich alternative

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Additional warranties

• Commercial unit cover through NHBC ?
• - Additional warranties for commercial tenant
  (mechanical and electrical)
• - Direct construction guarantee ?
• Commercial occupier
• - Professional team warranties
• - Must have NHBC or equivalent for
  residential
• (CML Handbook)

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Mixed-use developments the opportunities,
pitfalls constraints

• Vicky Stokes
• Commercial Development

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Questions?