West Berkshire ruling complicates development schemes
0The recent Court of Appeal decision calls into question local authorities’ ability to enter development agreements without following public procurement rules, says Helen Randall
Is your authority about to embark on a regeneration scheme or a property development with a developer partner?
If so, then a recent landmark decision by the Court of Appeal may affect your plans.
This does not mean that you cannot proceed with your scheme, but it does mean that you will need to do so more carefully, particularly if you have assumed that the public procurement rules will not apply.
The case, Faraday DevelopmentLtd. v West Berkshire Council v St Modwen Developments Ltd. has caused quite a stir among procurement lawyers.
This is because it is the first UK case to declare a contract ineffective and throws into question whether a “contracting authority” (such as a local authority, an NHS trust or a housing association) can enter into a development agreement (DA) or as some (but not me) would argue, a s.106 agreement,without conducting a public procurement.
It also underlines the importance of ensuring that your authority gets well-considered legal advice before assuming that a non-OJEU (Official Journal of the European Union) route is possible, especially if you want to avoid the risk of a court declaring that your DA is ineffective.
The case centres around West Berkshire’s plans to regenerate an Industrial Estate in Newbury.
West Berkshire owned much of the freehold to the estate and sought to bring new housing and employment zones to the area, whilst improving its income stream from the site.
Faraday is a special purpose vehicle, which was set up in 2004 in order to assemble land within the estate for redevelopment – it holds long leases from West Berkshire for certain plots within the estate.
In 2011, Faraday entered into a joint venture with Wilson Bowen (WBD) a subsidiary of Barratt Developments plc.
WBD would acquire a 50% shareholding in Faraday and participate in the redevelopment of Faraday’s land.
The parties also planned to collaborate should other land on the estate become available for redevelopment.
Faraday had secured planning permission for a mixed-use development on its land within the estate, after which it had negotiated with West Berkshire for new leases.
As of April 2011, Faraday and West Berkshire had agreed heads of terms and drafted a lease.
However, West Berkshire then ceased negotiations in July.
In early 2013, West Berkshire invited bids for the regeneration of the estate.
WBD and another Barratt subsidiary made a joint bid to develop the land on the estate, in concert with Faraday.
In return for including Faraday’s land in the bid at a reduced value, Faraday would develop flats on its own land and a proportion of the housing within the remainder of the estate.
Ultimately, this bid was unsuccessful and by March 2014 West Berkshire had opted for a rival bid from St Modwen.
In August 2015, West Berkshire published a Voluntary Transparency Notice (VTN) in the OJEU saying that the deal was a land transaction and thus exempt from procurement.
West Berkshire subsequently entered into a DA with St Modwen on 4 September 2015.
Faraday lodged a judicial review claim on 20 November 2015 and got a redacted version of the DA on 10 December and then brought its procurement challenge on 8 January 2016.
What is ironic is that West Berkshire did in fact tender the opportunity involving a four-year non-OJEU bidding process.
This leads one to wonder whether they might have been better off advertising the opportunity in the OJEU after all.
The case considered the following questions:
Is a DA structured around an option for the developer to acquire the site (meaning obligations are contingent on acquisition, rather than immediately binding) a “public works contract”under procurement rules?
Did West Berkshire act unlawfully in entering into the DA because it committed itself to entering into a public works contract without following procurement rules?
Had the council deliberately and unlawfully avoided the procurement rules?
Even if the DA was not a public works contract, was it a “public services contract” to which procurement rules also apply?
Did the VTN work to stop the court declaring the contract ineffective?
Were St Modwen Developments Ltd too late to ask the court for another remedy (apart from a declaration of ineffectiveness)?
Lord Justice Lindblom delivered the e main judgement which held:
A contingent contract is not a public works contract until the option is exercised and the obligations are triggered and become binding. (BTW, most s.106 agreements are not caught by procurement rules)
West Berkshire had not acted unlawfully when it entered the contingent DA and had not deliberately avoided the procurement rules.
The VTN was not transparent enough to alert others to understand West Berkshire’s reasons for not procuring as the VTN stated the deal was an “exempt land transaction”.
This defect meant the VTN could not stop the court declaring the DA to be ineffective.
The 30 day challenge time limit for ineffectiveness declarations started to run when West Berkshire disclosed the DA to St Modwen because before they saw the DA, St Modwen could not have known they had a claim.
Helen Randall is a partner at Trowers and Hamlins LLP
