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About

A Development Agreement is a contract between a developer and a local authority. It is used to ensure that the developer meets the terms of the planning permission and the conditions of the development. Solicitors can ensure that the agreement is legally binding and that both the developer and council meet the terms of the agreement.Next steps

How much does a Development Agreement cost?

The cost for a licensed solicitor to help with a Development Agreement is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £250-£300 but in some cases it could cost as much as £500.

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Development Agreement Solicitors

When you have a plot of land allocated and have found a developer for a commercial property you’re interested in partnering with to see your project come to life, you’ll be presented with a development agreement.

development-agreement

A development agreement is a term used for several different types of agreements between developers, landowners, and other third parties.

Expert legal advice can provide clarity on a development agreement. Before signing your name to an agreement that may not be in your best interests, our network of commercial property solicitors can guide you to ensure your development runs like clockwork.

Get in touch with us for a free case evaluation.

What is a development agreement?

A development agreement requires a developer to carry out construction works for a third party. It’s a legal document that sets out the developer’s obligations for development and the terms of the agreement with third parties.

How does a development agreement work?

A development agreement when signed places an obligation on a developer to carry out construction works as set out in the agreement.

The developer will often benefit from the agreement through a transfer or grant of interest in the property that they construct as part of their contractual obligation

Who are the main parties involved in a development agreement?

The primary players in a development agreement are landowners and developers. Both the landowners and developer will typically work together to draw up the contract and work out the terms which will be legally enforceable. 

It’s not just landowners and developers who are involved however, other third parties who may be named in the agreement include:

  • Buyers

  • Lenders 

  • Tenants

What laws govern development agreements in the UK?

The Town and Country Planning Act 1990 governs planning permission law in the UK and how land can be used for development purposes. 

Every party involved in a development agreement should be aware of their rights and responsibilities under this legislation. 

Different types of development agreements

There are different types of development agreements.

Agreement for lease 

An agreement for a lease is where a tenant agrees to begin a lease when construction is completed on a development. It will set out the rights and obligations of both parties.

This type of agreement will typically specify how the development is built, the appearance of the property, and the rent that will be due based on a calculation determined from the floor area of the complete building.

These agreements are commonly used when a developer wants to secure a tenant but construction isn’t yet completed. The agreement, when signed, is a contractual obligation to enter into a lease on a date set out, or when certain conditions have been met. 

When this agreement is made the developer immediately transfers their interest in the development to the buyer, agrees to build to an agreed specification, and withdraws money from the purchaser, while the developer profits from any leases the buyer organises.

Forward purchase agreement 

In a forward purchase agreement, the developer agrees to sell the development once completed to a purchaser. The parties may enter a contract before planning permission has been secured and work has begun. 

Buyers are typically investors such as pension funds who will arrange an agreement between the developer and a tenant. The investor pays the price of the development on completion as the developer funds the costs of construction from their pocket, or through finance such as loans which can be repaid from the proceeds of the sale.

The agreement specifies when the property title will be transferred to the purchaser. It will also establish the price the purchaser must pay, this will either be a fixed amount or be shaped by the value of the development after completion, including the forecasted rents.

Forward funding agreement

In this type of development agreement, the buyer for the building under construction will provide the necessary finance to cover the costs of a development in progress. There may also be an agreement to lease the building to a tenant. 

Forward purchase agreements can be beneficial for developers as it allows them to take on less risk than if they were to fund the construction themselves. However, this agreement can result in a developer enjoying less profit from the venture as they won’t sell the development on the open market. 

The buyer can benefit as they will buy the development for less than they may if they had waited to buy it after it had been completed.

Speculative agreement 

This form of development agreement is the same as a forward funding agreement except the development is not pre-let before the purchaser is involved.

In a speculative agreement, as the name suggests, the purchases assume a greater amount of risk because they fund the construction of the development without the reassurance that there is a tenant who has committed to taking up a lease.

Stand-alone development agreement

A stand-alone development agreement sees the landowner establish a contract with a developer with the developer or the landowner fronting the costs. 

When the developer fronts the costs of the development, they are typically given a long lease at the property, alternatively, the freehold interest will be transferred to the developer when the project is complete. 

What is included in a development agreement?

There are a variety of key terms that are included in most development agreements. 

Timing is an important metric in a development agreement.

Conditions may hinge on issues like securing commercial planning permission, surveys, financial feasibility, and arranging tenants.

A project completion date can be included as well as extension clauses that clarify if extensions will be granted for missed deadlines and the circumstances in which they will be allowed.

Conditions must be carefully worded to ensure that each party knows what is required by when.

Payment terms set out in the agreement will be shaped by the type of agreement you enter into. Forward funding agreements for example set out the price that will be paid – either a fixed amount or the value of the development on completion based on expected rents.

Agreeing the work to be completed so that it is clear what needs to be completed, the expected standard, and the schedule for when each stage of the work will be done. The agreement is supported by a host of documentation detailing the specifications of the work, the developer’s obligation under the law, planning permission, and more. There should also be a facility for other parties to inspect the works at regular points as the project progresses.

The practical completion date should be covered too. This outlines the completion date of the development which leads to payments, the finalisation of the sale, and the letting of the property.

The termination clause gives non-developing parties the ability to terminate the contract in the event of: 

  • Developer insolvency.

  • Developer breach of contract.

  • The developer committing a material breach of the contract.

What are the developer’s obligations in a development agreement?

The developer's obligations in a development agreement include the responsibility to:

  • Carry out development by following the specifications outlined in the agreed plan

  • Provide a timeline for the completion of the development

  • Establish the standard that must be achieved in the completed development

  • The criteria for leases if it is the developer’s role to pre-arrange the leasing of the development

  • Collect warranties from contractors and any third parties involved in the project’s development – lender, purchaser, tenants

How are risks and liabilities typically allocated between parties?

Risk should be balanced as far as possible between both parties. If you believe an agreement you’re reviewing places too much risk on your shoulder you should seek legal advice.

Defect liability periods

Defect liability periods are one way in which risk is allocated. Essentially a liability period will be in place, this is a set period in time after a development has been completed in which a developer is liable to rectify any defects that are discovered at their cost.

This clause can benefit both parties, developers benefit by limiting the period in which they are liable and other parties benefit by having a set period in which developers are obligated to fix their errors and cover the cost.

Collateral warranties

Collateral warranties mitigate risk for the non-developing parties involved in a development as they will not have sight of the plans between the developer and their contractor(s). These warranties are put in place to minimise the risk of having to cover the costs of remedying any defects that may come to light in the development.

What happens if one party breaches the terms of a development agreement?

If a breach of contract occurs because one party has failed to keep up their obligations the affected party may take legal action to force the breaching party to fulfill their obligations, or they could sue for damages.

The courts can also impose an injunction that enforces planning obligations, or other specified terms. 

When the developer fails to complete the works, the local authority can access the site to complete the works – they’ll then recover their expenses from the developer. 

Can development agreements be tailored to specific projects?

Development agreements can be tailored to specific projects taking into account their characteristics and circumstances.

Residential development agreements need to evaluate building density, design, and amenities. Developers may be required to consider affordable housing provisions, green spaces, parking and pedestrianisation, and community facilities such as gardens or shops. 

The agreement will also outline planned timelines, party responsibilities, and occupancy. 

Commercial developments will need to concentrate on issues like economic impact, infrastructure, and use of land.

Traffic management and environmental issues may be covered in the agreement and maintenance responsibilities.

For mixed-use developments, there is a blend of residential and commercial focus, which can include recreational elements such as parks, exercise equipment, and sports pitches.

The agreements can be complex as they balance various differing needs and provisions can cover shared amenities, easements, and the coordination between commercial and residential aspects.

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How does the financing of a development project factor into the terms of a development agreement?

Which party takes the risk of financing construction can have a bearing on the terms of a development agreement. 

In standalone development agreements that are funded by the developer they commonly receive a long lease on the finished development or a share of the freehold. 

In pre-let agreements, where tenants agree to lease a property on the completion of a project, in the agreement factors like construction requirements, the property’s appearance, and rent calculation will be laid out in specific terms.

What steps are involved in negotiating a development agreement? 

There are four main steps when negotiating a development agreement:

  • Preparation 

  • Bargaining 

  • Negotiation 

  • Agreement 

Preparation

You’ll need to agree on the range between which you and the other parties can agree on terms, this is known as the Zone of Possible Agreement.

You’ll then need to establish your Best Alternative to a Negotiated Agreement.

Setting a stretch goal is important as this is the outer limit of what you’re prepared to agree on when negotiating. You’ll also want to include a walkaway point, this is the red line you don’t cross and walk away from the negotiating table, instead of accepting a deal that won’t benefit you.

Bargaining and negotiating

This is the process of engaging with the other party. Be transparent about your goals and clarify them in discussions with other parties

At the negotiation table, you’ll go back and forth with the other party. You may need to compromise and consider solutions you hadn’t previously considered to reach a mutually beneficial agreement.

Agreement

You’ll reach a mutual agreement on shared terms. These will need to be documented laying out responsibilities, obligations, timelines, and an expected completion date

How does the planning permission process affect the terms of a development agreement?

After a developer submits planning permission for a development the local planning authority (LPA) will review the development plan.

There are time limits in place for how long an LPA can take to review planning applications. 

  • Major developments – 13-week time limit

  • Technical details consent applications – 10-week limit

  • Public service infrastructure applications – 10-week limit

  • Other types of development – 8-week limit, if undergoing an Environmental Impact Assessment – 16 weeks

Can a development agreement be terminated or changed? 

Yes, a development agreement can be either terminated or changed under certain circumstances. 

Termination clauses give non-developing parties the ability to terminate the contract in the event of: 

  • Developer insolvency

  • Developer breach of contract 

  • The developer committing a material breach of the contract

An agreement may be changed when market conditions shift. This is often the case when development is long-running and developers must be flexible to keep the project on track.

How are disputes resolved under a development agreement?

Negotiation is the most common way of solving development agreement disputes in the UK. 

There may be a Dispute Resolution Clause in an agreement that sets out a process for resolving a dispute.

There are some established methods for resolving disputes, including:

  • Expert determination where an independent expert assesses the dispute and reaches a legally binding decision

  • Arbitration, where parties submit their arguments to a neutral arbitrator or panel. A legally binding decision is then made

How can Lawhive help?

As you can see there is a lot to weigh up with development agreements.

If you need legal advice with the terms of a development agreement, help with a dispute with one of the other parties in your agreement, or assistance with any other area of an agreement our network of commercial property solicitors can help.

Get in touch with us to book your free case evaluation. We can guide you on the next steps with your issue, ensure your agreement works for you commercially, and get your project back on track!

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