Large mixed-use schemes are reviving the heart of Manchester, but the complexity of these developments means standard form contracts are rarely up to the job
As Manchester continues to lead the UK trend to repopulate city centres, increasing competition is driving developers to focus on offering something more. Combined residential and commercial, retail or leisure schemes claim to offer that bit extra and constitute much of the construction now under way in the city centre. The Spinningfields development is a case in point: the largest urban housing scheme outside London with 391 apartments, it also has 2.37 m2 of office space, a 200-bed five-star hotel and retail space.
Dealing contractually with the legal and commercial issues raised by these sophisticated mixed-use projects is not straightforward. Bespoke amendments to the JCT standard forms typically trotted out for these schemes fail to hit the mark, which is not surprising given they have been developed principally with new-build, greenfield site business or retail schemes in mind.
Right from the outset, completion arrangements for such projects need to be given careful consideration. With any substantial residential element in a scheme there is a commercial pressure to rush properties onto the market. Developers and contractors want to maximise their ability to do this, which means contractual completion arrangements must be structured to allow flexibility in the handover of completed properties.
In a market where the internal finish of a residential scheme may be critical to its success, control over the detailed design of residential units by the developer is important. This conflicts with the desire to allow the contractor more control over the design of other elements in order to allow maximum transfer of design risk. This can result in separate contracts for core construction and fit-out being used. The problem with separate contracts is that they increase the risk of fit-out works being stalled while core work is completed. Without sufficient flexibility in the two contracts to allow for varied handovers to the fit-out contractor, the works may be delayed or at best delays in core works may have unpredictable financial consequences.
In particular, inadequate contracts means that in the rush to complete a scheme, ad-hoc arrangements need be made because of commercial pressure. This increases the likelihood of disputes over subsequent claims.
Bespoke amendments to the JCT standard forms typically trotted out fail to hit the mark. Rarely do they offer the flexibility required
Issues such as access to the works and use of common parts of the building in the event of partial handovers are also likely to be inadequately addressed by a standard form contract. Several contractors, and perhaps at certain times tenants and purchasers as well, may need to have access to the site at the same time, across the same areas or the working areas of others and often along the same access routes as well as sharing the same common areas. Community developments pose particular problems where within one site there can be several buildings or spaces at varying degrees of completion.
These contractual problems are matched by a host of practical difficulties, which increase the risks associated with city-centre developments. For a start, access to sites can be problematic, working hours will be restricted, the effect of noise, dust and disruption is seldom welcomed by neighbours, land will often be contaminated or contain antiquities or buildings to be demolished or refurbished may be ridden with asbestos.
Also, increasingly complex design by "signature" architects as well as innovative construction methods add risk. In particular, it is clear that Manchester city centre has embraced the high-rise - such as the 47-storey glass-clad Beetham Tower and Urban Splash's three-tower residential development to the north of the city. This trend is hardly surprising, given land costs and the shortage of viable sites, but the nature of these structures also creates certain challenges. The fact that a site boundary is often almost the same size as the building's footprint exacerbates handover issues. In addition it introduces health and safety concerns and other issues such as consents for crane oversailing.
As Manchester's city-centre population grows - it is set to reach 20,000 by 2007 - so will the number of mixed-used schemes. Yet, competition is fierce and there is no doubt the ability to deal with the legal and commercial issues that these schemes generate will be critical to their success.
Mark Job is the UK head of the transactional team at Pinsent Masons, based in Manchester