Residential rooftop development can provide a foot in the door to new locations which developers are otherwise unable to access due to high land values and scarce sites.
For freeholders, it can mean extra cash, topping up sinking funds or dealing with structural repairs. But this gift-horse needs a careful look in the mouth before proceeding.
Numbers will be limited by structure and planning requirements. Newer buildings are likely to be close to maximum height. Older buildings (possibly requiring more structural work) may have more scope for additional storeys where higher buildings have grown around them. Developers will need to consider the viability of constructing only a small number of units over one or two storeys, but such a number of units is unlikely to trigger affordable housing requirements, maximising revenues.
Existing occupiers must be considered. The contract should deal with conduct of the developer towards occupiers and the level of control the freeholder will have over design. It must also reflect the risk allocation on planning, build and sales, and provide security adequate for an occupied building. The parties will need to consider what legal interest the developer should have, tax consequences and profit-sharing. Directors of freehold companies need to consider their duties and ensure that existing leasehold interests are protected. The freeholder should also take advice on the possibility of rights of first refusal arising.