While there has been much in the media about progress on construction sites as a result of the lockdown, equally challenging are discussions around the earlier stages of site delivery: how to move land deals forward given the current market uncertainty.
On Wednesday I will be joining a virtual panel run by Trusted Land on Progressing Sites During Disruption by The Lockdown, where many of the issues and ideas we’re currently working on with clients – both sellers and buyers – will be discussed.
Above all, new Covid-19 clauses in legal agreements are providing the principal brake on transactions. There is no standard approach and a wide range of scenarios to cover. Below are some of the common themes likely to be discussed.
Waiting it out isn’t uncommon. Some housebuilders and developers are removing themselves from the market for the next three months but are preparing to be poised ready to pick up deals from then assuming the situation has improved. Smaller developers too, even though there is still developer finance available, are preferring to wait until interest rates have lowered again before proceeding.
Others have taken more extreme measures with limited success. One suggesting allowing a purchaser to have the ability to terminate papers even after exchange of contracts. More realistically, deposits for conditional deals are being reduced while more contractual triggers are being introduced to return deposits in full and extricate from the land deal.
For any offers received pre-Covid-19, sellers should be looking for new terms outlining realistic timescales for exchange and completion as well as written evidence from any third-party funding sources that might be backing the purchase.
And with some Covid-19 clauses effectively rendering all conditional contracts into option agreements, sellers do need more certainty. It is worth exploring an upward price adjustment to create more of a sense shared risk.
For public sector clients in particular, bolstering overage and clawback provisions and paying greater attention to financial triggers and percentage shares of uplift linked to market bounce if you take a chip – as many are right now – on the upfront land value have potential.
Flexibility on timescales is key. Covid-19 clauses are being put into sale contracts to push out timescales without the need for a Deed of Variation later. For any deals that are already unconditional, many completions are deferred until 30 June 2020, but in some cases more open-ended to allow for the market to move further in response to the crisis. Consider too whether these deals could be regionalised to allow more flexibility in some parts of the country that are locked down for longer.
For others though, momentum continues. Where there is a clear need for immediate supply, especially in housing, deals are being reworked at every level to push through the current uncertainty and start development. And it is this, above all, that will help the economy bounce back the quickest.
New Covid-19 clauses in legal agreements are providing the principal brake on transactions. There is no standard approach and a wide range of scenarios to cover.