In our June planning & development club we covered: - an insider’s guide to housing association development - air quality and planning update - finance for development projects: meeting the funder's requirements for construction contracts. Visit our website for further training and resources - https://www.brownejacobson.com/

1. Private sector planning &
development club
June 2018

2. Insider’s guide to RP
development
Gabor Taller

3. Objectives
• Insider knowledge
• Cut down delays (and legal costs)
• Mostly importantly, deliver great service to your
housing association clients
• Make you look good

4. Topics
1. Indemnity policies
2. Mortgagee exemption clauses
3. Estate management charge issues

5. 1. Indemnity policies - security
trustees
• The way housing associations mortgage properties
is different
• The traditional mortgage is like this:

6. Traditional mortgage
Bank (e.g. Barclays)
Housing Association
cash Mortgage on title
to property

7. Security Trustee
arrangement
• Used because of the
sheer numbers of
titles charged at one
time
• Easier to re-finance
(i.e. swap banks)
Bank (e.g. Barclays)
Security Trustee
Housing Association
cash Trust/agency
Mortgage on titles

8. Watch out for definitions
• Beneficiaries of a policy to include “mortgagees
and chargees (and financial institutions on whose
behalf they are acting)”
• Watch out for definitions linked to planning
application reference numbers – what about s.73
decisions?

9. 2. Social housing valuation – all
about potential purchasers
EUV-SH
• Existing Use Value – Social
Housing
• As if properties can only be
sold by mortgagee in social
housing sector
• In East Midlands, difference is
c.£30k+ for rented unit (can
be half of MV-ST)
MV-ST
• Market Value – Subject to
Tenancies
• As if can be sold by mortgagee
to anyone in open market
• Can double value of RP’s
security as far as funders are
concerned all because of a
few words in a s.106
agreement

10. Seven deadly sins of mortgagee
exemption clauses in s.106
1. Does not include "mortgagee, chargee and receiver”
2. Doesn’t cover successors in title and purchasers
3. Doesn’t apply to whole or part of the properties being
disposed of
4. Total length of time to find another RP or for local
authority to take on units is more than 3 months (to
complete sale – not just exchanging)
5. Uses the words “best endeavours”

11. Seven deadly sins of mortgagee
exemption clauses (continued)
6. Price to be obtained by mortgagee doesn’t allow
mortgagee to recover the debt, interest and costs of the
mortgagee in enforcing the mortgage
7. Doesn’t provide clean break of the affordable
obligations

12. Practical impact – example RP
• Got £10m bank facility (based on 120% asset cover). Wants to draw
down £5m
• Each property valued at £80k (MV-ST) or £50k (at EUV-SH)
• Would need to mortgage 75 units (if MV-ST) or 120 (if EUV-SH) to
get hold of the £5m
• 45 extra units to secure the same amount (if valued at EUV-SH)
• RP misses out on £3m extra cash* to build more units (i.e. on
future schemes with you)
*being 45 x £80k
120

13. Other practical points
• Delays in obtaining deeds of variation from local
planning authorities – reliant on goodwill of the
planners (no set time limits)
• Worth getting the RP to lead on discussions
• Difficulties if developer is already under contract
with the landowner

14. 3. Estate management charges
• Difficulties especially with affordable rented
tenure (up to 80% of market rent inclusive of
service charge)
• Housing Associations requesting caps and/or right
to challenge in the transfers (not the same
protections as leasehold service charge)
• Tricky to manage the management company

15. Questions? War stories?

16. Air quality and planning update
Will Thomas

17. What we will cover
• Background
• Case Law Update
• What to expect going forward

18. Legal Framework
• EU Ambient Air Quality Directive 2008/50/EC
implemented in the UK through Air Quality
Standards Regulations 2010
• Compliance originally required by 2010
• Schedule 2 – Limit Values – Nitrogen Dioxide limit
value at 40 micrograms per cubic meter annually;
daily limit of 200 micrograms per cubic meter, not
to be exceeded more than 18 times a year.

19. Current News
• Success! It took us until February to breach the Limits
of the Directive in 2018.
• Health bodies generally consider air pollution to
present a public health crisis. Study suggests that in
2008, air pollution was responsible for nearly 29,000
premature deaths in those aged 30 or older in the UK.
• Increasing suggestions for the car industry to pay
compensatory contributions for air pollution – “polluter
pays principal”

20. Requirements to implement
• As part of implementing the Directive the UK
Government is required to produce an Air Quality
Plan
• The Air Quality Plan must evidence how the UK will
reach compliance with the Directive in the shortest
possible time
• The Air Quality Plan has now been declared
defective by the English Courts three times

21. ClientEarth No.3
• Most recent of the three is ClientEarth No.3 2018
• In the Plan the Government had identified 45 local
authorities that were projected to be compliant by
2021 and therefore planned no further measures
and did not identify if they could reach compliance
sooner.
• This was found non-compliant by the Supreme
Court.

22. Affects on Planning Policy
Nationally
• NPPF – currently one of the twelve core principles
to “contribute to…reducing air pollution”.
Consultation on the revised NPPF has just closed.
More focus on the housing crisis than air pollution.
• PPW – core principle to respect environmental
limits and stop irreversible damage.
• Both encourage local policy compliance with the
Directive and local air quality action plans.

23. Affects on Planning Policy Locally
• When deciding local development plans, LA’s must
have consideration of national guidance (NPPF /
PPW) on air pollution.
• How this has been interpreted locally differs
substantially across the UK.
• Birmingham Development Plan 2031 – no specific
air quality measures.
• London Development Plan – proposals must be at a
minimum air quality neutral.

24. Affects on Planning Policy Cont.
• Nottingham Submission (not yet approved) –
requirement for “clear air zone” by 2019. New
developments should be designed to reduce pollution
and won’t be approved if they contribute to poor air
quality.
• Manchester Development Plan –
“Developers will be expected to take measures to minimise and
mitigate the local impact of emissions from traffic generated by the
development, as well as emissions created by the use of the
development itself…”

25. R (on the application of Shirley) v SoS for
Communities and Local Government [2017]
• The Second Interested Party had applied to the LPA for
permission for an urban extension to Canterbury comprising
4,000 dwellings.
• The Application evidenced an air quality assessment which
found the threshold NO2 limit wouldn’t be breached.
• The LPA requested a review – the professor of the Report
found the conclusions were inaccurate based on traffic
modelling flaws.
• The LPA favoured the former report and resolved to grant
permission, subject to s106 Agreement being completed.

26. Shirley cont.
• The Professor and the Claimants wrote to the Secretary of
State for a determination under s.77 Town and Country
Planning Act 1990.
• S.77 allows the SoS to call in permissions for determination
by him instead of being dealt with by LPAs.
• The SoS refused on the basis that air quality issues were a
matter of local consideration.
• The claimants judicially reviewed the decision as they
considered the SoS to be the “competent authority”
responsible for ensuring compliance with the Directive in as
shorter time as possible.

27. Shirley Cont.
• Found that there was no wider duty on the SoS to make
determinations on developments under the Directive
and therefore no requirement under s.77 to call issues
in.
• S.77 did not create a duty on the SoS to supervise local
planning functions and the parties still had local routes
to protest to the development.
• Whether or not the SOS calls in a decision is a matter of
planning judgement (Persimmon Homes Ltd 2007
applied)

28. Gladman Developments v SSCLG
and CPRE [2017]
• Application made for planning permission of 470 dwellings +
60 care home units in Kent.
• Refused in the first instance and on appeal.
• Application brought to quash the decision of the planning
inspector on appeal on 11 issues.
• High Court considered the matter of air quality.
• The Inspector had applied ClientEarth No.2 and considered
the NPPF paras 120 and 124 in concluding that the site would
have an adverse impact on the environment and could not be
approved.

29. Gladman Cont.
• The Claimants disagreed with the application of
ClientEarth No.2 noting that the Government
were required to produce a plan which would
make the Country compliant shortly.
• The Court found that the inspector had been
correct in his interpretation. The inspector was
not required to assume the UK would become
compliant with the directive and was at liberty
to consider reducing air pollution.

30. Gladman Cont.
• Inspector had concluded that the developer’s
proposed mitigation measures were insufficient.
Mitigation measures needed to be measurable. This
was upheld by the Court.

31. Planning considerations
• Air quality often a material planning consideration
• Weight given to air quality in a planning decision will depend
on:
– Policies in Local Plan
– Severity of impacts
– Existing air quality surrounding development
– Likely use of development
• Assessment of impacts is key
• Where adverse impacts, planning may be granted if those
impacts can be mitigated

32. Changes to be expected
• LPAs to start asking for:
– Better design;
– Air quality impact assessments;
– Measurability of reduction;
– Increased S.106 obligations / contributions;
– Mitigation plans;
– Higher planting requirements;
– Electric charge charging points

33. Measurability
• Developers should be expected to produce accurate
projections of the impact the proposed plan will have
on air quality including evidence of alternatives
considered.
• Local authorities will be increasingly expected to
consider reduction as part of planning policy and will
want accurate projections. Important not to rely on the
Governments Air Quality Plan until it is considered
compliant.
• Provision of air quality impact assessments as standard.

34. Obligations in s.106 Agreements
• Likely to see an increase in s.106 requirements to
mitigate and compensate for any effects on air
quality
• Possible requirements to contribute to clean air
projects such as electric bus services/park and ride
schemes

35. Monitoring
• Once air quality plans are approved as part of
planning permission / ongoing s.106 obligations,
there are likely to be increased monitoring
requirements –
– Annual reports during construction
– Measuring instruments around the site
– Increased site inspections

36. New site requirements
• Planting
• Spatial planning
• N02 charge boxes
• Electric car charge points
• Bus routes
• Park and ride options
• Secure bike storage

37. Car restrictions
• At present air quality plans/local plans focus on commercial
vehicles only. Very unpopular to start targeting private
vehicles.
• However critics anticipate increased traffic
regulation/minimisation will be the only way to reach
desired air quality expectations.
• Welsh Government recently announced two consultations
into tackling air quality with a focus on reducing roadside
NO2 to produce clear air zones. Clean air zones may be
required to restrict vehicle access or introduce a charging
scheme as road traffic is a “significant source of airborne
pollution”

38. Questions?

39. Comfort break

40. Finance for development projects:
meeting the funder’s requirements for
construction contracts
Mark Stubbs, Associate
Charles Jakeman, Associate

41. Structure of session
This is a workshop, not a talk – so be prepared to
join in and ask questions! We will cover:
• Why does the funder need security?
• What are the funder’s common requirements?
• Role of the funder / monitoring surveyor on a
construction project.
• Is there anything on the project which would make
the funder nervous?

42. Why does the funder need security?
Employer
(Developer)
Contractor
Employer’s
Agent
Architect
Subcontractor Subcontractor
Tenant/
Purchaser
Funder
(Bank)
Structural
Engineer
JCT Design and Build
Subcontracts
Professional
Appointment
Professional
Appointment

43. Why does the funder need security?
Employer
(Developer)
Contractor
Employer’s
Agent
Architect
Subcontractor Subcontractor
Tenant/
Purchaser
Funder
(Bank)
Structural
Engineer

44. Why does the funder need security?
• A warranty creates a direct contractual link
between:
– a funder (as the beneficiary); and
– the contractor(s), sub-contractors and consultants
(designers) who carried out the work.
• Warranties provide security over the Project so if
the borrower defaults under the funding agreement
the funder could:
– exercise its charge over site; and
– ‘step-in’ to complete the development.

45. Funder’s common requirements: General
• Warranties. Who are they required from?
– Usually contractor and professional team.
– Sometimes key subcontractors.
• Performance Bond / PCG:
– Sometimes a charge may be required.
• Letters of reliance:
– May be required if funder wants to rely upon SI.

46. Funder’s common requirements: Warranties
• As a minimum, warranties should include:
– Warranty from the warrantor that it has:
 complied with, and will continue to comply with, the
underlying contract; and
 exercised reasonable skill and care in carrying out any
design; and
 not specified or used ‘deleterious materials’.
– Step-in rights for the funder, with priority of step in if
there is more than one party with step-in rights.
– Execution as a deed with 12 year limitation period.

47. Funder’s common requirements: Warranties
• As a minimum, warranties should include:
• Irrevocable, non-transferable and royalty free copyright
licence to use ‘Material’, with ability to grant sub-
licences.
• Obligation to maintain professional indemnity insurance
at a minimum level (to be agreed with monitoring
surveyor) for a period of 12 years from PC.
• Right to assign twice without consent. Unlimited
assignment by way of security to a funder (including any
reassignment on redemption of security) and (ii) to
subsidiaries/affiliates of the Beneficiary.

48. Funder’s common requirements: Warranties
• Funder’s accept that warranties only as strong as underlying
contract. So:
– Warrantor can rely on any limitations contracted in the
underlying contract and raise equivalent rights of defence,
excluding set-off or counterclaim.
– Warranty must be consistent with underlying contracts
(standard of care, copyright etc.).
• BUT be wary in accepting any limitations in those contracts:
• Funders may accept limitations on liability if set at appropriate
rates.
• Net contribution clause still unacceptable to funders.
• Don’t accept exclusion of liability for consequential loss.

49. Funder’s common requirements: Warranties
• Follow up receipt of the collateral warranties:
– It may not be possible to get all sub-contractor warranties on
completion of funding agreement (because they’ve not been
employed yet).
– Ensure that the provided forms are in the agreed form.
– Agree if subcontractor warranties are a condition precedent to
drawdown.

50. Role of funder / monitoring surveyor
• Key to agree funder’s requirements early.
• What procurement route will you use? Funders like single
point design responsibility.
• Ensure you can get the security you need. Have the
funder in mind when preparing appointments etc.
– Drawdown often conditional on receipt of warranties and
certified copies of the underlying contracts.

51. Role of funder / monitoring surveyor
• Engage early with funder’s monitoring surveyor. They
play key role in advising the funder on:
– what security the funder requires;
– levels of insurance and appropriateness of any limitations
on liability;
– adequacy of technical documents; and
– progress of and completion of the project (which impacts
on payment).

52. Will my project make the funder nervous?
• Funders like certainty, minimise any perceived risk.
Some may be reluctant with:
– Electronic signatures;
– Use of third party rights;
– Modular build / offshore construction.
• Engage with funder early to address these issues.

53. Conclusion
• Prepare construction documents with funder in
mind.
• Early engagement with funder, monitoring surveyor
and project team.
• Factor in funder’s role in programme – important to
understand cash flow requirements.

54. Any questions?

55. Your speakers today:
Gabor Taller – 0115 908 4110
Gabor.taller@brownejacobson.com
Will Thomas – 0115 934 2007
Will.thomas@brownejacobson.com
Mark Stubbs – 0115 976 6052
Mark.stubbs@brownejacobson.com

56. All information correct at time of production.
The information and opinions expressed within this document are
no substitute for full legal advice. It is for guidance only and
illustrates the law as at the published date. If in doubt, please
telephone us on 0370 270 6000.
© Browne Jacobson LLP 2018 – The information contained within
this document is and shall remain the property of Browne
Jacobson. This document may not be reproduced without the prior
consent of Browne Jacobson.