Creating a legacy in rural residential development

There is an ever growing desire on the part of both landowners and developers to build ‘legacy developments’. This approach is of particular interest to rural landowners, who will very often continue to live cheek by jowl with the consequences of their development decisions for years to come. Appropriate legal structures are vital to secure the landowner’s fundamental project principles for a legacy scheme, based on high quality master planning, design, and construction. They underpin the aspiration to ensure that the project promotes and enhances reputation, as well as delivering the desired financial and social returns.

For landowners promoting legacy developments, and in particular design control, there are two key stages that require effective legal structure.

• Design and construction stage - during this stage the landowner, working with a developer or contractor, will be seeking appropriate control over the design and construction of the works. Their objective will be that the project accords with the design specification (including the development’s original master plan, planning permission, and subsequent design material specifying the detailed nature of the materials and works) at all relevant stages.
• Estate management stage - the post-construction estate management period requires the establishment of an effective management regime that secures a lasting and positive legacy. One size does not fit all and there are many ways to implement this. Central to the approach will be the extent to which the landowner wishes to be involved with daily management and whether they have the resources to play such a role.

Before and during construction

To ensure the project is delivered in accordance with the landowner’s fundamental principles, the landowner will wish to have a sufficient degree of control over the design specification, including the all-important application for detailed planning permission and working drawings. It is essential for the landowner to think about (and agree with the developer) the extent to which, and at what stages, the landowner’s approval of these elements will be required and on what grounds the landlord can withhold approval. By setting out a roadmap of the sign off process for the various stages from pre-planning to development, both parties can work together to ensure that the scheme is one that the landowner is expecting and one that the developer can undertake.

The developer, for their part, will be concerned about being fettered by the landowner’s discretion on these points. There are devices which may give a degree of certainty to the developer, such as referring to ‘common aspiration documents’ or ‘benchmark schemes’, particularly with their guidance as to materials, layout, signage, and public spaces. Agreement over a specific role for the landowner’s architect in the delivery of the design and the works may also allow for some certainty regarding the operation of the approvals process.

Projects always look good in the architect’s drawings but what about when they are built? A landowner may wish to exert control in the construction stage as well. One way of doing this is for the landowner to retain ownership through the construction phase and for the development to be carried out under a building licence or lease to the developer. The landowner retains the right to ‘sign off’ the completed units by providing a completion certificate before the units can be sold. This allows the landowner to maintain quality control.

A more favourable structure for developers may be where the land is transferred prior to completion of the work, but then only in phases, and with the landowner retaining Land Registry restrictions on sale until such time as the landowner certifies the satisfactory completion of the works.

After construction

After construction, when people move in and begin to live their lives, the rural estate will wish to ensure that standards do not slip. There are a number of ways of doing this:

• a design and community code, which importantly records and imposes the achieved design/works standard.
• legal obligations, which are part of the legal title to the development, its dwellings and commercial units.
• a general obligation to comply with the code, especially in relation to alterations, works, and a process for securing consent for works.
• stipulations on use, for example protecting the concept of private residential dwellings as single households or limiting the use of commercial units.
• planning agreements and local development orders – community stakeholder covenants may be imposed.

How does the rural estate maintain control?

Restrictive covenants are the traditional method of imposing obligations on land where there is nearby, identifiable core estate which demonstrably benefits from the covenants. However, they cannot be used to impose positive obligations and are not always suitable for modern developments. There can also be technical issues in enforcing them.

Also, the covenants tend to be buried away in a lengthy and detailed Land Registry document – not the most readily available or understandable source for workable estate management.

Building schemes are an alternative. A properly constituted building scheme imposes a clear set of obligations (including the design and community code and title obligations) which are enforceable by all owners against other owners. However, building schemes also give rise to technical issues and need well-considered provisions, particularly as they are based on fairly limited principles from an historic legal case (a number of recent cases have challenged their operation where there is lack of clarity).

A third option is for the landowner to retain a controlling share known as a ‘golden share’ in a management company set up to oversee the ongoing management and operation of larger residential developments after they have been developed. A representative of the landowner would sit on the board of the management company and hold a golden share, enabling the estate to block any motion or initiative that cuts across the estate’s immediate and longer-term principles and objectives. Essentially, no resolution can be passed by the directors of a management company unless the holder of a golden share has agreed to that resolution.

Different developments will require different solutions. But the issues must be considered to work out the best way to maintain standards and the legacy of the development for future generations. 

If you require further information about anything covered in this briefing, please contact Henry Stevens or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2020