Shared & Halved - Housebuilders

To support our clients and colleagues who work in the housebuilding community, Shoosmiths hosted a webinar on 14 May 2020 looking at the most pressing issues impacting the sector in light of the unique challenges posed by COVID-19.

Introduction

Coronavirus COVID-19 is a crisis unlike any other we have faced as a country, presenting a new and varied set of challenges to UK and global businesses.

Based on what you’ve told us is most pertinent to you in the current climate, we have devised a series of webinars aimed at you, business leaders, to look at implications of the outbreak.

In this webinar we looked at the homebuilding community and the gradual steps being taken to reopen the industry and its recovery. Below are our key tips and takeaways.

Where are we?

• There has been a herculean effort across the industry, with the aim to work collectively across the new home and second hand market to present to Government a series of protocols to demonstrate the sector can re-start activity act in a safe way whilst complying with social distancing rules.
• We will see a build up of activity in the next few weeks and months, depending on the progress of the Government’s relaxation of the current restrictions.
• The Government has published guidance on how to establish COVID-19 secure working practices on construction sites. Further advice has been issued on moving home during the COVID-19 outbreak with updated guidance for sellers, buyers and the professionals involved in the process.
• Alongside this the Government and Home Builders Federation (HBF) have launched a Safe Working Charter to enable construction sites to reopen to help get the housing market moving.
• Completions are down around two thirds from what we would usually expect during this period. However, we have seen only a few abortive sales, as a result of encouraging clients to exercise pragmatism and keeping an open dialogue with all parties. The focus has been on getting transactions to a good position so they can be progressed at the right time.
• House prices are likely to reduce between 5 to 10% and transactions generally are likely to be down by a third across the UK this year.
• There is a much better chance of coming out of this in a better shape than we had envisaged back in April although it is expected the return will be to around 80% of usual volume.

What are the continuing challenges?

• The need to balance the benefit of the economic impact from re-starting activity against a minimum impact on the R infection rate.
• The risk of a second wave which could reinstate the restrictive lockdown measures. It is imperative the new protocols and guidance are properly enforced to ensure any creeping up of the R rate is not attributed to inappropriate behaviour in the sector.
• Providing a safe workplace and encouraging staff to return to work and consumer confidence in the housing market.
• The extension of the furlough scheme and the uncertainty as to what this will look like come August.
• The impact on build efficiency. We now have stepping stones in place for developers where they will need to create new processes and adapt to a change of pace where only 1 or 2 people can enter a home.
• Delays to work programmes, late build completions and potential for deduction of delay damages by the developer or claims from main and trade contractors to mitigate their costs. What will be the commercial effect from a suspension of work to a phased return?
• Inability to source materials from preferred suppliers until the manufacturing industry is back up to speed.
• Potential for the timetable between exchange and completion to shorten to reduce the risk of interventions during this period and withdrawal of mortgage offers. This could have a particular impact on plot sales for new builds where we typically see long periods between exchange and completion.
• The requirement to avoid public transport where possible. Not everyone has this option and this could impact sites re-starting, particularly in areas which cannot easily be accessed by contractors/employees without using public transport.
• There could be a shift to regionalisation with a move away from cities and a value placed on outside space which will create a premium around the regions and second hand market.
• There is a divergence of approach between England and Scotland mainly attributable to differing political views. As a result there will not be a universal rebuilding programme across the UK and Scotland will take its own course.

Any practical tips from a construction perspective?

• Developers will need to think outside the box and adapt to a way of working which complies with Government guidance.
• You cannot guarantee a workplace will be COVID-19 secure, instead you will need to work with the usual health & safety principles in mind to reduce risks as much as you reasonably can with suitable controls in place. Ways to consider this include:
• reduce risk through control measures and have PPE as a last resort;
• risk assessments – go back to basics and keep it simple;
• consult with employee and workplace representatives;
• take advantage of being able to apply to the LPA for longer working hours;
• stagger shift patterns and break times;
• consider how you will implement any changes and how you will monitor compliance by your workforce;
• consider how your employees can travel to work and avoid public transport. If they buddy up with a colleague, can they travel with the same person every day?
• HSE are looking to adopt a proportionate and appropriate response to enforcement. We are unlikely to see lots of prosecutions unless there has been a flagrant disregard of health and safety although we envisage an increase with enforcement notices.
• In new agreements, some contractors are looking for financial compensation for costs associated with the pandemic or a second spike. Generally we have seen that developers are preferring alternatives such as time extensions and agreeing specific drafting for COVID related clauses, rather than relying on force majure clauses.
• There is a potential for increased claims, although in reality, parties are often able to come to a commercial accommodation. The Construction Leasdership Council has published guidance as they are keen to ensure the industry emerges from the pandemic without a bonfire of claims on current projects.

What should we do if employees refuse to return to work?

• Ask yourself what is the underlying reason for their refusal? Could the reason be connected to shielding, pregnancy, child care or could the employee simply be addicted to furlough?!
• A blanket approach cannot be taken, you will need to consider the circumstances on an individual basis.
• Consider if the employee is able to work from home and if not, it may be prudent for them to remain on the furlough scheme.
• Be wary if your actions could be considered as discriminatory. Also be mindful of potential whistleblowing consequences when taking enforcement action.
• If the employee is addited to furlough and simply refusing to return even though you are able to demonstrate a safe environment has been provided, you could look to instigate appropriate misconduct or disciplinary proceedings.

What steps are being taken now to drive recovery?

• HBF continuing to work on other objectives and discussing economic stimulus packages with the Government. We do not know what this looks like or when any packages could be brought in. The HBF are suggesting incentives such as extending the Help to Buy Scheme and SDLT holidays to build consumer confidence not just in the new homes market but also in the second hand market.
• The current furlough scheme has been extended until the end of October 2020 subject to variations (yet to be published). Whilst detail is awaited, it is expected there will be a cost sharing element for employer contributions or potentially a return to part time hours.
• From a consumer perspective, for those with job security there is an opportunity to benefit from low mortgage rates.
• The next 3 months are crucial to re-stimulating the sector. The challenge is for those in the industry to consider how to move forward deals which have been put on hold and whether they can agree new deals to ensure there is a pipeline going forward.

For further details of our future webinars please visit our Coronavirus COVID-19 hub here.