Problems with a Partially Completed Site
With the credit crunch having spread to the wider economy, it will come as no surprise to learn that a number of developers are struggling to complete developments, leaving sites around the UK partially completed.
Whilst this presents opportunities for developers and investors, who are in a position to seek out a "bargain", it is important to remember that a discounted price is not always good value!
A buyer should consider if the risks connected with the site are accurately reflected in the price. This article attempts to reduce these risks by suggesting some basic "dos and don'ts" when acquiring partially completed sites.
- Do tread carefully where the existing owner may be insolvent:- An act of insolvency may, for example, enable an end user tenant to terminate an agreement for lease or enable a Local Authority to determine a development agreement which could destroy any development value that the site may have.
- Don't ignore planning documents:- A solicitor will be able to assist with reviewing any planning permissions and related planning agreements. Have the conditions in those permissions or the requirements of those agreements been complied with? For example, has the permission been properly implemented in compliance with those conditions within the three year time limit that is normally imposed?
- Do consider the construction team:- Have the team been paid? Does your purchase price allow for any outstanding professional fees and payments due under the building contract? If it doesn't, who is going to make these payments? How are you to persuade the construction team to continue working against a background of non-payment? If you are going to change the team, who is going to give you warranties for the work that has already been done and how are you going to get them?
- Don't disregard other due diligence:- Considerable due diligence will be required to review, for example, site specific conditions, contamination and remediation requirements and/or the standing of the contractor and any key sub-contractors and the current position in relation to their contracts.
- Do seek advice:- A buyer should instruct a solicitor and other consultants who can advise on any development/occupational agreement issues, construction issues, contaminated land issues and general title matters.
- Don't forget to protect yourself:- Ensure safeguards are put in place in the purchase contract to cover you on a whole host of issues that could be the difference between you being able to make a success of the site or you finding yourself in the same difficult position as the previous developer.
For further information on acquiring partially completed sites or other commercial property issues, please do not hesitate to contact a member of our commercial property team on 0845 872 6666.
