Brownfield development: the legal perspective

In the first of three articles on the subject from different perspectives, Jenny Sargeant looks at the legal challenges posed by brownfield developments, and how they can be overcome. The brownfield development sector provides a unique opportunity to be involved with aligning business opportunity and sustainability. Increasing numbers of “consumers” now care deeply enough to prioritise sustainability and to put their cash behind this. It has become fashionable, and necessary, to consider reuse of many things we use in our lives – and land is no different. Urbanisation is a trend anticipated for future decades, and many developers are of the opinion that shortage of land necessitates brownfield development increasing in importance. The great sell to investors is the profile that can be achieved outside of the property industry in recycling land being aligned with consumer concerns and trends. Brownfield developers are also very creative, using space maximisation techniques to realise value in a manner that is harder to achieve with more vanilla assets. Many go beyond this, showing great passion and vision in working to bring redundant space back into use. For these developers, regeneration is about more than changing an area for financial profit; it is about being part of the story of a neighbourhood. It’s about placemaking. It’s about communities. It’s no surprise that schemes that can communicate this mission are places that people of all ages want to live, socialise and work. There is something very satisfying for all to see a place that has gone through hard times be reinvented and relaunched while retaining a sense of heritage and history. The brownfield risks However, brownfield development is not without its risks, and it can be helpful to carry out a corporate structural review at the outset to ensure liabilities relating to specific developments are ring-fenced within the developer group. This also helps to maximise funding options for different sites. It is then important to map out the legal risk landscape and for the individual elements to be tied down to be able to deliver a scheme on time and to cost. Many of the problems with any development arise out of unexpected issues cropping up, either delaying or preventing work on site. If dealt with early, these can often be avoided or the impact minimised. There is a large project management element to brownfield development because there is a higher likelihood that mitigation work is needed to address risks and of multiple third parties being involved. Brownfield developers will see it as a given that remediation work will be required as part of delivering their scheme and provide for this in their development budget. This is particularly important in the current market, where contractors are extremely reluctant to take on any contamination risk. Diligence and specialist input is an important part of building as complete a picture as possible of potential contamination risk. Some developers will carry out ground works separately to fully assess remediation requirements. Others will rely on their knowledge of other sites in an area or their own expertise in addressing issues that might frequently arise with the type of site being developed. Funders will want reliance on key diligence reports but most helpful to them is the reassurance of partnering with an experienced developer that will be able to address any unexpected issues that arise. An advantage of brownfield sites is often good infrastructure and existing utility connections. However, this increases the likelihood of needing infrastructure consents to the development works. A new scheme with a changed (and often intensified) use is more likely to require lift and shift of utilities and/or construction of new substations or other connections. These parties can be very slow and bureaucratic to deal with, so prioritising starting processes early and driving them forward as quickly as possible is important. Each element of a scheme (financing, construction, rights of light, neighbourly arrangements, remediation solutions, utilities, infrastructure, occupants) can be documented so they can be activated at a single point in time to enable work to commence on site. The quicker each of these elements can be agreed and documented, the quicker each can be de-risked for the developer. There are some risks where the chance of them presenting is negligible but the consequences are extreme (like an injunction due to a rights of light fall-out or a third party turning up with proof of ownership of unregistered land within the site or a ransom strip). Indemnity insurance policies are extremely helpful here to allow a project to progress without issues needing to be tackled directly at the outset, but with protection for lenders in case doomsday presents itself. Hurdles can be cleared Potential new entrants to the brownfield development market quote greater risk levels as being the main barrier to the sector. Solicitors can work with developers to assist clients in quantifying these risks. This is particularly powerful to get investors and lenders comfortable, as once a risk has been quantified it can be appropriately priced by parties. There are certainly opportunities for new investors to enter this market partnering with developers active in this space – drawn by the developer’s vision around “placemaking” and reassured by the developer’s experience and track record. However, the legal documentation is also important for providing investor reassurance and to enable funders to evidence to credit teams that risks have been properly assessed and mitigated. .Jenny Sargeant is a real estate partner at Fladgate LLP Brownfield development: a lender’s perspective >> Brownfield development: one developer’s perspective >>