From acquisition and assembly to exit strategy – the risks and how to get it right
“If you’re going through hell, keep going” Winston Churchill
Imagine a property development project where nothing is straight forward and problems arise at every stage from planning to moving in and afterwards. This was the scenario dealt with by our real estate, property disputes and construction and engineering teams in conjunction with boutique planning firm Town Legal at our annual workshop last Thursday evening.
Wonderwall Interiors Limited wanted to move out of its tired, cramped office space and into shiny new premises being built across town by East 17 Developments Limited. What could possibly go wrong? Well as it turned out there was potential for things to go horribly wrong at every stage! Our teams took our guests through a number of scenarios where disaster beckoned.
Although the proposed building had existing planning permission there were numerous onerous conditions attached and it was about to expire. The developer also needed to amend the planning permission to make the scheme viable and there was a potentially high CIL liability.
The developer found a potential restaurant tenant for the ground floor but there were issues over planning and licensing and the restaurant was not willing to commit until the office space above them was let. Both parties did not want to be tied in if everything could not be sorted out within a reasonable time.
Wonderwall had to break its existing Lease but the break clause was very complex and, bizarrely, any notice had to be served on blue paper. The new office manager decided she would have a go at handling the break and thought it would be ok to send an email in a couple weeks or so when she got round to it.
Construction and Engineering
All these hurdles were successfully overcome and Wonderwall was ready to move into its shiny new building and do its category B fit out works when it discovered that there were problems with the mechanical and electrical systems installed by the Landlord. The defects cost £500,000 to remedy, but what was worse Wonderwall could not move in for another 6 months and incurred £1,000,000 in costs as a result. Then there were problems with insuring the building while the works were being carried out. Once all these problems were resolved and they moved in, its state of the art specialist communications system collapsed with serious consequences for its trading position.
Wonderwall’s fit out contractor then had its own problems with a contractual dispute with its subcontractor over what works were included in the subcontract and whether the subcontractor was entitled to additional payment. The fit out contractor wondered if it could pursue Wonderwall for this sum.
This construction scenario led to a wide ranging debate about numerous issues including:
- When should a Landlord’s liability under a Lease terminate?
- Collateral Warranties, what do they do and why do we have them?
- The advantages and disadvantages of using standard JCT contracts and warranties and how they should be amended.
- The difference between direct and indirect losses and their recoverability.
- Can you adjudicate on a Collateral Warranty? If not why not?
- Why did the communications system collapse? Was it lack of maintenance or poor installation? And who would be liable in each case?
- What about insurance? How should this building project be insured and what happens if the Landlord refuses to insure the building during the works?
- How can items of work be included/excluded from a contract? Can this happen by mistake?
- The importance of assembling contract documents correctly!
- What happens if you have a new funder on a project? Can existing funder warranties be assigned or do you have to provide new ones?
The discussions continued over drinks afterwards in the wonderful meeting rooms at The Institution of Civil Engineers in Westminster.
Thank you to all our guests for contributing to the discussions!
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