It looks to be a potentially prosperous year for small scale residential developers. Here Paul Munnings, who focuses on work for residential developers for Prettys Solicitors, Ipswich, looks at three current issues to have on your radar.
The last 10 months have seen more changes to the planning rules in England than the previous 10 years combined, as the government looks for a way to reach its target of creating 300,000 new homes a year, and simultaneously stimulate the economy as part of the COVID recovery efforts.
With this comes potential and possible pitfalls for small scale residential developers.
Building regulations
The government has published its response to the Future Homes Standard which is expected to mandate a reduction in carbon emissions of 31%.
This will primarily be achieved by effecting changes to Part L (conservation of fuel and power in new dwellings) and Part F (ventilation) of the building regulations for new dwellings.
The key implications of the changes will be:
- Limited use of gas central heating, being replaced by air source heat pumps
- Increased level of insulation and air tightness
- An increase in projects incorporating renewables
Developers will be required to issue photographic evidence during construction of six basic thermal elements for each plot.
So, what does this mean for you?
The changes are likely to result in significant extra expense on the part of small scale developers. But the flip side is more saleable low energy consumption homes.
There’s no implementation date set yet - and it may be delayed due to Covid-19 - but we have been made aware that some long awaited changes to the regulations may come into force on 1 April 2021.
This would mean there is now a fairly narrow window in which developers could take advantage of the existing, less onerous regulations.
Another change
While we are on the subject of building regulations, the government is planning to implement changes required by the European Energy Performance of Buildings Directive (“EPBD”), which the UK is obliged to implement.
These will mean all new dwellings with a parking space will have to have one chargepoint per dwelling. Renovated residential buildings with more than 10 spaces will be required to have ‘cable routes’ for chargepoints.
The EPBD allows for an exemption for buildings that have submitted their initial building notice or full plans application by 10 March 2021 so there is once again a narrow window in which to avoid additional expense. Bear in mind that charging points costing between £850 and £1,000 each to install.
Finance your development
You will probably be aware of the Coronavirus Business Interruption Loan Scheme (CBILS) which is designed to support SMEs whose business has been interrupted as a result of Covid-19.
Many people will not however, be aware that these business interruption loans can be used to fund the build of new developments or the refinance of them pending sale.
The loans can be up to £5m and the taxpayer supported British Business Bank will fund all interest costs for the first 12 months and all fees. The terms are therefore highly attractive.
As most developments will be completed within this period the loans represent among the cheapest forms of finance available.
In order to qualify, the borrower will be required to demonstrate that their existing development project has been paused/delayed/slowed down as a result of the pandemic or finance is no longer available on the terms previously expected.
Typically, these loans will provide for up to 65% loan to GDV including interest roll up. Personal guarantees are required but limited to only 20% of the loan amount and cannot include a primary residence. Early repayment is also permitted with no early repayment charges.
We would suggest developers and investors take advantage of CBILS while they last - applications must be completed by 31 March 2021.
Right to regenerate
There’s another perk in the pipeline to be aware of thanks to the Ministry of Housing, Communities and Local Government.
A consultation has been launched which aims to convert vacant land and buildings owned by public authorities into new homes or community spaces.
The key feature of this policy is to allow the public to require councils to sell its unused land or assets, with the default position to be that land should be sold unless there is a compelling reason not to.
Under the proposals, councils would need to have clear plans for land in the near future, even if only a temporary use before later development – if the land is kept for too long without being used, they would be required to sell it.
The most interesting part of the consultation will be the “right of first refusal”, which would allow those who enquire about parcels of unused land a limited period in which to acquire it at “market value”.
While the proposals may ultimately come to nothing, it may be worth the astute developer identifying land owned by local authorities that would fall under these proposals and pre-emptively considering enquires for these, should the proposals be implemented.