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Coronavirus and the Development Agreement

It is important to review existing Development Agreements and associated contract documentation, writes V. Charles Ward, given that all significant development delays have contractual consequences, particularly for housing regeneration.

As construction cranks back into gear, it is time for regeneration lawyers to review existing development agreements, as well as those which have yet to be exchanged. But the fact that the government has allowed construction sites to reopen – even if only on a restricted basis – provides no guarantee that development will actually re-start. Those are commercial decisions which each development company has to make – having regard to existing contractual commitments.

What can be guaranteed is that, at least for the foreseeable future, construction will not be the same.  The activity and ‘buzz’ of a busy construction site struggling to meet completion deadlines has gone.  In its place will be a slower, quieter and less intense industrial workspace, as the need to maintain social distancing becomes paramount.  It also means that existing contracted developments will take longer to complete with possibly substantial cost overruns.

What makes housing regeneration different from other commercial transactions is the partnering ethos which successive governments have encouraged between local authorities and their development partners.  Together they exist within a small universe in which there is mutual interest in getting developments successfully completed.  For the local authority the principal driver is not a cash receipt from the sale of land but the delivery of affordable homes for sale or rent.  It is that same mutuality of interest which will now enable councils and their development partners to ‘work through’ the changes required to existing contract documentation to make a project work despite Covid-19.  The need for additional financial resources, as well as the extension of contract deadlines, are issues which need to be addressed. A more serious issue in the current financial climate, is the increased risk of developer insolvency and what a council would then need to do to salvage a half-completed development and bring it to completion.

Safe working – the new guidelines

To get the measure of how the enhanced Civid-19 safety-restrictions will affect housebuilding, the starting point has to be the official guidance, which is contained in two documents.

The first is the six-page briefing-note published by the Construction Leadership Council and titled, ‘Construction Sector - Site Operating Procedures.  Protecting Your Workforce During Coronavirus (Covid-19) (Version 3 – 14 April 2020)’.  This is a practical document containing a list of recommended actions including: encouraging workers to travel alone or, where this is not possible, to travel with the same individuals and with a minimum number of people at any one time; staggered start and finish times; signage to encourage two metre distancing; requiring workers to wash hands when entering and leaving the site; asking delivery drivers to remain in their vehicles; removing or disabling entry systems which require skin contact; encouraging staff to bring their own food instead of using canteens; staggering break times; managing changing facilities, showers and drying rooms.

The second is the 30-page Government Guidance issued 11 May, 2020 and titled, ‘Working Safely During Covid-19 in Construction and After Construction work.  Guidance for Employers, Employees and the Self Employed’.  This is a strategic document with an emphasis on enhanced and documented Covid-19 risk assessment.  Many of the recommendations mirror those contained in the earlier CLC document but with more explanation.  Employers are asked to share Covid-19 risk assessments with their employees.  Anyone who can work from home, such as administrators,  should do so.  A building workforce should be split into small teams, who work only with each other, thus minimising any risk of spreading the virus to other workers.  Working hours should be staggered – as should break times.  Where possible face-to-face working should be avoided by encouraging staff to work back-to-back or side-to-slide.  Screens and barriers and should be introduced where necessary.  Though surprisingly neither this, nor the earlier CLC guidance, recommends any use of personal protective equipment above that which would routinely be worn by anyone working on a building site.  Special care should also be taken to identify any of the workforce who can be classed as vulnerable.  Finally employers are required to display site-notices informing workers of the risk assessment which has been carried and where it can be seen.

Contracts yet to be exchanged

Where a development agreement  has yet to be exchanged, there is always an 11th hour opportunity for either party to look again at its terms and make sure that both the contractual deadlines and financial model are still workable in the changed  circumstances under which we are now working –and negotiate any changes which may be required.  Where a local authority is retaining ownership of land pending the carrying out of construction, it is also important that a development partner is placed under a specific contractual obligation to comply with evolving government guidance relating to safe-working during the current emergency.  It must also be remembered that a development agreement does not exist in isolation.  For most development projects, the development agreement is the key framework document on which all other construction documentation hangs.  These will include building contracts; collateral warranties; and statutory agreements dealing with planning,  highways and other infrastructure.  Therefore it is important that any changes to the development agreement are followed through to the subsidiary contract documentation.

Contracts already exchanged

Where a development agreement has been exchanged, the parties will already be bound by its terms.  But a well-drawn development agreement should also provide sufficient flexibility to enable the parties to address unforeseen events likely to delay or increase the costs of a development.  These provisions are likely to include the standard force majeure clause providing time extensions in the event of unforeseen circumstances beyond anyone’s control – as well as a change-control mechanism enabling either party to propose modifications to the contract or the work to be carried out pursuant to it.  If in its present form, a contract does not adequately meet the changed circumstances, the other alternative is to negotiate a variation agreement.  As many housing regeneration projects are grant-funded, it is also important to ensure that the terms of any grant funding are sufficiently extended to meet unavoidable development delays and cost-overruns arising as a result of the Coronavirus.

V. Charles Ward is a solicitor specializing in housing regeneration and is the author of, ‘Housing Regeneration: a Plan for Implementation’ (published through Routledge).

 

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