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Local authorities and modular housing

Tiffany Cloynes and David Watson, partnera at Geldards, comment

As local authorities continue to seek ways to meet the housing needs of their communities, the use of modular housing could be a useful option to consider. The recent decision of Worthing Council to work with BoKlok, an Ikea company, for the development of modular housing has shown that there is an appetite amongst local authorities to consider this type of scheme.

The initial arrangement is expected to provide up to 162 new homes and the Council will have an option of 30% at cost of the completed new homes. The Council considers this to be an innovative use of its assets, which will deliver additional housing for Worthing. The Council is also intending to develop a wider programme to deliver more homes.

Modular housing involves manufacture of houses off site before they are assembled and finished at the sites where they will be located. This allows different stages of construction to be worked on at the same time, as preparatory work at the site can take place whilst a house is being manufactured. That provides scope for savings in time and costs. The fact that manufacture takes place away from the site where housing will ultimately be located can also help to minimise disruption in that area during a housing development project, which is likely to be welcomed by the local community. Involving businesses, as Worthing Council has done, can bring in resources, which can help to deliver efficient and effective modular housing projects.

There are several legal and practical issues for local authorities to consider when considering modular housing projects.

Local authorities may need to consider how the provisions they would usually expect to include to protect their interests in construction contracts would work in contracts for the supply of modular housing. For example, a local authority would often make provision in a contract for security for contract performance but it might find that its usual approach to this would not be effective or easy to enforce when modular housing is involved. Security arrangements are sometimes drafted to have the effect of ensuring that if specified events were to happen which would affect a contractor’s ability to meet its obligations, funding would be available which would allow the local authority to appoint a new contractor. Suppliers who manufacture modular housing develop some bespoke products, which could mean that a local authority could have difficulty in finding a replacement contractor to continue the production of a bespoke modular housing product. Provision for title in manufactured products to vest in the local authority or in a replacement contractor might be of limited use unless this provides them with sufficiently developed products and sufficient material to enable them to complete the project. In those circumstances, security in a contract would be of limited practical use in enabling a local authority to complete a modular housing project after a supplier gets into difficulty.

Although modular housing projects might be able to complete construction more quickly than projects using more traditional methods of building housing, they will still be subject to various legal requirements relating to the delivery of housing. Local authorities will need to take account of the time and resources needed for any such requirements and will need to assess how these might impact on their expectations for the delivery of a project. For example, it would be appropriate to consider how much work should be done on a modular housing project before planning permission is obtained. This is a careful balancing exercise. On the one hand, if persons involved in developing a modular housing project incur significant costs before applying for and receiving a decision on planning permission, those costs might be wasted if they are refused permission. On the other hand, if little or no work is done before planning permission is obtained, they may find that the time and resources needed to progress the application quickly then might have an impact on their expectations as to the time and cost savings that could be achieved from modular construction.

As with any project, local authorities will need to put careful preparation into preparing and managing a project. Although the modular housing approach can help achieve efficient timescales, local authorities need to ensure their expectations as to timing on a housing project are aligned with others involved in the project. They need to deal with finances efficiently and be clear with suppliers about the approach to payment. For example, suppliers of modular housing might seek payment in advance but a local authority might have concerns about the impact this could have on cash flow and the general financial management of the project.

There is clearly potential for local authorities to use modular construction projects to address housing needs. Any local authorities considering such projects need to ensure that they identify all relevant legal issues at the outset and have regard to them throughout the implementation of the project.

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