This month’s Ask the team considers what a development management agreement (or development project management agreement) is and whether it is caught by the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996).
Experienced developers can help a landowner turn an unused or under-used site into a profitable new scheme. In chastened times, anecdotal evidence suggests that some of those developers are a more common feature on others’ commercial projects, acting as a development manager.
A landowner wishing to appoint a development manager typically enters into a development manager’s appointment (or development management agreement), sometimes also referred to as a development and project management agreement (DMA or DPMA). The exact scope of these agreements varies from project to project, with some being very similar to a landowner’s development agreement, while others are closer to a professional appointment.
Unlike a typical professional appointment, all or a substantial portion of the development manager’s fee may depend on successful delivery (and sometimes successful letting or sale) of a completed project.
The Construction Act 1996
The Construction Act 1996 requires all construction contracts to include compliant payment and adjudication clauses, otherwise the Scheme for Construction Contracts 1998 will apply. Subject to various statutory exclusions, the definition of a construction contract includes an agreement to provide advice on “building” or “engineering”.
Without rehearsing all of the Construction Act 1996’s requirements and exclusions, when dealing with a property development, where a development agreement provides for the disposal of the freehold or the grant of a lease of 12 months or more (following completion) in the site of the works, the Exclusion Order 1998 applies. That means the development agreement is not a construction contract. The same principles apply if you are considering a development management agreement.
What counts as a disposal?
In Captiva Estates v Rybarn, the court had to determine whether a development agreement was a construction contract. The agreement provided for seven flats to be transferred by the landowner to the developer or the developer’s nominee, if certain specified events occurred. The court referred to the Exclusion Order 1998 and held:
“There are many ways in which parties may arrange for or provide for the disposition of an interest in land or the grant of such an interest. It might be at some time in the future or subject to the fulfilment of some condition wholly within the control of a third party, such as a planning authority, a parent company or a lender. It might be subject to some condition within the control of one or both of the parties being satisfied, such as timely or satisfactory completion of works by the contractor, or the issue of the final certificate by an architect. Such provision or grant could be subject to the willingness of a third party to enter into the transaction or pursuant to a further document to be entered into by the parties.”
In Captiva Estates, the development agreement itself required the transfer from the landowner to the developer or its nominee. The Exclusion Order 1998 applied.
However, it seems to us that where the fee payment to the development manager is effectively triggered by the grant of a lease to a third party, even if the development manager’s appointment required the landowner to grant that lease, then the parties:
- Are dealing with a payment trigger.
- Are not making a relevant disposal under the Exclusion Order 1998.
That is, if the landowner’s grant of a lease triggers a payment, even if the landowner is compelled to grant the lease, the parties’ development manager’s appointment is a construction contract. The agreement clearly relates to a situation where there will be a disposal of an interest but it doesn’t “include provision for the grant or disposal” of an interest to a party to the agreement.
Path of least resistance
Given the parties to a development management agreement can provide for adjudication and Construction Act-compliant payment clauses (even if that payment only becomes due when, say, a lease is granted), the safer option in boderline situations may be to allow for the Act. If the parties don’t, and a dispute arises, it may be difficult to make the Scheme for Construction Contracts 1998’s requirements fit with the parties’ payment intentions, making a dispute more complex and difficult to solve.