Pylons, pipelines and contamination: Challenges, but no reason to discount a site
With land values increasing in the Thames Valley region and ‘clean’ sites at a premium, now is the time for developers to reconsider their view of more difficult sites. Law-led professional services group Gateley has two businesses; property consultancy Gateley Hamer and leading fiscal incentives consultancy Gateley Capitus. Gateley Hamer’s head of utilities and compensation Ed Jones and Gateley Capitus director Kevin Meyer, explain how Gateley’s Real Estate Advisory Services (REAS), a joined-up approach between Gateley plc, Gateley Capitus and Gateley Hamer, is providing solutions to overcome the challenges.
Land at a premium
The Thames Valley is perhaps the hottest spot for commercial development in the whole of the UK right now. With Crossrail set to have the effect of bringing Reading much closer to London, Heathrow’s third runway proposals finally looking likely to happen and the Western Rail Access to Heathrow scheme also coming forward, the race for the best commercial development sites is intense.
In reality the majority of clean sites in the region are already developed or due to come forward shortly, which is why developers are focusing more closely on constrained and contaminated sites, and how to make them viable.
Addressing the challenges:
How does remediation relief work?
Meyer explained: “In many cases developers look at contaminated brownfield sites and whilst they see the obvious challenges they rarely take account of land remediation relief in their development appraisals. In some cases that can make a big difference to viability. It’s similar to how the effective recovery of capital allowances following the fit out or refurbishment of commercial property can make a major difference to the profitability of investments.”
Land Remediation Relief attracts 150% tax relief and can be claimed by both developers and investors, regardless of whether the site is held as a fixed asset or as trading stock. If you are a developer 9.5% of the total expenditure can be recovered. For loss-making companies, a tax credit equal to 24% of the total qualifying expenditure is available, which can be a significant cashflow boost particularly early in a development programme.
Meyer added: “As part of a land purchase, one of the first elements of an appraisal is to understand the potential costs associated with the removal of natural and man-made contamination or below ground services. The implications of identifying these types of issues could have a bearing on the purchase price and even at the Heads of Terms stage, it is advantageous to assess the scope of qualifying remediation works. The potential cashflow benefit can have a considerable impact on a site appraisal and without specialist involvement, it is difficult to assess the true extent of Land Remediation Relief.
“Our ability to interpret site investigation, environmental and remediation reports to identify the costs of qualifying remediation works has become indispensable to our clients”.
Overcoming utility constraints
The existence of utilities apparatus such as overhead lines and gas mains on a site will regularly be sufficient reason for a developer to decide against considering it. However, as Jones explained: “In many cases utility apparatus are held on a terminable wayleave (a wayleave is a personal licence between two parties where the grantor provides rights for the grantee to access their land in order to carry out specified activities), that’s certainly the case with around 90% of overhead electricity lines and pylons. In other cases easements (rights to cross or use someone else’s land for a specific purpose) for gas mains will include lift and shift provisions, and it’s not at all uncommon for substations to have originally have been constructed under a lease that has long since expired.
“In all of these situations there are means by which our team is able to negotiate for the utility constraint to be removed, often at the utility company’s cost, or for significant compensation to be paid if the apparatus remains in situ and impacts on development value. Many of the settlements we have reached in the Thames Valley region have resulted in developers receiving multi-million-pound compensation payments.”
The benefits of broader site acquisition reports
A key benefit that Gateley’s REAS team is able to offer through its broader range of advisory services is a more far reaching and detailed site acquisition report. In addition to including the traditional information that most real estate lawyers might include, such as key title issues and a review of occupational interests, Gateley’s REAS team has developed a report that also:
- Reviews on-site utility apparatus;;
- Reviews the legal basis on which utility apparatus exist and a recommended approach to dealing with them to maximise site viability;
- Identifies third-party land interests and an overview of possible land assembly strategies (including the potential for use of compulsory purchase powers, where appropriate); and
- Advises on the key risks to be aware of to ensure entitlement to claim land remediation relief is protected.
Having the benefit of this information at the pre-acquisition stage has already proven valuable to a number of developers in this region, and increasingly they’re realising that sites that might previously have been classified as ‘too difficult’ are not so difficult after all.
