MD1653 Variation of the Development Agreement relating to Pontoon Dock

Type of decision: 
Mayoral decision
Code: 
MD1653
Date signed: 
30 April 2016
Decision by: 
Boris Johnson MP (past staff), Mayor of London

Executive summary

GLA Land and Property Ltd (GLAP) entered into a development agreement with Bouygues Development-Leadbitter Ltd (Bouygues) for the delivery of a high quality residential-led scheme at Pontoon Dock, a 0.69Ha site in the Royal Docks, London Borough of Newham (see plan at Appendix 1) on 31 March 2015 (the Development Agreement).
Approval is now sought for GLAP to enter into a deed of variation (the Deed) under which the Development Agreement terms will be varied to accommodate changes in the delivery of an enhanced scheme, which incorporates a new entrance to Thames Barrier Park.  

Additionally, in response to a planning condition to carry out essential transport infrastructure DLR upgrade works, imposed under a section 106 agreement relating to another GLAP development scheme, Bouygues are entering into an additional agreement (the Option - the terms of which are not considered in this Mayoral Decision) to surrender a small part of the land committed to them under the Development Agreement.   Certain terms of the Development Agreement need to be varied with the Deed to deal with the effect of delays from the DLR upgrade works on Bouygues delivery of the scheme.
 

Decision

That the Mayor approves GLA Land & Property Ltd entering into the deed of variation to the Development Agreement entered into by GLA Land & Property Ltd (1) Bouygues Development-Leadbitter Ltd (2) and Bouygues UK Limited (3) on 31 March 2015, on the terms set out within this paper.

 

Part 1: Non-confidential facts and advice

Introduction and background

1.1    Following the outcome of a competitive procurement process in March 2015, the Mayor approved the recommendations to enter into an agreement with the preferred development partner to deliver the development objectives under MD14887 ‘Completion of legal agreements for the development of land at Pontoon Dock, Royal Docks’.

1.2    A record of Mayoral Decision made 30th March 2015 is as follows:
•        Approved the recommendation to select Bouygues Development-Leadbitter Limited as the preferred bidder for the Pontoon Dock project;
•    Approved GLA Land and Property Ltd’s entry into the development agreement with Bouygues Development-Leadbitter Limited;
•    Delegated to the Executive Director of Housing & Land the authority to execute the development agreement with Bouygues Development-Leadbitter Limited and all ancillary documents necessary to facilitate the Pontoon Dock project.
 

Objectives and expected outcomes

2.1    The expected outcome of the land disposal remains a residential-led scheme of a high quality with a minimum requirement comprising a development of 211 residential units that incorporates a policy-compliant affordable housing provision and 10,000 sq ft of non-residential ground floor space. Under the key terms and conditions of the Development Agreement, Bouygues Development has committed to the delivery of a minimum of 137 homes for the Private Rented Sector (PRS).  

2.2    Since entering into the Development Agreement, Bouygues have been required to make enhancements to the proposed scheme in order incorporate a new entrance to Thames Barrier Park. 

2.3    Additionally, in response to a planning condition to carry out essential transport infrastructure DLR upgrade works, imposed under a section 106 agreement relating to another GLAP development scheme, Bouygues are entering into an additional Option Agreement (the terms of which are not considered in this Mayoral Decision) to surrender a small part of the land committed to them under the Development Agreement.   Certain terms of the Development Agreement need to be varied with the Deed to deal with the effect of delays from the DLR upgrade works on Bouygues delivery of the scheme.  These changes have been made at the request of GLAP, London Borough of Newham (LBN) and GLA/TFL planning.

2.4    To account for necessary changes which have had an impact on the viability of the scheme, approval is now sought to amend the terms in the original development agreement. This is in order to accommodate additional requirements enabling the delivery of an enhanced scheme development submitted for planning.

2.5    The Further background on the variation to the development agreement is within Part Two confidential facts and advice of the MD.

 

Equality comments

3.1    The scheme will need to be fully accessible and/or Disability Discrimination Act compliant in respect of wheelchair accessible housing for the development and public realm. The developer has been subject to a pre-application process and has submitted a detailed planning application to ensure that the proposed scheme has addressed the requirements.

 

Other considerations

A) Key Risks and Issues:

Key Risks

Mitigation Strategy

Failure of the Developer to satisfy the conditions of the Development Agreement.

 

The developer is working to reach a satisfactory completion of the conditions required within the development agreement.The timescales have been adjusted to account for additional dialogue with DLR and TfL to implement the upgrade to the Pontoon Dock DLR station.

 

The bidder fails to gain a suitable planning permission.

 

Ensure the bidder implements the strategy submitted as part of the tender.Assisted by GLAP, the developer has worked closely with LBN’s, TfL and GLA’s planning teams to ensure the proposal meet their requirements.

 

The development partner defaults on the agreement, which would delay delivery of the project.

 

Consider re-tendering the project.Or look to appoint an under-bidder.

The procurement process is challenged.

 

As previously set-out in GLA’s reports, in the appointment of a preferred developer, a transparent, fair and equal procurement process has been undertaken, supported by a procurement agent.

 

The variations in the agreement account for changing circumstances within the context of an enhancement to the original scheme allowing for a change in the commercial negotiation. The minimum expected requirements will be delivered as committed to by the developer.

 

Withdrawal or lack of interest from the current institutional investor, funding in particular the private rented homes.

 

The developer currently holds an exclusivity agreement and heads of terms for a Purchase and Sale agreement with the investor.GLAP is supporting the developer in preparation of the Purchase and Sale agreement. Current market discussion with potential investors is positive and created confidence in maintaining a long-term investor.

 

 4.2    B) Links to Mayoral Strategies: The Mayor has publically expressed a desire to encourage institutional investment in the Private Rented Sector (PRS) as a way to increase the supply and choice of housing in the capital. The Mayor’s Housing Strategy sets out that, where appropriate, the Mayor of London shall seek to use land assets to encourage institutional investment in the private rented sector and improvements in the design and management of this tenure.

 

Financial comments

5.1     See Part Two confidential facts and advice of the MD.

 

Investment and Performance Board

7.1    In January 2016, the Housing Investment Group (HIG) approved the variations to the Development Agreement in respect of: the land and commercial terms, which will facilitate the delivery of an enhanced development scheme; the DLR upgrade with the development partner; and GLAP’s foregoing of potential overage as a financial contribution towards the additional costs to deliver the project.

7.2    HIG has endorsed the recommendations as set-out above (in 7.1) which include for a supplemental legal deed/agreement to update the terms to be appended to the original development agreement.  Since the date of HIG approval the DLR upgrade works have been examined in further consultation with DLR and Bouygues Development resulting in an extension of time to account for the potential delay in construction programme (covered in 1.17, 1.18 and 1.19 under Part Two paper).  This is viewed as a change in circumstances since the original bid submissions and results in increased risks to the delivery of the development objectives for Pontoon Dock, see Part Two confidential facts and advice of the MD for further details.
 

Planned delivery approach and next steps

8.1         Following the approval of Mayor, on the basis of the financial information submitted to GLAP and the necessary legal and procurement advice, officers will make the necessary alterations to the development agreement and contract with the development partner.

 

8.2         The next steps following approval by the Mayor are summarised below:

 

Activity

Timeline

Mayoral Decision covering enhanced scheme related matters

April 2016

Agree variations to the Development Agreement

April 2016

Planning Approval/Signed s106 (estimated)

Summer 2016

Start on Site (estimated)

End of 2016

Practical Completion (estimated)

Spring 2019