Place-making is an expression that might not be familiar to all, but its use has been steadily increasing over the past few years as the schemes to which it applies have increased in number. Think about the developments under way at Paddington and King's Cross, or the proposals for large-scale development at Earls Court or Battersea Power Station. All these have one thing in common: they are developments of more than just a series of buildings. The developers of these schemes are keen to create a sense of place - a dynamic urban setting where people can comfortably live, relax, shop and work.

Although the expression is new, the concept isn't. London, perhaps uniquely among world cities, has several landowners of large estates, such as Grosvenor, Howard de Walden and the Crown Estate. They manage vast swathes of the capital and this control has enabled them to create the type of areas that the modern breed of developer is now seeking to emulate.

Areas such as Mayfair and Belgravia did not become desirable places to live and work overnight. They were created in the 17th and 18th centuries as early examples of planned communities. Grosvenor had a clear vision and a consequent strategy that it has implemented over many years and continues to evolve today. Recently, the Crown Estate has turned Regent Street into one of the most prestigious retail destinations in Europe through a carefully thought-out and planned programme and Howard de Walden has similarly revitalised Marylebone High Street.

Grosvenor has not confined itself to its London Estate. It took its expertise and applied it to a single large-scale development in Liverpool - the Paradise Development Project that ultimately became Liverpool ONE - 42 acres of the city centre that has spawned a further 100 acres of transformative development.

A clear and consistent vision, together with contiguous land ownership, is the key to successful place-making and that vision needs to be communicated to everyone involved in the scheme's development, preletting programme and ongoing management once completed.

A robust legal framework is needed to support the vision, without which the long-term success of such estates will be compromised. This framework consists of five factors:  

Structure and funding

Place-making developments by their very nature are large and will require significant investment. As such, careful consideration needs to be given to the vehicle that will ultimately hold the completed asset. That vehicle needs to be flexible enough to:  

  • appeal to a wide variety of different investors;
  • cater for phased development (and funding);
  • allow easy entry into (and out of) the investment; and
  • permit changes in the future.

The limited partnership is seen as the vehicle of choice, not least because of its tax-transparent nature, allowing each investor to be taxed according to its own circumstances.

The reality of the current economic climate means that funding, both equity and debt, is becoming ever harder and more costly to secure. Consequently it is more common today for large-scale developments to be financed and constructed in phases. As a result, the build programmes extend over a number of years, or even decades. The heady days of projects such as Liverpool ONE, which was funded and built in its entirety in seven years, are unlikely to be repeated in the near future.

This requires a considered approach to funding, which needs to be flexible enough to adapt to changing market conditions and the economic environment. While a place-making developer is clearly looking to its long-term vision, if it is clear that this vision will need to be adapted (or the development altered), the funding arrangements need to contain provisions permitting this.

Long-term management

Following completion of the development, a long-term management plan needs to be established, in accordance with the vision, governing:  

  • who occupies the scheme;
  • how they operate and occupy space;
  • how different occupiers interact; and
  • how public realm is utilised.

These controls are generally woven into the occupational leases and licences for both residential and commercial occupiers and also into the contracts agreed with managing agents.

It is key at an early stage of negotiations with potential occupiers that the vision is sold by the landowner to the occupiers, who then buy into it. Occupiers need to accept the consequent controls that the landlord requires, such as limitations on use or who a lease can be assigned to. These may initially seem unduly harsh to an occupier used to having more flexibility. However, it is essential that careful management is maintained. Even slight deviations can be seen as "the thin edge of the wedge" that could erode the vision. Once exceptions are allowed to creep in, it will be difficult to get new occupiers to submit to the higher level of control by their landlord.

Occupiers need to be prepared to accept service charge costs that are commensurate with a higher-quality development. Retailers enticed into such schemes may understand the value to their business of such quality (many are already enrolled in "business improvement districts", see EG 27 July 2012, p76) but landlords need to be prepared for tougher negotiations with office and residential occupiers, who might not immediately see how such quality benefits them. The key is demonstrating value for money and strict control over levels of expenditure.  

View the landholding as a whole

Any successful place-making scheme needs to be run for the benefit of its whole. Deals should not be negotiated in isolation. It is vital that the property and asset managers and the legal team understand the vision and that any single deal could have serious ramifications for the entire scheme. A cohesive and thought-through letting and tenant mix policy will assist here.  

Aim to enhance long-term value

Well run place-making schemes will see capital values and rental returns steadily increase if the vision is followed. The original quality of the development, in terms of appearance and type of occupier, must be maintained. Nowhere is this more important than in the public realm. Landowners such as Grosvenor have long realised that the space in between their buildings is just as important as the buildings themselves. The recent transformation of the public realm in Mount Street, Mayfair has seen rental returns increase as top-end fashion designers clamour for space in the area. They do so because their returns are commensurately higher.  

Short-term profit

Landowners should not succumb to the temptation of short-term profit if that profit comes at a cost to the integrity of the vision. Landlords may have to settle for a lower short-term return, or even be required to spend money, to ensure the vision is maintained. Pre-emption rights - including paying a premium to outgoing tenants - may need to be exercised to prevent less-desirable occupiers obtaining space. The demands of large commercial occupiers may need to be resisted, or landlords might have to wait for the right occupier when space becomes available. It is easy for a lawyer to say, but, whatever the temptation, terms that damage the vision must be resisted.

The risk with residential property

Any place-making scheme is likely to contain a significant amount of residential accommodation. With the seemingly never-ending rise in residential values in London, developers are keen to cash in and many schemes are seeking to revise upwards the number of residences that they are creating. While some will be let on assured shorthold tenancies or managed as serviced apartments, many of them will be sold off on long leases at a premium.

Legislation gives these long-term occupiers significant additional rights. Developers need to consider the possible impact of rights to enfranchise, to extend a lease, to challenge the service charges, or to take over the management. Legal advice should be sought at the earliest possible stage of the development to mitigate the effect of such rights. The physical design of any development must also be influenced by the existence of these rights.

There is no doubt that the new "places" being created by developers is exciting. The multitude of schemes planned for London has the potential to transform the city. However, the long-term success of such schemes can be realised only if landowners are clear on their vision and how it will be implemented and maintained over decades to come.