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Guidance

Preparation for redevelopment – setting objectives

Devise a business case

A sound approach to business planning can help clients gain a clear vision of their objectives. By creating an effective framework, clients should also be able to:

• appraise the financial viability of the scheme
• identify and exploit available opportunities
• identify and manage risks
• recognise interactions with third parties
• devise their strategy to withdraw from the development cycle, should it be required.

Regulators will also find it easier to interact with clients when a clear and transparent strategy is in place.

Develop a management plan

The client’s management plan provides a framework for:

• scoping out the issues and key criteria that will apply to their development strategy
• developing project-specific management tool could be used to monitor the issues as the project progresses.

Major components of the management plan are described in Table 1.

 

Major components	Issues
Development strategy	Clients to define objectives
Potential opportunities	To identify possible opportunities contributing to the project viability
Screening criteria	Predefined circumstances that if encountered would stop interest in a scheme
Acquisition strategy	Specific approaches to acquire the site
Managing risk	objectives/options to counter financial legal and technical risks establish exit strategy ie measures to enable a withdrawal, if needed form the development cycle.
Advisors	Gaps in knowledge to be covered by advisors
Contractors	Identifying and engaging competent contractors
Project organisation
team structure	clients internal provision to ensure effective project management
consultations	range of statutory and other consultants
implementation	programme and administrative aspects
data management	record to satisfy this

Client’s site acquisition strategies

The legal options available for acquisition of the land will drive many issues in the early stages of a transaction. Clients will have to consider whether the land should be acquired by:

• taking an option
• entering into a conditional contract
• purchasing unconditionally
• joint ventures.

The choice may be driven by risk or market opportunism. Considerations may include:

• planning
• requirements for site remediation
• tax
• funding/grant matters.

 

Develop a strategy to manage risks

At the centre of the appraisal for any project on previously developed land is the assessment of risk and the manner in which the parties allocate risk between them. This involves the assessment of the present risk posed by the property and the legal agreement as to how the risk is managed. Risk may relate to contamination or other contractual or physical issues associated with the site. The major financial risk may not be contamination.

Contract arrangement
In the case of land that is identified as contaminated land under the Part IIA regime, there are mechanisms for liability transfer:

• use by contractual negotiation of transferring liability to a purchaser by virtue of the exclusion tests set out in the statutory guidance accompanying Part IIA
• provision under Part IIA for the parties to agree a liability apportionment in a contract and notify the regulator who may then, subject to certain conditions, follow the wishes of the parties. This is an “agreement on liabilities”.

Exit strategy
The exit strategy is an integral part of the pre-development planning phase, because the financing or disposal of the assets may be an important way to release the equity and pay off the debt. It enables funds to be recycled into further schemes. In the case of owner-occupiers, this may mean occupying the property at an agreed budgetary level that may not be currently available. Factors covering risk management on previously developed land are considered below.

Managing financial risks
Clients should consider early planning of this component as part of their overall management strategy.

CIRIA’s report C545 Land contamination – management of financial risk notes that where land contamination is involved, uncertainty in the level of financial risk (rather than the risk itself) has been the cause of much of the anxiety in the UK. The type of risk and levels of impairment depend on, among other factors, economic conditions (influencing supply and demand) and the actual and perceived consequences of contamination. Legal liabilities cost of remediation and any restrictions on the ultimate use of the asset are examples.

The effectiveness of traditional approaches to financial risk management in the context of legal developments, changes in insurance, accounting and general business practices. These include:

• technical solutions to reduce risks, eg due diligence, remediation
• contractual provisions to apportion liability, eg warranties and indemnities
• traditional insurance to finance loses, eg public liability and property policies
• other financial management techniques covering retained risk financing which are associated with:

• the provision of and reliance on professional advice
• land transactions (mergers, purchases, sales and leases)
• financing and investment
• developing and contracting
• land ownership and occupancy.

Managing legal risks
Clients need to consider at this stage the level of risk they are prepared to accept in acquiring and developing sites. They need to be prepared to communicate this to their appointed advisers so that risk is appropriately allocated within the contract documents.

Managing technical risks
Technical issues should be addressed in the decision-making process.

 

 

 

 

 

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