Know-it-alls

The growth of mixed-use development schemes means lawyers need to broaden their skills, says Moira Myers

The problems caused by lack of good-quality, affordable housing in the South East are now so much taken for granted as to be almost no longer newsworthy.

The causes, at least as far as the South East is concerned, are driven by a number of demographic and social issues. These include the concentration of business in Greater London and the Home Counties, the migration south of the workforce and more people living alone or as single-parent families.

These trends have an impact not only on the quantity of new housing needed, but also on the type of housing. Density is a buzzword in residential development circles and the trend is towards the construction of increasingly smaller units.

New methods
The opportunities to develop greenfield sites in the South East are severely diminished, due in part to the Planning Policy Guidance 6 provisions, so developers have had to look at increasingly innovative ways to develop brownfield sites. They have had to give careful consideration to methods of construction that permit adjoining occupiers to continue to enjoy their properties during the construction process as well as addressing the contamination issues that arise on brownfield sites. As such developments are in town and city centres, an increase in ‘mixed-use’ development has been the inevitable result.

The South East England Development Agency has, in conjunction with partners, created the Brownfield Land Assembly Trust, with the objective to specifically identify and acquire small, derelict sites in urban regeneration areas for recycling into the housing land market.

The local authority in Luton has had to address the problem that was the former Vauxhall Motors site. It has proposed a major mixed-use scheme, incorporating substantial infrastructure changes to the rail system and the shops and leisure facilities required by any new community.

The commercial property sector, traditionally separate from the residential sector, is benefiting from the growth of mixed-use developments. Increasingly, lawyers engaged in the development of land will be required to understand issues arising out of both residential and commercial development.

There has been some consolidation of the key players in this industry, which is directly related to difficulties in maintaining earnings growth in view of restricted land supply and price inflation. Indeed, successive years of house price inflation have resulted in land values well in excess of book value in the South East and, as a result, industry concentration gives rise to better land buying disciplines and cost synergies, which have allowed larger housebuilders to maintain earnings growth while avoiding the damaging effects of excessive price inflation.

Mixed skills
Lawyers who have traditionally concentrated on issues arising from ‘pure’ residential development sites will have to broaden their horizons and think about commercial development as part of mixed-use developments. Conversely, those who have always considered themselves as commercial property lawyers will have to rethink their knowledge base so as to address the requirements of the residential market.

For example, consideration must be given to how to work around rights of first refusal that may accrue to residential owners when a building is sold. Lawyers will also need to consider with their developer clients how the ownership of a mixed-use site is to be carved up, and how rights to use common areas are granted, and on what basis contributions in respect of the exercise of those rights are collected.

The impact of the Commonhold and Leasehold Reform Act 2002 and Commonhold Regulations 2004 should also not be overlooked. Although the commonhold regime is not perceived as perfect, and its primary use was intended as an alternative to long leaseholds on residential properties, many experts view commonhold as a viable means to deal with the potentially complex structure of mixed-use ownership.

Property lawyers will also need to think carefully about wording covenants so as to strike a balance between protecting residents from noisy bar patrons or noisy delivery lorries at unsociable hours, and ensuring that leases of commercial units are alienable and fundable.

Architects and project managers will also have a crucial role to play in designing schemes to minimise the impact of matters that might otherwise cause neighbours nuisance or annoyance.

Lawyers will also need to consider how construction obligations are dealt with. Purchasers of each part of a mixed-use scheme will have different considerations. Lawyers acting for tenants of commercial elements will need to consider the extent of the demise and how responsibility for repair is allocated, particularly in relation to units forming part of a larger building.

In new mixed-use schemes, consideration will also need to be given to what type of warranty should be provided by the developer in respect of the construction works. Perhaps this is the time when third party rights will come into their own; the savings in time and cost from not having to collate collateral warranties from contractors, subcontractors and consultants is considerable, and this alone may lead to developers wishing to utilise them.

The future landscape
The traditional law firm approach of having separate commercial and residential property teams has to be reconsidered. New projects demand lawyers with a good understanding of the issues arising in both types of property – as well as construction, planning and environmental issues.

This demand for more broadly skilled lawyers comes at a time when there is already a shortage of property solicitors. The pressure will grow on firms to retain trainees to ensure that they have the skills to address the development schemes of the future.

The demand for property development lawyers (whether originally trained as residential or commercial property development lawyers) has never been higher, particularly in the South East. Firms that have retained a strong residential conveyancing bias are well poised to take advantage of the sustained demand for new housing, provided they can meet the needs of developers handling large-scale mixed-use developments. Increasingly lawyers are recognising a distinction to be made between traditional high street residential conveyancing services and services to housebuilders, in particular in handling plot sales.

Selling plot sale services to housebuilders is much more of a business-to-business activity than traditional residential conveyancing, which is consumer-led. As such, it is increasingly being recognised that a firm with a strong commercial/residential property development bias, which can also handle plot sales, is well positioned to take full advantage of the opportunities created by problems of high land values and the drive to higher density in the South East. It is also able to demonstrate skills that are unlikely to be so easily undermined by the threats of ‘Tesco law’.

Moira Myers is non-executive chair at Matthew Arnold & Baldwin