JV & Legal Structure
The Developer, TfL and intermediary Head Leaseholder (Lunaprop) entered into the Conditional Agreement on 30th November 2022. Upon exchange a £1M capital payment was paid by the Developer to TfL. The remaining £9M will be paid upon Completion (and satisfaction of the conditions detailed below) at Gateway 1.
Subject to satisfaction of certain conditions in the Conditional Agreement, the parties (or the relevant parties) will enter into the following:
1. a headlease of the Office Site to be granted by LUL to the Developer (“Headlease 2”) and a headlease of the Office Site to be granted by LUL to Lunaprop (“Headlease 1") which will sit above Headlease 2 (the “Headleases”);
2. a works agreement relating to the development of the Office Site (the “Works Agreement”);
3. two landscaping licences relating to land adjoining the Office Site (the “Landscaping Licences”);
4. a construction agreement relating to Lunaprop’s interest in the development of the OfficeSite (the “Construction Agreement”) – the operative provisions of the Construction Agreementare tied to the satisfaction of the Conditions in the Conditional Agreement although it is enteredinto at the same time as the Conditional Agreement;
5. an overage deed relating to the sharing of profit from the development of the Office Site (the “Overage Deed”) and
6. a crane oversail licence relating to land adjoining the Office Site (the “Crane Oversail Licence”).
All these documents are in an agreed form and annexed to the Conditional Agreement.
The current ownership of the site is held under various Freehold and Long Leasehold titles by either TTLP (TfL) or 4C Minories 2 Limited (4C Group).
On completion of the transaction, the Freehold Property will be merged into one title under TfL’s ownership. The Leasehold property will be surrendered, including the LCR lease. The following steps will then occur:
- LUL (at the discretion of TfL) will grant Headlease 2 to the Developer (and its Guarantor).
- LUL (at the discretion of TfL) will grant Headlease 1 to Lunaprop.
Following completion at Gateway 1, the ownership structure will be as follows:
Freehold - London Underground Limited (TfL)
Freehold interest, subject to receipt of a 2.5% gearing of rents receivable and a minimum ground rent of £170,000 per annum following Practical Completion.
Headlease 1 – Lunaprop Aldgate Limited
Headlease 2 – 60 Aldgate Limited (Developer)
The Conditional Agreement has been entered into between TTL Properties Limited (“TTLP”), London Underground Limited (“LUL”), the Developer; and Lunaprop.
This agreement is subject to a time period of 2 years from the 30th November 2022 (the Longstop Date), in which time the Developer must use all reasonable endeavours to satisfy the Conditions (except the s.163 Condition) in order for Gateway 1 ‘Completion’ to occur. All other documents to be entered into at Gateway 1 are appended to the Conditional Agreement in an agreed form. The Conditions are:
- Developer’s Acquisition Contract
- The Planning Condition
- The Vacant Possession Condition
- The Third Party Land Condition
- The Development Plans Condition
- The Development Team Condition
- The Funding and Covenant Strength Condition
- The S163 Condition (TfL Condition)
- The LCR Condition
Completion of the Conditional Agreement
Completion of the Conditional Agreement will occur 20 business days from the date on which the Development Notice is served.
The Development Notice is the notice to be given by the Developer to LUL specifying that:
- the date upon which the last of the “Conditions” has been satisfied or waived has occurred (the “Unconditional Date”); and
- the Developer intends to commence the Development within six months of the date of the notice.
Waiver of Conditions
TTLP, LUL, the Developer and Lunaprop may agree to waive any of the Conditions (save for the S.163 Condition which may only be waived by LUL) by agreeing to do so in writing. Upon such waiver by all parties, the relevant Condition shall be deemed satisfied.
Works Agreement
At Gateway 1, the Works Agreement will be entered into which governs the requisite approval processes and clear pathways to consent required from TfL.
The document also details the infrastructure protection provisions, insurance and warranty provisions and design framework. The intention of this document is to streamline the approvals process required to mitigate undue delays.
Headleases
The Agreement for Lease(s) are annexed to the Conditional Agreement. At Gateway 1 the site will be held by way of a new 500 year Long Leasehold from London Underground Limited (TfL), geared to 5.00% of Rents Receivable subject to a minimum ground rent of £375,000 per annum from Practical Completion.
Headlease 2, the Developer lease is a 500 year interest geared to 5.00% of Rents Receivable. There is an intermediary headlease held by Lunaprop Aldgate Limited which is a passive interest retaining 2.5% of the ground rent paid by Headlease 1 (subject to a minimum of £205,000 p.a).
The other documents that have been agreed and are annexed to the Conditional Agreement include, two landscaping licences relating to land adjoining the Office Site, a construction agreement relating to Lunaprop’s interest in the development of the Office Site – the operative provisions of the Construction Agreement are tied to the satisfaction of the Conditions in the Conditional Agreement, an overage deed relating to the sharing of profit from the development of the Office Site and a crane oversail licence relating to land adjoining the Office Site.
It has also been agreed with TfL that enabling works to include the diversion of a COLT cable and sewer located on the Office Site can be undertaken outside the legal and indemnity requirements of the above agreements. However, an asset protection agreement may be required.
30th November 2022
The Conditional Agreement (‘CA’) has been exchanged
between TTL Properties Ltd, London Underground Ltd, the Developer and Lunaprop.
£1M premium paid to TfL
Upon exchange a £1M capital payment has been paid by the Developer to TTLP.
2 year Option Period Commences
to satisfy the conditions contained in the CA.
Now
The Planning Condition
The grant of planning permission including signing of the s106 and expiry of the Judicial Review period.
The Vacant Possession Condition
Procuring the termination of all the leases, tenancy agreements, licences to occupy and other documents granting a right to possession or occupation
The Third Party Land Condition
Procuring the satisfactory purchase of the third party land from the Crown Estate and the City of London Corporation ‘ Charter Streets’
The LCR Condition
TTLP and the Developer procuring ‘Satisfactory Surrender 1’ and entering into the ‘Option Agreement’.
The Development Team Condition
The appointment by the Developer of the Demolition Contractor and the Development Manager
The Development Plans Condition
The Development Plans will be progressed by the Developer to RIBA Stage 3 design.
The S163 Condition
Following satisfaction of the Development Plans Condition, LUL must notify the Developer if it considers that consent is required from the Secretary of State.
The Funding and Covenant Strength Condition
The Developer must secure Development Funder(s) to provide equity or debt finance for the Development. The Funder must meet the indemnity requirements of LUL and agree the Funding Proposal.
The Developer’s Acquisition Contract Condition
The “Developer’s Acquisition Contract” becoming unconditional in accordance with its terms.
Development Notice Served
Completion of the Conditional Agreement will occur 20 business days from the date on which the Development Notice is served.
Legal Charges released
(to the extent not already released).
Deed of Release of Rights of Light
entered into by TTLP and LUL.
LCR Option Entered Into (or waived).
Re-organisation of land ownership
on completion of the transaction, the current ownership titles will be merged, surrendered and two new headleases granted.
On completion of the transaction, the Freehold Property will be merged into one title under TfL’s ownership.
The Leasehold property will be surrendered, including the LCR lease.
The following steps will then occur:
- LUL (at the discretion of TTLP) will grant Headlease 2 to the Developer (and its Guarantor).
- LUL (at the discretion of TTLP) will grant Headlease 1 to Lunaprop.
Headlease 2 Granted
LUL (at the discretion of TTLP) will grant Headlease 2 to the Developer (and its Guarantor).
Headlease 1 Granted
LUL (at the discretion of TTLP) will grant Headlease 1 to Lunaprop.
Works Agreement entered into.
Overage Deed entered into.
Crane Oversale License entered into.
Landscaping Licences entered into.
Estate Management Deed entered into by
LUL (at the direction of TTLP), Lunaprop and the Developer if not already completed.
Completion.
£9M completion premium paid to TfL.
Gateway One
Ground Rent of £255,000 per annum payable
Developer’s Liability at £70M in the aggregate.
from Gateway 1 until the Gearing RCD which is the earlier of the third anniversary of the date of the lease or 6 months from and including PC.
Construction Commences
within 6 months of the date the Development Notice is served.
First Reduction Cap Date
is defined as: - the later of the relevant Practical Completion Date in respect of:
- the works to construct the shell and core; and
- the Transport Works;
Developer’s Liability reduces to £30M in the aggregate.
Gateway 2
Ground Rent increases to the higher of:
The minimum ground rent of £375,000 per annum (reviewed every 5 years) and; 5.00% of Property Rents (Rents Receivable).
Second Reduction Cap Date
is defined as the later of:
- the final practical completion date in respect of the Development; and
- when the ground monitoring results show a continuous three month period of ground movement in line with the accepted long term ground movement predictions; and
- the date of issue of the certificate of making good in respect of the Transport Works.
Developer’s Liability reduces to £3M in the aggregate.
Issue of the Final Certificate of making good defects
in connection with the Relevant Works.
Release of Developer’s Liability.
End
Headlease 2 (Developer) is subject to a 5.00% gearing of Rents Receivable. There is a rent payable from Gateway 1 throughout the construction period (subject to a longstop), which rises to the geared rent, subject to a minimum of £375,000 per annum following Practical Completion.
Now
Freeholder (London Underground Ltd ‘TfL’)
No Ground Rent Payable
Intermediary LLH (Lunaprop Aldgate Ltd)
No Ground Rent Payable
Gateway One
£50,000 per annum until the Gearing RCD which is the earlier of the third anniversary of the date of the lease or 6 months from and including PC.
£205,000 per annum until the RCD date which is the earlier of the third anniversary of the date of the lease or 6 months from and including PC.
Gateway Two
(Practical Completion or the Gearing RCD)
The higher of:
The minimum ground rent of £170,000 per annum (reviewed every 5 years)
and
2.5% of Property Rents (Rents Receivable).
The higher of:
The minimum ground rent of £205,000 per annum (reviewed every 5 years)
and
2.5% of Property Rents (Rents Receivable).
Minimum Ground Rent Review
At Rent Review (every 5 years) the Minimum Ground Rent (Developer Lease) is reviewed to the higher of:
1. the minimum ground rent payable immediately prior to the relevant review date;
2. 50% of the Average Ground Rent (A/5); or
3. 2.5% of the ERV at the relevant review date.
Practical Completion Penalty
Where Practical Completion has not taken place by the 3rd anniversary of the date of the lease then for the period from the 3rd anniversary of the date of the lease to the PC date the ground rent payable will be 2.5% of the open market rental value of any unlet lettable areas for the financial year in question.
The Overage Deed is to be entered into upon completion of the Conditional Agreement between the Developer, TTLP and the Developer’s Guarantor or other guarantor provided pursuant to the terms of the Conditional Agreement.
There are potentially two types of overage received by TTLP pursuant to the terms of the Overage Deed.
In the event that at the date of issue of the certificate of practical completion the measured area of the Property as determined by the measuring surveyor exceeds 225,000 square feet the Developer is obliged to pay overage equivalent to £100 per square foot (exclusive of VAT) by which the measured area of the Property exceeds 225,000 square feet.
This is based upon 25% of the Profit received by the Developer after a priority return of 22.5%. The Profit is calculated as follows:
A = B – (C+D)
Where
A is the Profit
B is the Qualifying Disposition Consideration
C is the Actual Development Costs
D is the Priority Return (being 25% of Actual Development Costs)
Gross Proceeds is the aggregate of total monetary consideration (excluding VAT) received or receivable by the Developer in respect of a Qualifying Disposition and in respect of any Investment Underlease of Part (being the grant of an underlease of less than the whole or substantially the whole of the Property with the intention of conferring a capital value on the lessee) the total monetary consideration (excluding VAT) received or receivable by the Developer prior to the date that the calculation of overage takes place. A Market Value determination applies where the overage liability is not triggered by receipt of Gross Proceeds (on Change of Control of the Developer or where the trigger for overage is 80% of the lettable areas become income producing or where there has been no disposal of the Headlease by the date which is 3 years from PC) or where TTLP has reason to believe that the relevant Qualifying Disposition is not a bona fide arm’s length transaction.
Actual Development Costs are based upon Development Costs less Income. There is an extensive list of Development Costs set out in the Overage Deed which is designed to capture all costs reasonably and property incurred in connection with the Development.
Costs must be incurred on or after the date of exchange of the Conditional Agreement and there is an assumed interest charge in connection with the provision of finance for the development works of 5% per annum compounded quarterly of all other costs included in Development costs.
Income is all sums received by way of payment towards or reduction in Development Costs from the date of the Overage Deed (but not including proceeds from a Qualifying Disposition).
The Triggers for Development Overage are the earlier of:
- the date of completion of a Qualifying Disposition;
- the date that 80% of the lettable areas are let and are income producing;
- the Final Trigger Date (being the date which is 3 years from and including the date of issue of the final certificate of practical completion).
There is also the provision for a Contingent consideration (which is uncertain or the payment of which is conditional or contingent) is subject to a separate regime in respect of Development Overage.