The Use of a Development Agreement In Achieving Project Delivery

In today's challenging economic climate, it is more important than ever to ensure that a development agreement clearly sets out each parties obligations in securing delivery of a project, and that it contains sufficient remedies to protect both the landowner and the developer's funder in the event of a developer's breach or insolvency. Here are our top 10 points to consider.

1. Project Objectives

The project objectives need to be clearly defined as does the extent of the landowner's control over the development. Any continuing interest in the site will require a greater level of control.

2. Choosing the Developer

The financial strength and the availability of a parent company guarantee will need to be considered as will a developer's track record of completing developments. Local authority landowners may need to consider procurement rules.

3. Structure

Typically, there are two phases;

Firstly - The conditionality period. This will involve obligations on the developer to satisfy pre-conditions to completion of a transfer/grant of a land interest to the developer e.g. obtaining a satisfactory planning permission and providing evidence of funding for the construction phase. A landowner may also be obliged to provide vacant possession.

Secondly - The construction phase. This will typically be triggered by the completion of the transfer/grant of a land interest to the developer. During this phase the developer will be required to construct the development to the agreed design, quality and timescales.

4. Building Obligations

The development agreement should establish performance standards.  As a minimum these are usually expressed as obligations on the developer to procure that the works are carried out in an agreed manner to the agreed specification in accordance with the planning permission and any other statutory requirements. The parties will need to consider any qualifications to the strength of the developer's obligations.

5. Milestones

There should be a programme of agreed milestones and ultimately provision for termination if those milestones are not met. Generally milestones should be capable of extension by mutual written agreement or if delay arises beyond a party's control.

6. Appointment of Contractor and Professional Team  

The parties will need to consider the extent to which the landowner requires input into the appointment of the contractor and professional team and the form of any collateral warranties, together with approval of PI levels. Greater control will be required if the landowner is to have any property interest following practical completion.

7. Variations

The parties will need to agree the extent to which the developer can propose variations to the specification. Landowner variations are typically at the cost of the landowner and the developer will need to ensure that any resultant increases in the build time extend agreed milestones.

8. Monitoring Surveyor

The landowner should nominate its own surveyor to monitor the developer's performance in terms of build-quality and compliance with the development programme and any build contract.

9. Practical Completion

There should be a procedure for objective certification of practical completion with a rapid third party dispute resolution mechanism. If the landowner is retaining long-term interest in the site or if there is a leaseback to the landowner, then the parties should consider additional pre-conditions to certifying practical completion, such as delivery of building warranties.

10. Remedies

Remedies for developer default will act as the 'stick' to enforce compliance with the developer's obligations. The landowner should be required to provide sufficient notice of any breach to both the developer and its funder. Failure to remedy breaches should trigger step in rights for the funder and landowner and possibly a buy back option for the landowner.

For more advice on how to optimise your development agreement; or for those development agreements negotiated in more buoyant times, to identify opportunities to escape from obligations (or to enforce them) or simply to renegotiate, please contact Gemma Williams in our Commercial Property team on 07468 698 932, or complete the form below.