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Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield remediation and development Brownfield Redevelopment: Midlands & North 15 th November 2017
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Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

May 31, 2020

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Page 1: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Funding Brownfield Development Practicalities of accessing and using innovative funding

sources to minimize the risks in brownfield remediation and development

Brownfield Redevelopment: Midlands & North

15th November 2017

Page 2: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Agenda

• Land Remediation Relief (LRR) key features • LRR case study • LRR lobbying update • Tax Incremental Financing overview • Using environmental insurance to manage risk

Page 3: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Land Remediation Relief Key Features

Page 4: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Land Remediation Relief

Key Features • 150% tax relief

• Only corporation tax incentive available to developers

• Investors can also claim

• Cash value varies and depends on tax rate

• Can claim a tax credit of 16% where losses incurred

• Claimed on qualifying remediation costs

• Extra relief available where site is also derelict

Year end of Sale

Corporation Tax Rate

Cash Benefit

April 2013 23% 11.5% April 2014 21% 10.5% April 2015 20% 10% April 2018 19% 9.5%

Year end of Spend

Corporation Tax Rate

Cash Benefit

April 2017 20% 30%*

*CGT base cost subsequently reduced so more CGT paid on sale

Page 5: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Who can and can’t claim

Can

• Developers

• Investment companies

• REITs

• Occupiers – Fit out

• Non-property corporates

• Off-shore developers

Can’t

• Pension funds

• Off-shore investors (for now!)

• Polluters

• Private individuals

• Local authorities or the HCA

Could…..

• Registered Providers

• LLP investors

Page 6: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

1 Must Acquire a “Major

Interest” in Land

Into this

Entitlement Conditions

• Freehold • Leasehold of more than 7 years

2

Must be contaminated prior to acquisition

3

Must not be connected to the polluter

4

Must not be in receipt of a subsidy

• Beware deferred land sales • Dangers of operating on a licence

• Beware “slice of the action” contracts • Polluter cannot retain a “Relevant Interest”

• Treatment of purchase price reductions • Plan grant funding carefully!

5

Contam present due to industrial activity

• Water and air not “contaminating” substances • Landfills and engineering works

Page 7: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Making a Valid Claim

Contaminated or Derelict?

Is the land contaminated? Is there “something” that is or could cause Relevant Harm” to: 1. Living organisms 2. Controlled waters 3. Ecosystem 4. Structure of buildings or

interference with building use

Is the land Derelict? Not in productive use since 1st April 1998. Evidenced by: 1. NLUD 2. leases 3. Rating records 4. Historical research

And / Or No

NO CLAIM

For Derelict sites is the Expenditure incurred on: 1. Removal of post tensioned concrete

heavyweight construction 2. Removal of building foundations and

machinery bases 3. Removal of reinforced concrete pile

caps 4. Removal of reinforced concrete

basements 5. Removal of below ground redundant

services 6. Preparatory works

For Contaminated sites is the Expenditure incurred on: 1. Activities to prevent, minimise, remedy or

mitigate the effects of any relevant harm 2. Anything to assess the condition of the

land 3. Japanese Knotweed treatment – on site

Yes VALID CLAIM

Further contaminated land tests: 1. “something” is from an

industrial activity 2. Relevant harm is not caused

by presence of air or water or decaying matter

3. Would the works be required regardless of contamination?

And

Yes

Page 8: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Land Remediation Relief Cast Study

Page 9: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Berry Edge, County Durham

Key Features: • Developer: Housebuilder • Site: Former Consett Steelworks decommissioned in 1980s • Abandoned mine workings from 50s/60s • Developed for housing • Remediation comprised:

• Site Preparation and Clearance • Mine workings Treatment • Excavation of surface structures / obstructions up to 4m • Excavation and Processing of Made Ground up to 4m • In-situ Geotechnical Testing of underlying material • Re-compaction of Engineered Fill and re-profiling of the site to

the finished site levels.

Page 10: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Berry Edge, County Durham Contract Cost Head Qualifying Non - Qualifying

Site investigation including Preliminary Strategy Work £37,041

Remediation strategy / validation report £13,500

Additional Geotechnical testing for NHBC £4,061

Mineshaft grouting £750,000

Excavate contaminated topsoil to stockpile £24,839

Excavate contaminated made ground for testing £624,022

Site management of contaminated material £595,494

Compaction of re-engineered fill £89,147

Screening contaminated made ground £695,339

Excavate foundations and buried structures £1,091,324

Crushing of resuable material £210,206

Removal of below ground redundant services £219,112

Removal of contaminated material £239,971

Make up development platform £419,346

Capping layer to garden and public open spaces £199,009

E.o costs for reinforced raft foundations due to made ground (slag) £1,017,179

Management costs - daywork rates £33,600

Prelims £127,727

Fees incuding development management fee £808,625

Additional indexation agreed due to extension / delay in contract £278,857

Forecast final cost £6,044,243 £1,379,551

Incurred to FY16 £5,962,163

Page 11: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Berry Edge, County Durham

Site Name Prior to 2013 Total

2013Total

2014Total

2015Total

2016Total

TotalCumulative

Berry Edge, Consett £2,771,207 £1,616,537 £1,039,203 £346,401 £188,815 £5,962,163

Site Name Prior to 2013Total

2013Total

2014Total

2015Total

2016Total

TotalCumulative

Balance to claim

Berry Edge, Consett £156,369 £366,309 £532,089 £809,355 £677,741 £2,541,862 £3,420,300

x 50% x 50% x 50% x 50% x 50% x 50%

Tax Rate 24% 23% 21% 20% 20% 19%

Cash Value £18,764 £42,126 £55,869 £80,935 £67,774 £265,469 £324,929

Total £590,397

LAND REMEDIATION EXPENDITURE (WIP)

LAND REMEDIATION RELIEF (P&L)

Page 12: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Fulham Wharf, London

Key Features: • Vendor: supermarket • Developer: housebuilder • Land Interest: 999 year lease • Development Agreement: developer gets long

lease on completion of supermarket • Interim interest: Licence to Occupy • Qualifying Remediation prior to land transfer:

£>£1.5m • Qualifying Remediation post land transfer: £126k.

Interim interest must be at least a 7 year lease

Page 13: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Technical Reports Pricing Documents

Into this

Tax Intelligent Procurement (“TIP”)

Grants

HMRC will request technical reports to justify and substantiate the technical argument for claiming tax relief

Purpose

Affected Reports

“TIP”

Issue

Pricing documents provide the underlying evidence of qualifying costs achieved under tender conditions

To make sure the impact of grants on the ability of the recipient to claim tax relief is fully considered

Reports can contain ambiguities that can undermine a claim for tax relief – primary technical driver is key

Pricing documents do not always readily identify qualifying costs meaning retrospective estimates required which can be contested by HMRC

Grants improve viability but can prevent the tax relief from being claimed if not structured correctly thereby denying the project of further subsidy

Review documents prior to final issue to highlight any ambiguities and agree any amendments required

After technical review add in specific pricing elements to highlight qualifying costs; consider impact of any contributions / grants

Consider the purpose of the grant and allocate towards non-qualifying works where possible

• Site Investigation • Validation • Remediation Strategy • Waste Management reports • Meeting Minutes

• Pricing schedules in tender documents • Two Stage tender – 2nd stage • Preliminaries • Variation Accounts • Lease Incentive Agreements

• Grant documentation • Development viability models

Page 14: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Lobbying for Change

Page 15: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Land Remediation Relief Lobbying

• Bring the tax relief “above the line”:

• Introduce a taxable Expenditure Credit similar to R&D

• Move from a Post-tax benefit to a Pre-tax benefit

• Increase value of Relief:

• From 150% to 175% generally to offset impact of decreasing tax rates

• From 150% to 200% for small sites of less than 25 homes from the Register

completed within 12 months of planning permission

• Scope of Relief:

• Derelict Land date qualifying date changed from 1998 to 2008

• Flood prevention costs to be reinstated as allowable costs

Page 16: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Current Position

Response from HM Treasury

• Political and / or Economic argument

• Economic argument would need case studies and

calculations on additionality v cost

• Political argument – >50% of plots now developed on

greenfield sites

• EIC to raise as a potential issue to be picked up with one

of the cross party Select Committees

Land Remediation Relief Lobbying Request for Supporting Information From The Fiscal Incentives Group In collaboration with:

Page 17: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Tax Increment Financing

Page 18: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

• Fiscal devolution has created opportunities for more innovative prudential borrowing for local authorities.

• The aim of TIF is to raise funds now to pay for enabling infrastructure to derive an incremental economic benefit to the authority through growth in business rate receipts.

• TIF operates within the Business Rate Retention Scheme which is available to all councils at their own discretion. Generally split 50/50 between local and national pots but with a move to 100% retention by 2019/20

• 5 pilot studies already launched to trial 100% retention and further pilots to be announced in December aimed at pooling between authorities

• Grants foregone in exchange. Primary concern is the volatility in rates income

• The authority has discretion as to how the money is spent to could be used to fund land development especially for commercial developments.

Key Features

Page 19: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Environmental Insurance

Page 20: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Responsibilities for Contamination

• Transferred to Contractor for management • Damage already caused remains with Employer Known Existing

• Remains with Employer • Can be minimised by investigation Unknown Existing

• Remains with Employer • Can be subject to a claim against third party Third Party Existing

• Transfers to the Contractor • But may not be discovered until later

Exacerbation of Existing

• Depends on who causes it! New

Page 21: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Development Liability

Scenario Indemnified by Contractor

Covered by Public Liability Insurance

Covered by Environmental Insurance

Pollution already present on site

Yes – remediation priced in contract No – not a fortuitous event No – purpose of the development

works

Pollution already migrated from site

No – beyond the control of the contractor

No – PL only covers sudden / accidental pollution that impacts third parties

Yes – third party (and regulator) claims for impact caused

Pollution caused by Contractor

Yes – only if damage can be attributed (ie needs to

be discovered quickly)

Yes – only if damage can be attributed to works, is sudden / accidental and

impacts a third party (ie damage to the environment excluded)

Yes – both during and after completion of the works

Pollution left on site post development

Yes – only if the contractor warrants that its removed (ie NO if design is to keep

in situ)

No – not a fortuitous eventYes – “re-opener” clean up or future damage (including third party loss of

value)

Page 22: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

• Liability (ultimately) rests with the landowner – insurance strategy should be set by them

• Include as many people as insured parties – in case one party goes bust

• Vendor should consider insurance to prevent liability bounce back if the developer becomes insolvent

• Get specialist advice!

Rules for Success

Duncan Spencer [email protected] t: +44 (0) 1424 777 874 m: +44 (0) 7825 884 222

Page 23: Funding Brownfield Development - Amazon Web …...Funding Brownfield Development Practicalities of accessing and using innovative funding sources to minimize the risks in brownfield

Questions

www.tfigroup.co.uk