Developing the future

The challenging state of the property market over the last couple of years has meant a reduction in the number of sites being developed and resulted in increased anxiety for landowning clients about the price they might receive for their development land, whether they will receive this and the solvency of their chosen developer. Many landowners have sites presently under contract or option, the terms of which were agreed when the market was buoyant, guaranteed minimum prices per net developable acre were high and developers were keen to acquire land.
In many cases, landowners have taken the view that they should simply sit back and wait for the market to improve, but should they? Land that is under contract or option to a developer who appears to be doing very little with it is not an appreciating asset; development is usually only realised after a considerable amount of effort and expense on the part of a landowner or a developer. If land is not being promoted because there is no demand for the finished product or no funds to pay for its promotion by the chosen developer, landowners risk their land being passed over in favour of other land that is being actively promoted.
The issues facing landowners are similar whether the land is subject to a conditional contract or an option, as each agreement will contain obligations on the developer to promote the land through the Local Development Framework (unless already allocated) and to use reasonable endeavours to obtain satisfactory planning permission as soon as practicable. Many developers seek to interpret the expression: “reasonable endeavours to obtain a satisfactory planning permission as soon as practicable” as “reasonable endeavours when we can make a profit” but those who think this are quite mistaken!

Next steps
The first step landowners should take (which may seem obvious) is to make enquiries of the developer about progress and what he is currently doing. These enquiries can then be augmented by enquiry of the local planning authority as to whether proper discussions have taken place about the land and by requesting copies (from the local planning authority and the developer) of all relevant correspondence and submissions.
Landowners then have a judgement to make, based on their findings, whether the developer is doing enough to comply with his obligations. The developer may be doing nothing (hoping for the ‘credit crunch’ to pass), he may be making detailed representations and undertaking full investigations, or he may fall somewhere between these two standards. Consider, for example, the situation where the developer has had initial discussions with the planners about inclusion of the site in the Local Development Framework, has been advised that the planners favour another site and has done nothing more. Each case will depend upon the wording of the obligations in the contract or option and upon the actual facts but it is possible to form a judgement as to whether the developer’s actions were reasonable in the circumstances.
Assuming the conclusion is reached that the developer is not complying with his obligations the next step is to decide whether to seek to bring the contract or option to an end. The ability to do so will depend on whether the developer’s failure can be regarded as a repudiatory breach, that is, one that goes to the root or essence of the agreement. As the purpose of a development agreement is to attempt to obtain planning permission – something many local planning authorities are still keen to grant to meet targets – save in exceptional circumstances, doing nothing to achieve that will be a repudiatory breach. It will be more difficult to decide conclusively that there has been a repudiatory breach where the developer has taken some steps to promote the land.
If you believe that there has been a repudiatory breach, the developer should be advised in writing of this and that the contract is being treated as at an end or he is being given a time period in which to rectify his breach and what he is expected to do. If the developer disputes this, it will be necessary to bring proceedings for a court declaration whether there has been such a breach.
If there is uncertainty whether there has been a repudiatory breach, an alternative way forward is to bring an action for specific performance to require the developer to comply with his obligations under the agreement. If this is successful and the developer complies, the land will ultimately be promoted. If the developer does not comply with an order for specific performance, that will almost certainly be a repudiatory breach, for which the landowner can determine the agreement.

List of action
Specific performance is a discretionary remedy but a court will lean towards granting specific performance in property transactions, particularly commercial property transactions such as development involving professional developers. It is sensible to attach a list of actions required of the developer to the order, so that each party can monitor progress and the developer can be sure what is required of him.
If the agreement is brought to an end, the landowner will regain control of his site and can choose how best to promote it. This may be by entering into a new agreement with a new developer, whether by way or conditional contract or option or perhaps a promotion agreement or joint venture arrangement might be more attractive.  An alternative (albeit a costly one) would be for the landowner to promote the site himself.  Whichever route is adopted, the landowner will know that the new developer is more likely to actively promote the site, not least as the deal will have been done taking into account the current economic conditions and state of the market.