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Competition law and development agreements
Case law on the extent to which the competition regime applies to development agreements continues to evolve. A recent judgment from the High Court in London, Midlands Co-Operative Society Limited, R(on the application of) v Tesco Stores Limited, sheds further light on when a development agreement will be caught by the procurement rules.
In this case, Birmingham City Council ("the Council") had earmarked a site for development. The site comprised of parcels of land in multiple ownership, including a community centre owned by the Council. The Council required the relocation of the community centre as part of any development proposal. Both Tesco and the Midlands Co-Operative Society ("the Co-Op") applied for and received outline planning permission for the site. Given this interest, the Council decided to run a competitive process between the two parties to select a development partner for the site. The Council agreed in principle to sell its interest in the community facility to the successful party and the tender documents issued to Tesco and the Co-Op obliged the developer to construct a replacement community centre.
Both Tesco and the Co-Op submitted tenders and Tesco was selected as the preferred partner. As the negotiations with Tesco progressed, the Co-Op raised objections and alleged that the Council had not conducted the tender in accordance with the procurement rules. The Council subsequently abandoned the tender process.
The Council launched a second tender process, this time inviting Tesco and the Co-Op to bid for the Council's interests in the community centre as a pure land sale with no development obligations. However, as part of the tender submissions, the developers were required to submit a development appraisal. Co-Op again argued that the Council had not conducted the tender in accordance with the procurement rules and refused to submit a bid. The Council subsequently abandoned the tender process on the ground that it had not received a bid that was capable of approval.
Evidently believing in the maxim, third time lucky, the Council launched a new tender process. This time the Council advertised the sale of the site of the community centre by informal tender. The Co-Op again argued that the contract was not a straight-forward land deal and alleged that the tender was a sham. Tesco submitted the only bid and was successful. The Council granted Tesco planning permission for the site, which included obligations relating to the redevelopment of the community centre. The Council and Tesco exchanged contracts in relation to the sale of the site.
The Co-Op subsequently sought judicial review of the Council's decision to sell the site to Tesco. One ground of challenge was that the Council had breached the procurement rules as the sale of the site to Tesco formed part of a public works contract that had not been tendered in accordance with the Public Contracts Regulations 2006. The High Court considered the guidance provided by the European Court of Justice in the Helmut Müller case and found that for there to be a public works contract, there must be a commitment by the developer that is legally enforceable by the contracting authority, to perform the relevant works.
The Court ruled in the circumstances of the present case, the Council did not hold a legally enforceable obligation over Tesco to construct the replacement community centre. Whilst the planning conditions imposed obligations on Tesco to be responsible for all works of fitting out and relocation costs of the replacement community centre if it developed the site, there was no obligation on Tesco to develop. Looking at the arrangements as a whole, there was no obligation on Tesco to perform works and therefore no public works contract. Accordingly, the procurement rules did not apply.
Whilst the case does not alter the legal position, it is nevertheless important because it shows how the domestic courts are likely to apply the Helmut Müller judgment going forward. An important issue which the judge flagged is that contracting authorities cannot get round the rules by hiving off the obligation to perform works into a separate agreement - the arrangement will be looked at in the round. Nevertheless, the judgment illustrates that there is scope to formulate strategies to develop sites outwith the scope of the procurement rules.
For further information, please contact Dawn Demellweek.
Green building regulations - the race is on
It seems likely that Scotland's commercial property market will be first to feel the full impact of energy efficiency regulations.
The Energy Act 2011 Chapter 2 (which applies to England and Wales only) provides that the Secretary of State must make regulations, coming into force no later than 1 April 2018, preventing the letting of non-domestic property with an energy performance certificate ("EPC") energy efficiency rating below a specified level, until the landlord makes prescribed energy efficiency improvements to the property. Following an announcement by the DECC in May 2011 it is expected that properties with an EPC rating of F or G will be caught.
Chapter 3 of the Energy Act 2011 (which applies to Scotland only) contains equivalent provisions to Chapter 2 but there are two notable differences. Firstly, Scottish Ministers have a choice over whether or not to make similar regulations, and secondly, the Act provides that any such regulations may come into force no earlier than 1 April 2015. Except for these differences the provisions for Scotland give Scottish Ministers similar powers to those given to the Secretary of State under Chapter 2.
So far, there has been no official announcement by the Scottish Government confirming an intention to use these powers but, as acknowledged by Chris Huhne MP during the passage of the Energy Bill through parliament, the Scottish Government has greater powers to stimulate energy efficiency improvements under the Climate Change (Scotland) Act 2009. Under section 63 of the 2009 Act, the Scottish Government is obliged to make regulations to improve the energy efficiency of non-domestic properties, and a consultation paper was published in October 2011. The consultation paper proposed to introduce regulations which are potentially more wide ranging than those provided for in the Energy Act, and will require energy efficiency measures to be undertaken at sale and lease renewal, as well as on the grant of new leases.
A report on the responses to the consultation was published on 30 April 2012 and Scottish Ministers will now consider how to take the proposals forward. The indications are that regulations made under the 2009 Act could be introduced as early as 2013.
A summary of the proposals in the consultation can be viewed in our November 2011 Update.
Click here to download the April 2012 report on the consultation responses.
Chilling systems, air conditioning, and refrigeration -
significant costs in store for the property sector
Costs relating to maintenance, repair and replacement of air conditioning, chilling and refrigeration systems are set to become an increasingly important issue for the property sector as a result of changes in the law relating to the use of "R22" gas, which are set to be fully implemented on 1 January 2015. It has been estimated that the total cost of compliance with the new law in the UK could be in excess of £1.5 billion.
What is R22 gas and what is the change to the law?
R22 (or "HCFC22") is a refrigerant gas commonly found in process chillers, freezers, refrigerators, and air conditioning systems. It has now been established that R22 is an ozone depleting substance and its use has been subject to increasing regulatory intervention. Since 1 January 2010 it has been illegal to use newly produced (or "virgin") R22 for service or maintenance of refrigeration etc and air conditioning plant and machinery, and from 1 January 2015 regulations will come into effect which will also prohibit the use of reclaimed or recycled R22 for these purposes. The relevant regulations (which apply to the whole of the UK) have been made to implement the European Union Ozone Depleting Substances Regulation 2009.
What is the practical effect of the change?
It will still be legal to operate an existing system which uses R22 after 1 January 2015, but it won't be legal to use R22 to repressurise a system which has been drained in order to carry out repairs. In some systems it may be possible to replace R22 with modern (regulation compliant) refrigerants, but in many systems this could cause damage, and/or lead to a significant reduction in performance. The upshot of this is that when faults occur in systems using R22 after 1 January 2015, it may, in many cases, be necessary to replace the system completely, rather than repair it, which is likely to be a costly exercise.
Who will be responsible for the cost of compliance?
The party with the obligation to comply with the regulations in relation to a particular system will be the "operator" who "exercises actual power over the technical functioning of the equipment and system". It will be obvious who the "operator" is in an owner-occupier situation, but in leased property, whether the party responsible for compliance costs is the landlord or the tenant will depend on the specific wording of the lease in question. Interpretation of leases is likely to give rise to disputes, and the main areas of contention will probably be repairing obligations, dilapidations, rent reviews, and service charges.
What to do now
Users of refrigeration etc and air conditioning systems should arrange for these to be assessed as soon as possible, and if a system makes use of R22 gas, specialist advice should be taken as to whether the system can be converted to other refrigerants and still provide an acceptable level of performance/cost efficiency, or whether the system will have to be replaced. Landlords and tenants should consider entering into discussions about the issue now. Leases may need to be examined and legal advice sought as to the respective parties' obligations, based on the specific wording of such leases. Careful consideration should also be given to the issue before parties enter into new leases or renew existing ones.
The new regulations will have a demonstrable impact on the property market within a fairly short timescale and we would suggest that all those with an interest in the matter consider the issues, and how they will be impacted, with a degree of urgency.
If you think your business may be affected by any of the above, or if you have any other questions, please contact:
0131 228 7284
This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.