Collateral Warranties are used when there is a need for a contractual relationship between parties involved in a building project and those who are not involved within the primary contract but have an interest in the building.

They are usually executed as a deed meaning that no consideration is required (no money has to change hands) and the limitation period increases from 6 years to 12 years.

If a dispute arises between the parties the usual course is to litigate through the courts, however due to a recent case (Parkwood Leisure Ltd v Laing O’Rourke Wales & West Ltd (2013) (TCC)) the beneficiaries of a collateral warranty may be able to refer their dispute to construction adjudication dependent on whether the collateral warranty is seen as a construction contract under the Housing, Grants, Construction and Regeneration Act 1996.

A Conditional Fee Agreement ("CFA") offers a different way to fund litigation.

  • It is an agreement by which we agree to share the risk of the litigation with you according to the result
  • If you lose, you will not be liable to pay any fees to us If you win, you pay our "normal" costs (although you would look to recover most of them from your opponent)
  • If you win, you also pay an agreed "success fee" (in addition to our normal costs - although again you would look to recover it from your opponent)
  • The success fee can be as much as 100% of the normal fee - we will assess this to reflect the risk to us, the size of the claim and the likely amount of costs
  • It is important to understand that the success fee cannot be a percentage of the amount you recover if you win the claim

As an alternative to a full CFA, we may offer a partial CFA, which works in the same way except that if you lose you pay us a reduced fee.

Although the success fee will be recoverable from your opponent, if you win the case, the size of the success fee is open to challenge and if we can't agree the court may assess the success fee If you lose under a CFA, although you won't have to pay our fees, you are still likely to be ordered to pay your opponent's costs

The advantages of a CFA are:

  • Your liability to pay costs is linked to the outcome of the case
  • The CFA has to be disclosed to your opponent and the knowledge that you are in a posiiton to fight the case may encourage them to settle
  • Any damages awarded to you will not be eroded by the success fee

As an essential part of most property development work, it is important to ensure that the site has the necessary framework, such as correct planning, access and utilities, to achieve a successful development.

Our team of lawyers have considerable experience in dealing with planning matters, s.106 Agreements, compulsory purchase orders and easements for access and utilities, providing reassurance to clients that these time critical matters are dealt with pro-actively to help them achieve their target completion dates.

Our services include:

  • advising on compulsory purchase orders
  • negotiating s.106 Agreements with Local Authorities
  • negotiating and putting in place easements for access and utilities to serve developments
  • advising on planning issues and obligations.

What is an easement?

An easement is a right to use land belonging to a third party in a particular way or to prevent the owner of that land from using it in a certain manner. An example of an easement is a right of way.


Can someone have an easement over their own land?

No. There must be two parcels of land owned or occupied by two different parties. One parcel of land will have the benefit of the easement and the other parcel will bear the burden of the easement.


If someone has the right to cross another person’s land by virtue of an easement, can they prevent the owner from using that land?

No. An easement is a right over someone else’s land, not a means of preventing the owner of the using the land.


How can an easement be granted?

Easements can be created by deed of grant. So, for instance, if a land owner needs a supply of water and the only way of gaining it is to run water pipes through a neighbour’s land, a deed of grant can be prepared to allow the supply of water through a defined channel of pipes across the neighbour’s land. The person who has the benefit of this easement would normally be responsible for the cost of preparing the deed of grant as well as the maintenance costs of the pipes and cost of the supply of water. The person who is granting this right must not be involved in expenditure.


Can an easement be enforced against a future buyer?

Yes. If the person with the right of way over his land sells that land then the right of way can be enforced against any future owner.


Can an easement be granted for a fixed duration?

Yes. Fixed term easements are commonly granted to allow access whilst a neighbouring property is being built.


How can an easement be terminated?

There are several ways of extinguishing easements. An easement can for instance be extinguished by Act of Parliament. Alternatively, the owner of the land with the benefit of the easement can execute a deed releasing the owner of the land from the burden of the easement. And if both parcels of land come into the ownership and possession of the same person, the easement is extinguished.


Does an easement allow a person to take any natural produce or soil from the land?

No. This is known as profits a prendre. An easement is a right to use land; it’s a privilege without a profit. A profit, on the other hand, is a right for a person to remove products of natural growth from another person’s land. Examples include fishing and shooting rights.


Is there any other legal entitlement to enter another person’s land?

Yes. Under the Access to Neighbouring Land Act 1992 a person may gain access to neighbouring land in order to carry out essential repairs to his own property, upon appropriate notice. If access is refused then a court order can be applied for.

It is hard, if not impossible, for developers to access bank lending to finance the acquisition of development sites. This makes it particularly difficult for those looking at long-term development opportunities.

Historically, option agreements and contracts conditional on planning consent have been the usual means by which developers acquire and put together development sites. This is unlikely to change for sites that have good short-term planning potential and proven pre-let opportunities. But, for sites where a longer-term plan is needed, a promotion agreement can be a way to promote and develop the land over the long term without having to finance the actual purchase, making it a much more viable prospect.

How it works

Take, for example, a developer who identifies a site that has long-term potential for industrial or mixed-use development. Rather than buying it up front, or taking an option to buy once planning is granted, he enters into a promotion agreement with the land owner. A small premium will usually be paid to the owner on completion of the agreement. Thereafter, as with a conditional contract, the agreement will place obligations on the developer to do his best to secure planning consent for the site. Once consent has been granted, the developer will not have to buy the property but instead will market it. Once a sale is completed, the proceeds (less the developer’s costs of securing planning consent and the initial promotion agreement premium paid by the developer) will be shared between developer and land owner in percentages that reflect the value of their contributions.

The promotion agreement can be tailored to fit the requirements of the parties. For example it may require the developer to carry out infrastructure works so as to maximise the market value. The developer may also be granted a right of first refusal to acquire the land (possibly at a discounted rate to open market value) once planning has been granted before it is put on the open market for sale.

The advantage

The obvious advantage to the developer under a promotion agreement is that his entry costs to the transaction are significantly reduced. He does not have to buy the property but will share in the uplift in value on sale. He will still have to fund the planning costs and expertise to obtain planning permission. From the land owner’s perspective, a promotion agreement can be a more lucrative way of proceeding since the value of the property will be determined by an actual sale rather than a hypothetical market valuation obtained through an option agreement. The property will be sold at full market value rather than at a potential discount, as is often the case under an option agreement.

The risk

Promotion agreements are not risk-free for a developer. The fact that he does not buy the land has disadvantages. The only security he has under a promotion agreement is his contract with the land owner. He will need to carefully consider how to protect the significant costs he will incur on any infrastructure works or planning costs. If the land owner defaults, the developer will have contractual remedies but he should probably consider taking further security, such as a legal charge over the land. Also with a promotion agreement a profit share will always be agreed between owner and developer. Therefore, it is likely that the developer will end up giving away more profit than he would otherwise realise had he bought the land following the grant of planning permission under an option or conditional contract. He will need to weigh up the advantages of saving on entry level costs by not having to finance the acquisition of the land against the level of profit he may relinquish at the end of the transaction by entering into a profit share arrangement.

Although development funding is scarce, promotion agreements can offer a relatively inexpensive flexible and innovative way for the smaller developer to realise value and obtain profit from long-term strategic developments.

 

 

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