Insights 17/03/2020
Uncha"real"ted Territory
As the world as we know it moves into unknown territory we provide some practical guidance for developers to deal with the fallout from the pandemic.
Termination or delay rights vis-à-vis contracts conditional on planning and/or with development obligations
Planning submission and long-stop dates
The planning process is likely to be severely impacted as the industry is already under resourced. Developers should prepare for increased delays in local authorities deciding planning permissions as well as delays in planning appeals. Where there are agreements for sale or leases that are conditional on planning, the parties may need to consider agreeing variations to allow for any extensions in any relevant planning dates (for example submission, longstop dates and the number of days following the usual JR period) in the event there are delays at the local authority to issue planning decisions or for challenges made during the JR period to be considered.
Construction milestone dates and obligations/rights
Where there are agreements for sale or leases that are conditional on the seller/landlord or tenant/buyer carrying out works, the party contracting to do the works will need to see if the agreement allows for extensions of time or even termination rights should the works be delayed or disrupted as a consequence of COVID-19. This should usually mirror the building contract which determines what rights the contractor may have to claim time or money or determine the contract. This should also prevent any potential claim for liquidated damages (if contractually agreed) for a delay. Again, if the parties want to continue with the agreement, they should try and agree a variation on the dates.
A contractor is usually entitled to claim an extension of time in the event of force majeure. The term "force majeure" generally means a party is unable to perform its contractual obligations because an unforeseeable and unavoidable event has occurred which has not been caused by either of the parties. Therefore, the contractor will need to show that it is not possible for it to perform its obligations as a result of COVID-19.
Force majeure may entitle either party to terminate a JCT contract but the event must have prevented the carrying out of the whole or any part of the works for the period of time specified in the contract (which is usually two months) and the relevant notice formalities must be complied with for the termination to be valid.
Conclusion
The key is to fully understand your legal rights and obligations to determine whether or not you will be fully exonerated from your liabilities given the crisis and if not, how you can mitigate the ramifications by coming to a commercial arrangement with the other parties to the agreements.
At Howard Kennedy we are able to assist you in all Real Estate matters. We are more than willing to discuss your options with you to enable you to protect your business needs in these testing and uncertain times.
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