Case Study of Geranium Gate

QUESTION 1

This entry relates to an easement. An easement is a right that arises from another property. In other words, it permits certain kind of use of another person's property such as for rights of light and air. Easements arise when there are two adjoining properties and one property gives the benefit of the right to another. In that case the one with the benefit is the dominant tenement and the one with the burden of the right is a servient tenement. With reference to this right, in the case of Geranium Gate, the adjoining property has given easement right to Geranium save on the land numbered 1 and 2 in blue. With respect to these two pieces of land, there is no such easement for right to light or air and the development in the adjoining land cannot be prevented on account of any such right. The deed dated 30 June 1978 is a deed granting an easement to the Geranium Gate. In this deed, while right of light and air is granted to Geranium Gate, this deed clarifies that this grant does not mean that the land numbered 1 and 2 are also recipients of this easement and construction of building on the servient heritage cannot be prevented on account of land numbered 1 and 2. If you require assistance with a law dissertation help, we provide the best expert guidance.

QUESTION 2

Joint venture contracts involve two or more parties entering into a contractual arrangement for designing and building a property. The advantages of this structure is that it is easy to establish and it not time consuming or complex. The contract terms establish clear scope for each party in terms of their focus in the development. The parties are taxed on their own profits. The parties will not share debt liability unless they specifically include a clause in the agreement stating otherwise. They will also have control of their respective assets. However, this also means that the venture will not be able to own or purchase any assets as there is no legal entity created through this type of arrangement.

Joint venture partnerships is a structure that sees two or more legal persons coming together to form a partnership in the pursuit of a common objective of making profit. Like a joint venture contract, a joint venture partnership is easy to form. It may not even require a formal agreement although, formal agreements are preferred. The agreement is a partnership agreement, which is based on the negotiations and agreements between the two parties. The partnership is not taxed; it is only the parties who are taxed. This ensures that the profits of the parties are being taxed separately and each is liable for only their tax. The parties can also maintain desired levels of confidentiality. On the other hand, partnerships can be risky because partners have unlimited liability for the whole venture. Which places more risk on the parties as compared to the Special purpose vehicles, where risk can be minimised. In the case of Joint Venture Contracts also, extent of risk can be specified in the contract itself. Another drawback of the partnership structure is that there being no legal entity, it cannot buy assets. Raising capital can also be difficult in the absence of a legal entity in which others may want to invest. Another risk associated with this form of structure is that a partner may leave the partnership at any time, in which case, the existing partner would either have to complete the development on their own or find other partners.

Special purpose vehicles are in the nature of corporate structures wherein the arrangement sees the development being made into a limited company and the parties becoming shareholders. As such, a legal entity is being created in this arrangement. The parties as shareholders will have liability to the proportion of their share capital in the SPV. The benefit is that the SPV being a legal entity, it can own assets in its own name. On the negative side, there are more regulatory norms as compared to the above two structures. The SPV has more reporting and compliance to do, which adds to the administrative costs of the venture. Another drawback or problem could be that the SPV would see double taxation as it would have to bear corporation tax and the parties would have to bear income tax. Despite these negatives, parties may prefer SPV because it involves limited liability, makes it possible to own assets in the name of the corporate entity and once the development is completed, the company can be sold.

Out of methods, a Special Purpose Vehicle may be the most appropriate structure. It would allow both parties to invest in the structure and form a private limited company for the purpose of the development. This would be a legal entity in itself and can be used for raising more capital. Assets can be bought in the name of this company for the purpose of development. The liability of both parties would be limited as per their shareholding. The risk of one leaving would be mitigated through this vehicle. Both companies are already experienced in property development, and familiar with company procedures. Therefore, this structure would be familiar to them. They do not seek high degree of confidentiality and therefore, the openness and transparency of the structure would suit them. Once the development is completed, they can sell the assets and the company or wind it up.

QUESTION 3

Overage clauses are included in development agreements to allow increase in purchase price of the developments in the event of appreciation of value of the development due to some happenings; for instance planning commission is obtained and it increases the value of the property. In the case of Geranium Gate, the proposed development of the property envisages a large development comprising of a retail estate with outlet shops, parking, cafes, restaurants; storage, distribution; and a cinema and bowling alley with parking. For these developments, the developer plans to make three separate planning applications for three phases of development. At this point, it can be said that the developer may or may not be able to procure all planning permissions. So, in order to make adjustments for the event that it is able to procure all or some planning permissions, the price at this time can be flexible so that it allows the buyer the benefit of lesser cost if the value of the property is not achieved to the point envisaged by the developer in case one or more planning permission is not obtained. At the same time, if all the planning permissions are obtained, then the value of the property would be high and the developer’s profit safeguarded through an overage clause. Therefore, for the client’s benefit, the overage can act to protect his interest in the event that the value of the property goes up as it is in the nature of a deferred payment in addition to the basic purchase price (Titanic Investments v MacFarlane). The common types of overage in property development are planning overage, sales overage, and overage payable in the event that a buyer disposes of undeveloped land at a profit. The planning overage is applicable in this case because it can be triggered when the developer obtains planning permission. The overage clause can be secured by making a legal charge on the restriction on title, because contractual obligation to make a payment may not necessarily protect the client’s interest (Cosmichome Ltd v Southampton City Council).

To: Julie.bertram@davenport.com

Subject: Your Client: Davenport: Explanation of Clause 16 in Document 1

Dear Julie,

I hope this email finds you well. I will endeavour to answer your question about clause 16 in this email.

Clause 16 pertains to the purchase price of the property in Geranium Gate. While the purchase price is mentioned in sub clause 1, sub clause 2 accounts for the cost of the remediation in case of such measures being taken under the Environmental Protection Act 1990. This could happen in the event of the land being later found to be contaminated and necessary action being taken under the

Environmental Protection Act 1990. This is the amount that has been considered to be adequate by the client. Moreover, subclause 3 excludes the Seller from future liability to contribute to the cost of any remediation works and that such liability will be borne by the Buyer. Moreover, as per sub clause 4, the client agrees to indemnify the seller in case such exclusion does not take effect.

Do let me know if you have any other questions.

Kind regards,

Trainee

QUESTION 4

A practical completion is generally certified when the construction works on a project are completed and the only work that may remain would be minor defects or changes to be made. It signifies the completion of the project for all practical purposes and the fact that the property is fit to be handed over.

Collateral warranties are given by a professional consultant, building contractor or sub-contractor noting that they have complied with the terms of their appointment or contract. The collateral warranties are given to third parties by these abovementioned parties. As third parties were not parties to the original contract under which there parties have carried out their works, the collateral warranties are given to ensure that duty of care would be extended to these third parties. In other words, collateral warranties create contractual relations between the professional consultant, building contractor or sub-contractor on one hand and the third parties on the other hand (Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited). In the absence of tortious liability for breach of duty of care, such collateral warranties create contractual liabilities for the professional consultant, building contractor or sub-contractor.

The parties which might give collateral warranties in relation to Geranium Gate would include the professional consultant, building contractor or sub-contractors appointed for the development work on the property. The parties receiving such collateral warranties would include tenants of the outlet shops, cafes, restaurants; any buyers of the units in storage and distribution, and tenants or buyers of the cinema and bowling alley.

A “defects liability period” a specified period of time after the completion of the construction project, during which contractor has the right to return to the site to remedy any defects. Such a period could last up to a year depending upon what was specified. The defects liability period is useful as it is an economic and efficient way for carrying out any remedial works that may arise in a reasonable period and course after the completion of the construction. The employer would be saved from the inconvenience of hiring another contractor to carry out the remedial works.

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QUESTION 5

if the tenant of Shop 2 believed that it was owed some money by the client, he would be prevented from withholding its rent by virtue of Clause 17 of document 2, which provides that the Annual Rent and all other money due under the lease are to be paid without deduction, counterclaim or set off. Therefore, the option of withholding the rent is not available to the tenant of Shop 2. This clause therefore provides protection to the client in future against tenants who may refuse to pay rent on the ground of deduction, counterclaim or set off.

If the client stopped demanding rent because it reasonably believed that the tenant had unlawfully sublet Shop 2, then as per the provisions of the Clause 14.2, the landlord can stop such demand or accept the Annual Rent, and the tenant would be liable to pay interest at the Interest Rate on that amount. Such interest rate shall be payable for the period from the due date of the amount until the date of its acceptance by the Landlord. For the purposes of calculating such interest rate, the interest shall be calculated at the base lending rate from time to time of Lloyds Bank plc.