Housebuilders Monthly Top Tip: Development Agreement declared ineffective by Court of Appeal

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Housebuilders Monthly Top Tip: Development Agreement declared ineffective by Court of Appeal

Published 28 November 2018

In the recent decision of Faraday Development Ltd v West Berkshire Council (2018), the Court of Appeal made the first declaration of ineffectiveness of a development agreement in an English public procurement case.

The appeal was brought by Faraday Development Ltd against the Council's decision to enter into a development agreement with another developer for the regeneration of an industrial estate without running a competition pursuant to the Public Contracts Regulations 2015.

The Court of Appeal concluded that at the time it was entered into, the development agreement was not considered as a public works contract for the purposes of the procurement legislation as it did not immediately commit the developer to undertake any works until it elected to serve an option notice to drawn down land. However, the Council had effectively committed itself to enter into a future public works contract at the time that the developer exercised its option and there would be no opportunity for a public procurement process to be undertaken at that time. The Council had therefore entered into an agreement, committing itself to act unlawfully in the future and on that basis, the development agreement was declared to be ineffective.

The lesson learned is to always take a risk based approach when negotiating contractual structures and entering into development agreements with a public authority. If the agreement does not contain immediately enforceable obligations to carry out works, it cannot be assumed that the procurement regime will not apply. It can also not be assumed that following completion, the agreement is not vulnerable to attack by a disgruntled party that may have been rejected as a development partner. It is therefore always important to review the transaction as a whole at the outset, as the Court had done in this case, to decide when a public works contract has or will be created and whether there is a duty to carry out a procurement process.

If you do need any advice in respect of the public procurement regime please contact us and we can put you in touch with a member of our procurement team who have extensive experience in this area and acted for Faraday Development Ltd in this case.

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