This is the last in our series of cross-sector articles considering the impact of the Procurement Act 2023 (the 'Procurement Act'), which came into force on 24 February 2025 and introduces changes to how public procurements are awarded, managed and investigated. This article examines the impact of the Procurement Act on real estate development agreements.
What is the issue?
As per the prior regime, it remains a challenging question as to whether procurement legislation applies to real estate arrangements. There was, and remains, a specific exemption for contracts for the acquisition of land and buildings contained in paragraph eight, part two of Schedule 2 of the Procurement Act, which essentially follows that of the prior procurement regime. However, the treatment of development agreements involving contracting authorities has long been uncertain within the public procurement regime, despite the body of EU case law that set out the factors where a development agreement would be treated as a public works contract: these points are addressed below. This article looks at whether the Procurement Act exempts such arrangements or requires them to be competitively tendered in line with procurement law.
What is new?
The authors consider that at this stage, the Procurement Act has not sought to move the dial in respect of the treatment of development agreements. There is no indication that the case law that existed before the Procurement Act, and indeed the previous UK legislation, does not still remain good law and the factors that were considered under the previous legislation remain valid considerations now.
Therefore, although the extent of a contracting authority's involvement in development agreements range from acting as an employer to merely exercising its powers pertaining to planning and land use, it remains the case that to fall under the procurement legislation in the UK, now the Procurement Act, the main object of the development agreement must be either public goods, services or works. To distinguish such an arrangement from a pure land or property transaction an objective examination of the entire agreement along with essential obligations must be undertaken. For now, there remain three factors, in particular, that must be taken into consideration:
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An enforceable obligation to carry out the main object
A necessary ingredient is that there should be a legal obligation to execute the works. This includes development agreements which are conditional or contingent. Although these types of agreement may not be considered public works contracts on day one, they will become public works contracts when the contingencies are triggered and face the prospect of being set aside if public procurements rules have not been followed.
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Economic benefit
It is not necessary for the contracting authority to ultimately acquire the works, provided that the arrangement confers an immediate economic benefit on the authority.
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The contracting authority must have a decisive influence in specifying the requirements
This helps in any assessment as to whether the works are "for the authority".
How does this affect you?
It is essential for developers and contracting authorities to continue to be alive to the requirements of procurement legislation when structuring real estate transactions and development agreements. The Procurement Act has not changed that need. At Taylor Wessing, our team is experienced in advising on how best to structure these transactions to take into account relevant procurement legislation.
It is also important for developers to continue to review existing contracts holistically to identify where the conditions above are met. It should not be assumed that procurement rules do not apply just because there is not an enforceable obligation at the time the development agreement is signed. Those involved in development agreements particularly where urban regeneration and public infrastructure upgrades are required will need to remain alive to the procurement regime under the Procurement Act.
Our public procurement article series also explores other considerations in more detail. Please contact Matt Evans, Matthew Jones and Andrew Spencer or a member of our team if you want to discuss this or any other issue.
