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‘Works contracts’ arising from the developer pledge – where are we now?

Posted: 10/05/2024

It has been two years since we started to see the country’s largest housebuilders sign the developer pledge letter. There has undoubtedly been a surge to assess and remediate buildings with fire safety defects – albeit there are still plenty more to go. This article addresses what is, perhaps, one of the final cogs that needs to be in place for work to commence on a building. That is, the ‘works contract’ (although often referred to as a ‘procurement agreement’, ‘delivery agreement, ‘works access licence’; the list goes on).

We are introduced to the concept of a works contract through clause 6.3 of the ‘deed of bilateral contract’ (the ‘developer remediation contract’). We are told that where the ‘participant developer’ is undertaking or procuring the remedial works at its own cost, it will use all reasonable endeavours to enter into a written contract (ie the works contract) providing for the carrying out of the works, with the ‘responsible entity’. We are also told that the works contract should contain such contractual provisions as are required for the works, and as are ‘generally aligned with the prevailing market’.

For the purposes of the developer remediation contract, a responsible entity can mean the owner of a superior leasehold or freehold interest, in addition to a management company of a building or the person appointed to manage the building for, and on behalf of such an owner. One or more of these parties will enter into an agreement with the participant developer. More often than not, solicitors acting on behalf of the participant developer will produce the first draft for the responsible entity to review.

Through negotiating these agreements on behalf of any party, it has become clear that DLUHC’s guidance that the provisions should be aligned with the prevailing market is of little practical assistance. Each party will have its own interpretation of what market standard terms are – influenced by which side of the fence its sits on. Similarly, each party will be heavily influenced by – and push for – terms that are pertinent to its own interests.

For example, developers are less likely to agree to any provisions that may add to the overall cost of carrying out or procuring the works, whereas responsible entities will be hesitant to agree to any terms that ‘give away’ more than they need to in order to facilitate them (a request to agree to settle and release all claims being a common trend).

While DLUHC has provided some guidance as to what the works contract should include – with the obligations for the participant developer to pay certain costs of the responsible entity often being quoted – arguably the guidance does not go far enough.

Should, or could DLUHC now release guidance on what parties should, and should not be agreeing? Arguably not. Parties are now so far down the road that they have made their own assessment of what is reasonable and the form these agreements should take. And for the most part, it appears to be working. In an environment where all parties ultimately want the same end product, as time goes on, the works contract is proving less of a barrier to progress.

If you require assistance with reviewing, or preparing a works contract, Penningtons Manches Cooper would be delighted to help.

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