We have all woken on Christmas morning, opened our presents and thought “I knew I should have asked for something else”, while holding a pair of paisley socks and looking deep into our loved one’s eyes with a forced smile as they open their vastly overpriced coffee machine.
Like Christmas presents, what you acquire at golden brick will depend on what you put on your wish list.
There is no legal definition of “golden brick”. There is of course, the basic definition provided in HMRC’s guidance (the legal equivalent of paisley socks), which refers to 'the construction of the dwellings [having] commenced and progressed beyond … foundation level' .. Once this is achieved, the property is considered a “dwelling” for VAT purposes and the developer can sell the property to an RP on a zero-rated basis, meaning that, whilst the RP technically pays VAT, it’s at zero %, avoiding a real and irrecoverable VAT charge in the RP.
Although this definition may appear beneficial to both parties (in the same way that paisley socks technically still keep your feet warm and dry), an RP should consider if they really want to acquire the property at this stage or if a more comprehensive definition is required.
Any RP negotiating a golden brick agreement should consider what would be required for them to complete the development of their own units, should the developer go insolvent or terminate the agreement after they have already acquired the units. There are, of course limits as to what can be delivered at this stage. No matter the season, an RP will not be able to include the construction of a chimney within the definition of golden brick any more than I can ask for a Porsche as my main present. However, consider if:
- the estate roads should be built to at least base-course level to allow access to their homes with vehicles and machinery;
- the dwellings should be connected to utilities so the RP can avoid having to lay utilities across the wider estate themselves; and
- all pre-commencement conditions have been discharged as this is both costly and logistically challenging if the RP does not own the wider estate.
There may of course be various other conditions that are tailored to a particular development, but the list above reduces an RP’s dependency on the wider estate in order to construct the units. Any additional costs relating to the development can be largely narrowed down to the construction of the homes themselves.
Should the RP have to step-in after it has acquired the dwellings, a well negotiated definition of golden brick will not prevent the situation from being a significant challenge to the RP. Satisfaction of pre-occupation conditions, utility adoptions and numerous other workstreams will likely delay at what point the RP can either sell or rent the units. However, it does mean that the RP can realistically finish their homes without being held to ransom by the developer or any other incoming third party and reduce the potential cost of constructing the units to practical completion.
Without a robust definition of golden brick, there is a chance that an RP can be left with a row of bricks in an empty field should the developer become insolvent, or they simply abandon the site. Even the paisley socks are preferable to that scenario.
Postscript
Any opinions given in this article relating to paisley socks are solely the opinion of the author and not an official stance of this firm.
