In urban areas, where space and land are at a premium, it can be tempting to head underground in search of extra square footage with a basement development. The maths is quite simple here; work out the value per square foot in sales value, the costs per square foot of adding a basement, subtract the latter from the former, and, bingo, you’ve got a pounds and pence answer to the value of adding a basement to a project.
But sadly, it’s not always that simple. Basement developments can add tremendous extra return on investment, but they don’t come without risk and significant expense for the developer. Here’s what you need to think about before adding a basement to your scheme.
Key Challenges with Basement Development
Planning Policy in your Area
Each local council has a different approach to validating and determining a basement application. It is a constantly moving picture as new policies evolve. In most London boroughs, you must now provide construction management plans in a planning application. These plans may include a preliminary structural design or method statement and information on how many lorries will arrive and when. You may also need to complete a flood risk assessment and soil testing by a qualified professional. These all take time and add extra costs to preparing a planning application, increasing your risks.
The key planning issues for new basements often relate to the location of new light wells or lower garden areas, mainly if they are to the front of the property. This can be more pertinent in conservation areas or if the property is listed or considered a heritage asset.
Outside of London, we have found planning for basements to be much more straightforward, with no specific validation requirements.
Neighbour Resistance to Basements
There is often resistance to building new basements during the planning and construction phases. It’s no surprise, given the length of time of disruption and the potential risks. Whilst some of this fear of construction is unfounded, there are plenty of examples of basement projects going wrong. Consequently, we always recommend engaging your neighbours early in the process. The right project team of professionals and a skilled contractor will help to provide reassurance.
Good communication throughout the project is critical. There are many planning requirements, party wall awards (more below), council restrictions, health and safety laws and insurances designed to protect the building owner, neighbours and third parties. If these are all met correctly, the project should run smoothly.
Party Wall Agreements
Due to the complexity of basement construction, which can be more akin to a civil engineering project than domestic renovation, party wall awards can take several months to get in place. They can also be expensive if multiple awards, surveyors, and engineers are involved.
A party wall agreement provides the owners of adjoining properties legal protection if the construction works cause damage. These agreements are also known as party wall awards.
The key is to serve notices early and agree on the principle of the construction as soon as possible.
Unexpected Underground Nasties
We have seen our fair share of unexpected underground nasties during basement development works over the past 30 years. The main risks are usually discovering an unknown sewer, water supply or other utility and then addressing negotiations with the relevant utility company. These discoveries add delays to your build programme and inevitably extra costs.
Asset searches are helpful but not definitive. Many companies, like Thames Water, do not possess accurate information on the location of all their services. Accessing drains and sewers via a manhole and conducting a detailed CCTV survey to identify the precise location of services is a great benefit.
If surveys are not possible, your contractor must be able to respond to any site conditions as they present themselves. Sometimes a redesign is needed, working promptly to keep the project on track.
There is the possibility of uncovering buried structures to consider. In a recent project, we found a neighbour’s basement was projecting onto our client’s land. The built reality did not reflect the planning approval for their scheme. Trees and their roots are also common problems; although visible above ground, the location and complexity of roots are always an educated guess. Tree preservation orders can add extra complexity.
There are some peculiar challenges to basements in London, such as the recent press about several black death pits found during excavation works for Crossrail. But it could be any archaeology discovered on-site, whether bodies or artefacts, which require notification to the relevant authorities. In many cases, work cannot proceed until the remains have been examined and documented. In some areas in London, there is a real risk of unexploded ordnance from the blitz.
Keeping water out is a common challenge in basement construction. Not just in the finished product but also during construction. Water pumps are typically essential during construction and, depending on how much groundwater there is, also in the completed building.
We generally design a reinforced concrete box with water bars at the joints. This box, coupled with an internal membrane system that traps water and collects it for a pump to drain it away to the main sewerage, is very effective for keeping water out.
What About Cost and Risk?
Much of the cost of a basement development is about constructing the concrete box itself. However, many other factors affect the price, including how you excavate, provide temporary support, the structural design, methodology of pouring the concrete and steel reinforcement. It is best if you work with an experienced structural engineer.
Another way to reduce risk is to establish soil conditions, water table levels, and the structure of adjoining buildings early in the process. These factors can affect the end cost dramatically. With party wall agreements, there are different ways to underpin a party wall or build close to it, and these approaches can have significant consequences for the end cost.
Most basements require the temporary support of the structures above and adjacent to the site. The final costs for these works cannot be agreed upon until a basement specialist, checking engineer, and the party wall surveyors have had their say. This process can be a long way into the pre-construction stage, so a cost plan prepared months earlier can need adjustment before the site works commence.
Even with the best planning and preparation, creating extensive excavations opens up potential unknown risks. On one project, we hit an unknown underground stream and required three commercial-grade pumps running continuously to keep the site clear of groundwater. These pumps used up a sizeable portion of the contingency fund.
The construction method, e.g., piling or underpinning, can significantly impact the programme and cost of the project. The proximity of any utilities or transport networks (e.g., the London Underground line) can also place onerous working conditions on the build. Vibration monitoring, for example, can add cost and time to your development.
Choose your Contractor Carefully
Can all contractors handle basement development projects? The simple answer is no.
Some high-profile building collapses around the Capital have highlighted that underground construction is risky. The main contractor overseeing the works must have relevant experience and skills, as well as project management, to deliver a basement project successfully.
What about Insurance?
You must ensure your Architect and engineers have adequate insurance for basement projects. Not all professional indemnity (PI) policies include basement design, which is vital in case the worst happens. Adequate PI insurance has become a significant problem for architects following the Grenfell disaster.
Alongside your professional team, your contractor must have insurance for the works, which usually includes a ‘Joint Names’ policy under a JCT contract and sometimes includes non-negligent cover.
Should you Add a basement?
Basements can be a good source of extra profits for developers and can be vital to unlocking the potential of a site.
At a recent project in Kennington, South London, we were able to find an extra 388 square meters, or 4,167 square feet, by expanding the size of the basement levels in the scheme. The enlarged basements increased the gross development value (GDV) by around £2m. The extra works cost approximately £1.4m, so our client realised an additional £600,000 profit from this site.
It’s common for planning restrictions on above-ground works to force us underground to make a site viable. We’ve done this on several schemes and often employ an ‘upside down townhouse’ strategy. In these houses, the basement areas are bedrooms requiring less outlook and natural light than living areas or kitchen and dining areas.
In single-storey sites, the ground floor can contain bedrooms, with the living, kitchen, and dining areas on the lower levels that open up onto landscaped courtyards. The key to these schemes is to have ample light wells and courtyard gardens so that the outlook from the lower areas does not feel overbearing. Arguably if done well, it is possible to design a scheme so that the occupants are not immediately aware they are one storey below ground level.
The use of basement developments in this fashion requires a mindset shift in terms of marketing. You will need to convince buyers that this unconventional model can be practical and beautiful simultaneously.
Are Basements Worth it?
Thinking underground has enabled us to increase the overall GDVs our clients can achieve on many occasions. But, as with all property development, you must consider the extra cost and risks involved.
Basement developments can be a great source of profit if done well, and, to do that, you need a skilled and experienced team on your side.
You can find our contact details here if you would like some help with a basement development project. We are always happy to talk.
This article was first published in Property Investor News, June 2022.