Public Sector Property Update Wednesday 12 th June Newcastle | Leeds | Manchester
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Viability and section 106 – a case study Kamran Hyder Carolyn Akerman Newcastle | Leeds | Manchester
4 Introduction • The importance of Viability Assessments • Landowners • Developers • Local Authority • NPPF • Case Study Newcastle | Leeds | Manchester
5 The Site Newcastle | Leeds | Manchester
6 Case Study • Outline application – up to 1,100 units • 12 – 13 year development • Appeal submitted for non-determination • Viability the outstanding point Newcastle | Leeds | Manchester
7 The Council’s Starting position • Policy - 20% affordable housing on all brownfield sites greater than 15 dwellings • Default position of 20% unless a viability reappraisal justifies less • Viability to be assessed against profit on costs • District Valuer instructed to advise the Council Newcastle | Leeds | Manchester
8 The Applicant’s starting position • Remediation costs of £55 million – “Master Developer Costs” • 3 year remediation programme • 0% Affordable Housing, subject to further viability reappraisals at reserved matters stage • Benchmark Land Value assessed at £25m • Viability reassessment to include a reassessment of abnormals – if lower than base cost excess to go to Council • Present day house sales values to be agreed (£2,900 sqm) with any future excess net of build costs to be split 50/50 between the Council and the Applicant Newcastle | Leeds | Manchester
9 Negotiations • Viability to be assessed against BLV • BLV key factor • Applicant: £25 million • Council: £7 million • Few market comparables – one valuer’s opinion vs another valuer’s opinion • Indexation? • Master Developer Costs • To be accounted across the development or up front? • to be reappraised? • Build costs agreed and subject to BCIS Newcastle | Leeds | Manchester
10 Negotiations • Affordable Housing • Subject to an overall cap 20% • Council’s desire to see on -site provision and not a large commuted sum at the end of the development • The ability to elect to over-provide Newcastle | Leeds | Manchester
11 Negotiations – up to the wire • Little / no trust between the parties • Applicant offered BLV of £10 million days before Inquiry • S106 drafting meetings late into the night • Discussions between District Valuer and Applicant’s consultants throughout the inquiry Newcastle | Leeds | Manchester
12 The final position • BLV • agreed at £124,224 per net developable acre (capped at £8 million) • Not indexed • Master Developer Costs fixed and accounted for within phase 1 • Minimum 3% affordable housing on each phase • Viability Reassessment to be submitted with each reserved matters application • Residual land Value > BLV = increased amount Affordable Housing Newcastle | Leeds | Manchester
13 The final position • Affordable Housing - Cap • 20% Affordable Housing Phase 1; • 35% on intermediate phases and final phase; • Overall cap 20% across the development • Overprovision of Affordable Housing up to 35% on any given phase Newcastle | Leeds | Manchester
14 The final position • Surplus (above the Affordable Housing cap) / deficits carried over into the next phase • Final phase • Where: • Cap (35%) for that phase has been reached • Less than 20% provision across the development • Applicant pays an off-site affordable housing contribution to bring total affordable housing provision to 20% across the development • Applicant retains any surplus after 20% provision across the development has been provided (on or off-site) Newcastle | Leeds | Manchester
15 Documentation • Appended to the s106 Agreement: • Viability Review Templates for the first phase and the intermediate phases • Input Key • Phase Fixed Inputs (professional fees, finance, profit, marketing) • Phase Specific Input (private sale units and affordable housing) • Phase Prevailing Rate Item (SDLT, RM application fees) • Phase Index Costs (build costs, s106 contributions) • Master Developer Works Agreed Position • Valuer’s Aid Newcastle | Leeds | Manchester
16 Documentation • Valuer’s Aid • Step-by step guide to using ARGUS Developer • Reference to the provisions within the s106 • Eg election rights to either construct new schools or pay commuted sums • Trigger for the payment of contributions • Blended profit guidance based on agreed profit rates • Key appended Newcastle | Leeds | Manchester
17 Worked examples - Deficit • The appraisal of a phase with 8 Net Developable Acres produced a positive Residual land value (“RLV”) of £750,000 • Compared to a BLV of £993,792 (8 X £124,224) • The Deficit = £750,000 LESS £993,792 = -£243,792 • £243,792 carried over into the next phase as a cost Newcastle | Leeds | Manchester
18 Worked Examples - Surplus • 80 houses within a phase with 3% affordable (78 Private and 2 affordable) with 5 Net Developable Acres = RLV of £1,750,000 • Compared to a BLV of £621,120 (5 X £124,224) • The Surplus = £1,750,000 LESS £621,120 = £1,128,880 • a Surplus → additional Affordable Housing within the phase. • re-appraise the viability to establish the maximum amount of Affordable Housing Dwellings that can be delivered • cap of 20% across the development • maximum of 35% of the dwellings in that phase • recalculating the blended profit until RLV = (approx.) BLV. • Eg 10% affordable (comprising 72 Private and 8 Affordable) with 5 Net Developable Acres produced a positive RLV of £650,000, compared to a BLV of £621,120 (5 X £124,224) Newcastle | Leeds | Manchester
19 Predictions • Based on: • 6 phases • growth assumptions: • 3.38% p.a. house price growth • 3.92% p.a. build cost growth • 3% affordable housing Phases 1-4, 35% affordable housing phases 5 & 6 • 11% onsite Affordable Housing • Off-site affordable housing commuted sum £14.08 million Newcastle | Leeds | Manchester
20 The final chapter • Revised NPPF – July 2018 • Amended viability guidance • Viability to be based on standardised inputs • Land value to be assessed at EUV + • Market conditions should not be taken into account • Assumptions of profit being 15-20% of GDV • Executive summaries to include the GDV, BLV, landowner premium, costs, developer’s return • Representations requested by PINS in light of the revised NPPF Newcastle | Leeds | Manchester
21 Newcastle | Leeds | Manchester
Business Tenancies and Case law update Jeremy Hardy Newcastle | Leeds | Manchester
23 Two Types • Tenancy contracted out of the Landlord & Tenant Act 1954 • Can be for any term over 6 months • The tenancy will automatically end at the end of the term with the tenant having no right to a new tenancy • Need to be careful to ensure that the correct procedure is followed Newcastle | Leeds | Manchester
24 • Protected Tenancy (not contracted out of the Landlord & Tenant Act 1954): • If the lease is not contracted out the tenant will have security of tenure and an automatic right to a new lease at the end of the existing lease unless the landlord can establish one of the statutory grounds for refusing a new lease. • The landlord will have to serve a Section 25 Notice to terminate the lease or the tenant can serve a Section 26 Request. • When to do this? Newcastle | Leeds | Manchester
25 • The main grounds on which a landlord can seek to oppose a new tenancy are as follows: 1. Breach of repairing obligations. 2. Persistent delay in paying rent. 3. The tenant has been offered suitable alternative accommodation. Landlord’s intention to demolish or reconstruct. 4. Landlord’s intention to occupy the premises itself. 5. • If the landlord opposes a new tenancy under 4 or 5 the tenant will be entitled to statutory compensation. Newcastle | Leeds | Manchester
26 • Landlord’s intention to demolish and/or to redevelop the premises – ground (f): • S Frances Limited v The Cavendish Hotel (London Limited) 2018. • Landlord’s intention to carry out the works must be “firm and settled” and capable of being implemented. • Previously the Court was unconcerned about the landlord’s motives but only with there being a “firm and settled” intention. • The landlord put together a scheme of works designed purely for the purposes of satisfying ground (f) and persuading the Court to refuse to grant the tenant a new tenancy. Newcastle | Leeds | Manchester
27 • The Supreme Court held that “the acid test is whether the landlord would intend to do the same works if the tenant left voluntarily”. Newcastle | Leeds | Manchester
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