Construction Sector Outlook 2018Monday, 19 February 2018
In the January/ February issue of Construction - The Official Magazine of the Construction Industry Federation Partner and Head of Construction, Martin Cooney outlines some legal developments which will present challenges for the construction sector in 2018.
The increase in stamp duty on commercial property transactions from 2% to 6% saw a rush to complete certain transactions before 1 January 2018. There is a view that the increase will not deter international investors but it does place increased pressure on our domestic market where land prices are rising steadily.
Sectoral Employment Order
The increase in commercial property transaction costs must also be considered in light of the Sectoral Employment Order (SEO) (Construction Sector) 2017 (S.I. 455 of 2017). This provides for certain mandatory terms and conditions of employment in the construction sector. It also provides for new minimum hourly rates, which are roughly 10% higher than those provided for in the last sectoral agreement. The intent of the SEO is to provide certainty to employers and employees around pay and terms and conditions. However, it does represent an increase in costs and administrative requirements for employers. These pose an additional challenge where margins have become tighter due to increasing land prices and for commercial property transactions, increased levels of stamp duty. There is also the risk of claims for additional costs on projects already on-site, where the contract puts the risk of legislative changes on the employer.
A further challenge for operators is the increased burdens they face regarding development finance. Lenders are seeking a higher level and wider range of security than ever before. Conditions precedent to drawdown of funds are now strictly enforced, which can mean unwelcome delays where borrowers do not have their paperwork in order. Further, while development funding is on the increase, there does not appear to be much appetite among traditional lenders to provide funding for smaller developments, particularly for those less than €1 million.
Standard Form Construction Contracts
One other legal issue becoming more prevalent is the increased use of UK and international standard form construction contracts and documents. This has arisen for a number of reasons. These include the fact that many Irish personnel are returning after working overseas and are only familiar with these forms, and foreign entities are imposing these forms for their projects. Domestic players often are not familiar with these standard forms and are not used to the specific contract administration. This can lead to disputes about claiming entitlements. Some parties ignore the governing law and dispute resolution provisions with the result that agreements for projects in Ireland are governed by English law or subject to adjudication pursuant to English law.
Greater Opportunities for Residential Development
On a positive note, many of the issues noted above present opportunities. The increase in stamp duty on commercial property is aligned to the Government’s renewed focus on the residential sector. There will be greater opportunities for residential development, particularly in larger cities. Local Authorities are under significant pressure to deliver residential developments, and the National Treasury Management Agency (NTMA) and National Development Finance Agency (NDFA) are actively sponsoring and procuring social housing initiatives.
Alternative Lending Opportunities
Traditional lending may have changed. However, more alternative lenders are operating in the market, and there is significant interest in peer-to-peer lending. These provide viable alternatives for borrowers who might not be in a position to borrow from banks. So, despite the challenges, it should be a year of growth for the construction industry.
To read further insights from other leading experts on the construction sector, click here to view the full article.
For further information on any of the legal developments outlined above, contact Martin Cooney from our Construction Law Team.
This article has been republished with permission from Construction – The Official Magazine of the Construction Industry Federation.