After the flood

The extraordinary summer weather brought flooding and chaos to Yorkshire, but less than three months later, it is business as usual for almost all the region’s property developers, owners and tenants, says Claire Murphy, commercial property partner at HLW

In the days and weeks after the floodwaters had subsided, lawyers at our full-service commercial law firm, based in Leeds and Sheffield – two of the worst-affected areas – were certainly kept busy. A number of pending property deals, particularly in the Sheffield area, were hit with lengthy delays as due diligence processes were swiftly intensified. Even when properties hadn’t been flooded, buyers wanted – and needed – to know how close the waters had come.
Fortunately, just two commercial transactions were subsequently aborted – a surprisingly low figure, given the severity of the floodwaters in many areas. In both cases, the properties were located in Sheffield and were primary assets. Flooding meant that employees and employers were unable to gain access to the premises, with productivity and profitability plummeting.

Since then, the clean-up has been quick and efficient. In some cases, however, work continues. At Sheffield’s Meadowhall shopping centre, lower levels remain unoccupied, with ground floor outlets boarded up.

For the majority of those affected by flooding, insurance issues have now become the priority. Flooding is included on a standard insurance policy. However, one in four residential and commercial properties is uninsured: a shockingly high figure.

What is more, managing claims with insurance companies and brokers can prove less straightforward than it ought to be; my firm has been contacted by a number of concerned local businesses. The biggest issues surround the type and cover of insurance. The full extent of loss and damage caused by the flood is not yet apparent.

Fortunately, the Yorkshire region has long benefited from a buoyant property market. There are no signs of the residential development market slowing down, and there is talk of a further two million new houses to be built here. Newspapers have been running horror stories about unscrupulous residential developers building on flood plains; however, I have never heard of any such practices in Yorkshire. In my experience they are confined to the south of the country, where land is more scarce.

Even the commercial property sector, which isn’t what it was a few years ago, is still flourishing. People here are still fighting over commercial sites, although fledgling developers are finding it increasingly harder to obtain funding if they do not already have a track record in this sector. It appears that many new entrants are likely to be hindered by the elevated financial barriers, but established players will continue to do well.

This situation may prove to have been exacerbated by the floods. Bank managers will ask many more questions now, whenever a proposed site is in proximity to a water course. I also suspect that planning officers will approach waterside developments with greater caution, and that the Environment Agency will seek to become more closely involved in the planning stages.

Many properties that flooded this year were on hills, but the waters rose so fast and so high, that elevated locations were no guarantee of safety.

On the whole, however, developers’ moods are unchanged by the floods. After all, risk is their business.
Good developers account for all the variables and potential pitfalls that could eat into their development profits. Flood defences are routinely factored into development plans, whenever locations are near water. Seasoned practitioners undertake thorough due diligence for their proposed sites. Standard due diligence includes an environmental search, which evaluates a property’s flooding risk and will reveal if a property has flooded in the past.

Take my advice, though: if a property in the Yorkshire region is offered by an insolvent seller, with little information available, this isn’t the time to be cutting corners off the due diligence process.

For now and in the future, would-be purchasers should ensure that their due diligence is as good as it gets.
For further information, contact Claire Murphy on 0113 2465 555; or e-mail clairem@hlwlaw.co.uk