2013 - a year for development? (Part 2)

Further to last month’s newsletter looking at the impact of changes being introduced by the National Planning Policy Framework and the Growth and Infrastructure Bill, this month we are taking a closer look at the funding initiatives intended to kick start further construction.

Help to Buy - extension of Firstbuy and Mortgage Guarantee Scheme

The Government has announced an extension to what was branded Firstbuy to aid all buyers (not just first time buyers) of new properties with up to £600,000.  The extension will come as excellent news for the residential property market as analysts believe the required deposit for first time buyers will soon rise to over £100,000 in many UK cities.

The mortgage guarantee scheme will be available from January 2014 and is available for all properties (but still subject to the £600,000 cap).  The final details are to be agreed with lenders but essentially the Government will provide lenders with the option to purchase a guarantee on the high loan to value portion of a mortgage for which the Government will charge a commercial fee.

Both schemes are demand-led which has prompted some commentators to suggest the schemes will serve to only push up house prices rather than increase house building.  However, it seems more likely that the usual consequence of increased demand will be for more houses to be built.

Cash injection for Affordable Homes

In the budget, the Treasury has provided an extra £225 million to support the delivery of up to a further 15,000 affordable homes and still seeks to bring 5,000 empty homes back into use. This additional capital funding aims to redress possible loss of Affordable Housing provision related to the modification of the reduced Affordable Housing obligation within planning agreements referred to in Part 1 of this article and the funding gap created by reductions in grant.

It has also announced an increase from £200 million to £1 billion to support the private rented sector.

Additional infrastructure commitments

Further to its commitment to underwrite an initial £50 billion to be made available to support infrastructure investment last year, the Chancellor announced another £3 billion a year investment in infrastructure to be funded by cuts to other Government departments.  The funding is due in 2015 which some groups have described as 'too little too late' but others have optimistically viewed as having 'sowed the seeds for jobs and growth'.

The National Loan Guarantee Scheme (NGLS)

The NGLS has been introduced to assist bank customers to borrow at a cheaper rate.  The scheme works by the Government providing guarantees on unsecured borrowing by banks, which in turn enables them to borrow at lower rates. This benefit is then intended to be passed on in its entirety to businesses by the participating banks.  Since the NLGS was launched, it has reportedly helped businesses access cheaper finance by reducing the cost of bank loans under the scheme by one percentage point.  It also appears to have been popular, in that over £2.5 billion in cheaper loans have been offered to in excess of 16,000 businesses so far.  However, we understand borrowers are sometimes being forced to accept these revised terms.

Notwithstanding this, the Chancellor has extended the NLGS to include small and medium UK businesses with a turnover of £250 million (from £50 million) stated on their last financial or management accounts.  The SME, however, must not be experiencing any financial difficulties to apply for a NLGS loan.  The interest rate payable on any loan granted (a participating bank's normal lending conditions will apply) will remain at 1% less than would have been payable had the participating bank been outside the scheme, so potentially giving eligible SMEs access to cheaper credit.

Basel Committee recommendations

Finally, looking beyond 2013, the Basel Committee on Banking Supervision has made recommendations that the minimum cash quantity held by banks should be relaxed and the Liquid Coverage Ratio introduced whereby banks would be permitted to hold a wider range of assets, including, but not limited to mortgage-backed securities and lower-rated company bonds.  The hope is that the four year phasing in of the scheme by 2015 will increase the appetite of banks to make loans to individuals and companies for (amongst other things) housing and development in the short term.

Observations

It is hoped by the Goverment that these initiatives will assist to fund and help start building so as to boost the economy and generate around 140,000 jobs in the construction sector.

However, as all parties in the industry are aware, new projects are currently slow coming to market, there is limited certainty in long term Governmental commitment to new schemes and the ability to obtain financing (notwithstanding the new initiatives) remains severely limited.

Market outlook

As a result of the continued funding squeeze, we are seeing a large rise in alternative ways to fund new schemes - be this through alternative finance arrangements, long term partnering or through joint ventures releasing equity (particularly in land and housing deals).  This has led to a large increase in the number and range of developments we undertook last year and are currently undertaking.

To find out more, please contact Peter Massey

Can adjudicators bind each other?

Sometimes we have cases where an adjudicator is appointed to make a decision on a matter of principle only, with no requirement to make a financial award.  For example, the dispute might be about a right to an extension of time with the decision limited to the question of entitlement.  A further adjudication might follow on a subsequent dispute about the financial claim arising from the extension.  But is the second adjudicator bound by the first adjudicator’s decision about entitlement, assuming he is different?

This question was recently considered in the case of Arcadis UK Ltd v May and Baker Ltd.  Whilst an adjudicator may legitimately consider himself bound by an earlier decision, this will not always be the case, and there is no legally binding rule requiring an adjudicator to follow an earlier decision.  Arcadis involved a series of two adjudications for two related disputes arising under the same remediation works contract based on NEC3.  The disputes related respectively to additional works instructed on two different areas of the site.  On the first area the project manager initially found that a compensation event existed and certified an amount in favour of the contractor of £300,000.  On the second the project manager initially instructed the contractor to carry out the work for a fixed sum less than the amount the contractor had estimated.  The project manager subsequently purported to withdraw his instruction and other instructions related to the second area.  He also purported to reverse his certification previously made for the first area.

A dispute arose about the first area which was referred to adjudication (the first adjudication) and the adjudicator found that the project manager was not empowered to reverse his decision if a compensation event existed.  The first adjudication decision included a financial element which the employer accepted and paid.

Subsequently disputes arose about the second site; in particular the withdrawal of the instructions to execute the work, and these were referred to a second adjudication.  The contractor argued that the second adjudicator was bound by the first adjudicator’s decision to the effect that a project manager’s decision, once made and issued, could not be withdrawn.  The second adjudicator stated in his decision that he found himself bound by what the first adjudicator had ruled.  However he decided that this did not prevent him from making his own assessment of the effect of the works in the second area.

On enforcement this decision was challenged by the employer, who argued that the second adjudicator had restricted his jurisdiction and breached the rules of natural justice by treating the earlier decision as binding upon him.

Akenhead J in the TCC found that there was nothing improper or contrary to natural justice in the second adjudicator finding that the earlier decision was germane and persuasive and it was legitimate for him to have regard to the previous decision.  In fact the adjudicator had stated in terms that he was entitled to and did decide the issues on their own merits.  For this and other reasons the employer’s arguments for resisting enforcement were rejected.

The judgement suggests that whilst adjudicators cannot be criticised for taking into account an earlier adjudicator’s decision in taking (to use the words of the Construction Act) 'the initiative in ascertaining the facts and the law', they need to be cautious about stating expressly that they are bound by a previous decision when in reality what they mean is that they agree with it.  An adjudicator’s decision which would have been different had the adjudicator not felt constrained by the previous decision, might not sustain a jurisdictional challenge, if the TCC’s reasoning is to be followed.  Equally the fact that an adjudicator may be permitted to adopt the approach shown in Arcadis does not mean that adjudicators are somehow legally bound by earlier decisions even though in some cases those decisions may temporarily bind the parties themselves.

To find out more, please contact Peter Jansen