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  1. 1. RICS Property JOURNAL Author standfirst contents UPFRONTCONTACTS Editorial and production manager: Toni Gill Sub-editor: Gill Rastall Designer: Suzy Willis Creative director: Mark Parry Advertising: Lucie Inns T +44 (0)20 7871 2906 E Design by: Redactive Media Group   Printed by: Page Bros Published by: The Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)870 333 1600 T +44 (0)24 7686 8555 W ISSN: ISSN 1469-5421 (Print) ISSN 1759-3379 (Online) ARTS Editor: Lesley Davis  T +44 (0)1243 784054 E Editorial advisor: John Anderson RESIDENTIAL Acting Editor: Lesley Davis   T +44 (0)1243 784054 E Advisory group: Peter Bolton King (RICS), Andrew Bulmer (Bulmer Estates), Georgiana Hibberd (RICS), Graham Ellis (Greenhouse Surveyors), Philip Santo (Philip Santo & Co), Tony Bowron (Bromford Housing), Paul Cutbill (Countrywide), Chris Rispin (BlueBox Partners), David Smith (Anthony Gold Solicitors), Michael Day (Integra Property Services) COMMERCIAL Editor: Claudia Conway   T +44 (0)20 7695 1605 E Advisory group: John Anderson (RICS), Paul Bagust (RICS), Nicholas Cheffings (Hogan Lovells), Johnny Dunford (RICS), Martin Francis (BNP Paribas), Simon Hooper (Edward Symmons), Vivien King (Malcolm Hollis) Journals online Increasing numbers of members are choosing to view their journals as downloadable pdfs, instead of paper publications, by changing their member preferences on the RICS website. Regular emails inform members when the pdfs of the latest journals are available. While helping RICS to reduce its carbon footprint, viewing the journals online provides you with the same technical information in a format that is quick and convenient to read on screen. To change your preferences, visit J u ne /J u ly 2 0 1 3   3 UPFRONT Contents COMMERCIAL C 16 Building on a vision Simon Williams considers how developers go beyond physical assets to create a sense of place 18 Surveyors among the vines Michael Baynes looks at the unique issues of valuing vineyards 20 Conditions of service Jane Fielding explains the Transfer of Undertakings (Protection of Employment) Regulations 2006 and why they might become more ambiguous for property managers in the future 22 Raising the bar Jim Ware and Paul Carder look at how facilities managers can play a greater strategic role in their businesses 24 Changes for the better David Gardiner looks at a contentious area in landlord and tenant relationships – the granting of licences for alterations – and reports on how new guidelines can help avoid problems for both sides 26 Extending hospitality Babette Märzheuser-Wood explains the pitfalls and potential of a franchise model to fire overseas expansion 27 Taxing times Mansion tax and de-enveloping properties 5 Economic forecast The challenges facing central banks internationally 6 Update 8 Reinventing the fringe Alister Scott examines some of the conflicts at the heart of planning at the rural-urban fringe 11 Beating the offsite rule Philip Santo considers the housing shortage and describes a ground-breaking new scheme that will boost mortgage lending on innovative forms of house construction 14 Legal Q&A Legal experts answer common queries Property Journal is available on annual subscription. All enquiries from non-RICS members for institutional or company subscriptions should be directed to: Proquest – Online Institutional Access E T +44 (0)1223 215512 for online subscriptions or SWETS Print Institutional Access E T +44 (0)1235 857500 for print subscriptions To take out a personal subscription, members and non-members should contact Licensing Manager Louise Weale E
  2. 2. RICS PROPERTY JOURNAL 4 J U N E /J U LY 2 0 1 3 ARTSRESIDENTIAL AR While every reasonable effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the opinions expressed in the journal, or by any person acting or refraining to act as a result of the material included in the journal. All rights in the journal, including full copyright or publishing rights, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v1.0 for public sector information: contents UPFRONT CONTENTS 47 A resilient market The annual TEFAF market report by art market economist Dr Clare McAndrew values the global art market in 2012 at €43bn 49 Printing your own money Keith Heddle gives an insight into the investment market in rare stamps 51 A rare and unusual business The Antiquarian Booksellers’ Association is thriving. Lesley Davis speaks to President Laurence Worms to find out why membership is growing 53 When deals are endangered Could you spot a restricted substance in your saleroom? It could be harder than you think, warns Milton Silverman 30 Keeping up with repair rules In the second of their technical briefing notes, Phil Parnham and Stuart Smith look in detail at property repairs and the Building Regulations 32 Deducting deposits fairly The Tenancy Deposit Scheme resolves more than 10,000 disputes every year between landlords and tenants who disagree on how deposits should be apportioned when tenancies end, writes Chris Kendall 34 Valuing the freeholder’s interest James Wilson examines the development of case precedent at the Upper Tribunal on the appropriate deferment rate to be applied in leasehold reform cases 36 Safe as houses? A strong regulatory framework and sufficient inspectors to intervene where there are hazards to health are crucial in a private rented sector that is an increasingly important source of housing for vulnerable people, argues Bob Mayho 38 A delicate balance Jeremy Leaf outlines why he believes that complex planning requirements, difficulties in obtaining finance, delays and costs are all contributing to the UK’s chronic housing shortage 40 How bright is the future? David Hilton sheds some light on solar energy in the final part of his series on renewable energies 42 No reason for deadlock Philip Santo describes a case where professional opinions differed, throwing doubt on the original valuer’s report and causing uncertainty for the homeowner 44 Helping ourselves to regulation Self-regulation of the residential leasehold management sector is coming, writes Michelle Banks The Antiquarian Booksellers’ Association is thriving. Lesley Davis speaks to President Laurence Worms to find out why membership is growing When deals are endangered Could you spot a restricted substance in your saleroom? It could be harder than you think, warns Milton Silverman Property Journal is the journal of the Arts & Antiques, Commercial Property, Dispute Resolution, Facilities Management, Machinery & Business Assets, Management Consultancy, Residential Property and Valuation Professional Groups
  3. 3. J u ne /J u ly 2 0 1 3   5 RICS Property JOURNAL Simon Rubinsohn is Chief Economist at RICS and regularly provides comments for national newspapers including the Financial Times, The Guardian and The Telegraph opinion Breaking out of the bubble Simon Rubinsohn on the challenges facing central banks internationally OPINION MMany RICS members, I am sure, are continuing to find the real estate world a challenging place despite some signs that banks are finally beginning to take a slightly less restrictive approach to providing finance for the sector. Yet as some chinks of light begin to be visible in parts of the UK property sector, a wider debate is taking place, particularly in the US, over the risks central banks are running in pursuing the current unconventional approach to monetary management. The one-time budget director under Ronald Reagan, David Stockman, has been vigorous in stating his view that the US economy is in a bubble inflated by ‘phoney money’. But he is not alone in making the point, with some others highlighting the sharp turnaround in the US housing market as being indicative of a more narrowly focused asset price bubble. Indeed, the Bank for International Settlements has done likewise in the recent past, drawing attention to the narrowing in yield spreads between higher risk classes of debt and safer government issuance. Unfortunately, this is not some esoteric discussion among theoretical, some might say heretical, economists with little relevance to those of you practising in the UK. On the contrary, it is part of a wider debate about how to adjust to the realities of the new world order post credit crunch, in which emerging economies such as China are finding it almost as difficult as many western economies to strike the right balance on policy, and for that matter, the appropriate regulatory framework. In the case of China, the explosion in unregulated lending associated with the shadow banking sector is a particular issue with which the country’s new leadership is currently struggling to grapple. It is perhaps not entirely surprising that after the experiences of the past decade there is tendency to see ‘bubbles’ all too readily. It is also predictable that real estate will attract particular attention given the role of sub-prime in triggering the subsequent credit crunch. Central banks clearly are caught in a difficult place. The lost decades experienced by Japan following its own credit implosion in the late 1980s casts a haunting shadow over their actions. Too little easing and we threaten to repeat that experience. Too much and the wrong signals will be sent both to asset markets and price setters more generally. To some extent, that dilemma is currently playing out at the Bank of England, albeit in a more measured way. While some members of the Monetary Policy Committee believe more needs to be done to revive the British economy, others take the view that there is a very real risk of an inflation episode if any more liquidity is thrown at the problem and that time is the real healer. That conflict ultimately looks likely to be won by the former group with the incoming governor, Mark Carney, set to push more aggressively for further action and, arguably, having more of a mandate to do so reading between the lines of George Osborne’s Budget comments. Further monetary accommodation will, in all probability, have ramifications for real estate; prime end properties, whether residential or commercial, will continue to attract significant interest and I would bet that this will ripple out to the wider market. That is, after all, how monetary policy is meant to work. And as this unfolds, some of that discussion currently taking place in the US about ‘bubbles’ may be replicated in the UK. It would, of course, be helpful if we could identify when a particular market is in ‘bubble territory’. Fundamentals, so the saying goes, should provide the answer but if only it were so simple. Prime London real estate already seems pretty much at the upper end of what could be described as fair value. However, if new sources of finance from overseas continue to seek out property in the centre of the capital, who is to say what the fundamentals imply? That said, no one should be in any doubt that at some point in the future interest rates will need to be raised; the base rate cannot remain at 0.5% for ever. When this happens, real estate analysis will need to be recalibrated to reflect an environment in which borrowing costs are heading upwards. This need not result in lower real estate prices and certainly does not imply a crash. However, it would be foolish to rule out the possibility that as some of the abundant liquidity begins to be reined in, the real estate sector won’t take some of the strain. C
  4. 4. RICS property JOURNAL 6   J u ne /J u ly 2 0 1 3 UPDATE RICS has long campaigned for reform of the letting agent sector, believing that achieving better regulation and eliminating the ‘cowboys’ will ultimately deliver more and repeat business for members and a better deal for consumers. Over the past 18 months, RICS has undertaken a great deal of influencing work – both publicly and behind the scenes – to drive home the need for change to government and policy-makers. This work has included events in Parliament and at the party conferences of all three major parties, briefing MPs, ministers and civil servants and a national media campaign highlighting the benefit to consumers of using a qualified property professional when letting a property. The Enterprise and Regulatory Reform Bill (now enacted) presented a clear Lettings reform UPFRONT update opportunity to campaign for reform and RICS, along with Shelter, Which?, the Property Ombudsman and other organisations, worked with Baroness Hayter to table an amendment to the Bill as it passed through the Lords that would extend the scope of the Estate Agent Act 1979 to include other types of residential agency. The aim was to ensure that peers were fully briefed with RICS Impact Assessment research on the cost and benefit of the proposed amendment along with the arguments for the change. The amendment was accepted by 211 votes to 206. On the bill’s return to the Commons, a government Sustainability guidance The role of valuers is to assess market value or fair value in light of evidence normally obtained through analysis of comparable transactions. While valuers should reflect, not lead, markets, they should be aware of sustainability features and the implications these could have on property value in the short, medium and longer term. Furthermore, increasingly stringent legislative requirements will change the specification of new buildings, especially where existing stock cannot be refurbished at economic cost to meet more demanding standards and will be at risk of value depreciation. As part of this new awareness agenda, RICS is preparing a new Sustainability and commercial property valuation guidance note. This asks all valuers to keep abreast of sustainability features, technologies and approaches when establishing market value, fair value, market rent and investment value, ensuring that they collect appropriate and sufficient sustainability data when inspecting property, which will enable them to analyse and apply them to any property valuation as appropriate. The guidance note is being finalised and will be made available for publication in the early summer. Lorraine Howells is Associate Director of RICS Valuation Professional Group n See professional-guidance counter amendment was introduced and passed, giving powers to introduce a compulsory redress scheme for lettings and managing agents by secondary legislation. The Enterprise and Regulatory Reform Act became law on 25 April. Mary Thorogood is RICS Parliamentary Affairs Manager Image©istock
  5. 5. J u ne /J u ly 2 0 1 3   7 UPFRONT update In brief... Consultations RICS welcomes responses from members on the following consultations open this summer Surveyors acting as independent experts in commercial property rent reviews guidance note 3June–1July This ninth edition will be split into Surveyors acting as arbitrators in commercial property rent reviews, already accessible on RICS’ website, and Surveyors acting as independent experts in commercial property rent reviews, now publicly available for comment in its draft form. The latter will assist members appointed to act as independent experts by making them aware of the procedures likely to be followed. Mundic guidance note 6June–4July The third edition of this guidance note is intended to equip chartered surveyors, structural engineers and petrographers with the knowledge to evaluate and assess concrete-built properties in Cornwall and Devon that may contain ‘mundic’ and introduces a modified process to reflect increased understanding of the science behind the problem. The guidance will also aim to give some certainty to mortgage lenders in this region. You are welcome to share your views on the draft guidance about this niche yet crucial issue to Cornwall and Devon. Surveyors acting as expert witnesses guidance note and practice statement 12July–9August This review of the note’s third edition and its accompanying client guide aim to ensure that the guidance is up to date with current case law, current practices such as ‘hot tubbing’ and the Civil Procedure Rules and any relevant practice directions. RICS members involved in dispute resolution are welcome to comment on this draft updated version. Selling personal property at auction guidance note ScheduledtoopenendofJune This is the second edition of a guidance note originally published in 2006. It brings the guidance note up to date and its scope has been widened to be relevant not just in the UK, but globally. It provides guidance covering all stages of the process from before the sale through to the post-auction activities. Publication is expected in November. Surveys of residential property guidance note ScheduledtoopenmidJune This is the second edition of a guidance note originally published in 2004, Building surveys of residential property. It updates the content and will provide protection and guidance for members who do not yet exclusively use all RICS Home Buyer Products. This note will provide general advice on issues such as fee setting, terms and conditions and how to identify the appropriate survey. It is expected to publish at the end of October. For the latest consultations, visit system/listConsultations ‘Forward thinking, future proofing’ is the theme for the RICS National Residential Conference at the Kensington Close Hotel, London to be held on 16 July. Delivered through a mix of technical insight and strategic level debate, this conference will critically assess the barriers to growth in the residential market. In attending, members will gain insight into Housing Commission reforms and understand the impact that the National Planning Policy Framework, the Community Infrastructure Levy and section 106 are having on market value, helping to maintain their competitive edge. This annual flagship RICS event is a must-attend to find out what RICS is doing to safeguard members, helping them to avoid the law courts through case law updates ensuring that they are compliant and offering the best advice to their clients. STOP PRESS: Housing Minister Mark Prisk confirmed as speaker. n See RICS Research has evaluated how and to what extent real estate courses equip graduates with commercial awareness. The research gathered the views of UK academics, practitioners and students. For students to be commercially aware, the research suggested that critical thinking and problem-solving skills were essential and that students also needed to be self-motivated and willing to update their professional knowledge. The research found that commercial awareness has been embedded into the RICS real estate curriculum as a whole rather than as a standalone unit and that students do not think their courses have sufficiently helped them to develop their commercial awareness. The answer to this, the research puts forward, could be problem-based learning and more practical experience such as placements or internships. Amanprit Johal, RICS Global Research and Policy, said: “Commercial awareness is an important element of employability and is identified as one of the competencies required to be globally competitive. The research looks at how to embed commercial awareness into real estate courses more effectively.” Paul Bagust, RICS Valuation and Commercial Professional Groups, added: “This report highlights the fact that rather than simply providing traditional technical skills, surveyors are becoming increasingly commercially aware and are looked at to provide leadership. A flexible and strategic approach to business and problem- solving together with a detailed understanding of financial management will be essential skills for those wishing to progress.” n See knowledge/research Commercial awareness research Residential conference
  6. 6. RICS property JOURNAL 8   J u ne /J u ly 2 0 1 3 UPFRONT Planning T Alister Scott examines some of the conflicts at the heart of planning at the rural-urban fringe Reinventing the fringe The recent planning reforms within the coalition government present an opportune moment to examine the impact of current policy in the rural-urban fringe (RUF), the arena where economic growth, community involvement and protection of the environment are played out at the intersection of town and countryside. Recent research on the RUF, funded by the UK Research Councils under the Rural Economy and Land Use Programme1 , raises critiques of policy interventions and impacts, and identifies key opportunities for maximising RUF potential. Rediscovering the RUF The RUF is a ‘messy’ but highly valued and contested space. It is here that the pressures for growth and new homes are at their most intense and pernicious. However, the RUF represents something of a conundrum in planning policy; on the one hand it has become the dominant space within the UK contemporary landscape, going beyond visual land use considerations to extend its reach deep into rural areas through the urban lifestyles of resident populations2 . Yet, on the other, it remains largely a forgotten space ‘at the edge’, typically bypassed in policy and decision-making, which tends to prioritise urban and agricultural needs. While many decisions may affect the nature and identity of the RUF, they are accidental and consequential rather than actively planned for as a place in its own right. Thus we see a polarisation between those who favour new development in the RUF and those who oppose it within a planning system that is already adversarial. Without this dualism, the RUF would be better able to act as a catalytic space within which more creative and proactive ideas might emerge. Planning interventions The UK government’s agenda is predicated on delivering economic growth. Set within this policy imperative, radical action has been implemented to reform and streamline the planning system; the National Infrastructure Plan 2011, Localism Act 2011, National Planning Policy Framework (NPPF) 2012 and the Growth and Infrastructure Act 2013. Collectively, these shape a new policy landscape within which the RUF will evolve. This raises key questions as to the efficacy and relevance of such interventions in the pursuit of wider sustainability outcomes. The research project identified three core ingredients that herald an integrated action plan: increasing connectivity, planning for the long term and managing contested values. This article focuses primarily on the connectivity theme. In pursuit of connectivity The RUF as the interface between town and country presents an exciting challenge in tackling what has been identified as a significant urban-rural divide3 . The roots of this in England can be traced back to the Barlow (1940) and Scott (1942) reports, which separated the built (town) and natural (countryside), and their implementation via the landmark Town and Country Planning Act 1947. Here, the core ideas of controlling urban development within planning procedures, and supporting agriculture and forestry production through a system of incentives, spurred at the time by the imperatives of war, were established. Unfortunately, the subsequent evolution of policy and decision-making has stuck to this rationale, with urban expansion seen as something to be controlled with protection of the countryside for agriculture and forestry tied into notions of a rural idyll. This has stifled the wider diversification of both rural and urban economies. Crucially, Ebenezer Howard, the pioneer of the garden city movement, recognised this dualism within his ‘three magnets’ concept, in which he argued for joined-up thinking about town and country to maximise the benefits of both. This concept of multiple benefits is key to unlocking connections between places and spaces and loosening the dominant urban-centric fix where the RUF environment is viewed primarily as a space waiting for the city to come to it, or where green belt intervenes as a one-size-fits-all tool restricting development. Instead, we can create more dynamic, creative and productive spaces where countryside and town ideas and values might fuse to meet identified needs and opportunities. For example, the research highlighted significant problems facing farmers in RUF locations. One favoured option was to lease unproductive land to local communities to grow food. RUF Z Image©getty
  7. 7. UPFRONT planning J u ne /J u ly 2 0 1 3   9 This would necessitate joining up agricultural-based payments for environmental and social goods and services from the EU with urban and localism-based planning approaches for community food growing. The resultant land use conforms neither to current urban or rural land use protocols, so is effectively ‘out of order’ and is unlikely to proceed despite its obvious value to all parties concerned. The contemporary policy landscape can be seen as being disintegrated along this urban-rural divide with major disconnects. So, for example, within the countryside we have seen the creation of Local Nature Partnerships and Nature Improvement Areas, all operating at the landscape scale with support from the Department for Environment Food and Rural Affairs family of agencies. Similarly, within the urban centres we have seen the rise of Local Enterprise Partnerships (LEPs) and Enterprise Zones operating at local and neighbourhood scales supported by the Department for Communities and Local Government and the Department for Business, Innovation and Skills. These separate institutions, each with their own geographies, strategies, tools and disciplinary champions may fuel conflict as policy positions are developed in isolation, leading to multi-scalar and sectoral clashes later on in the planning process. Different strategies and action plans emerge piecemeal rather than being integrated at the early stages as most participative processes now recommend. Given that the RUF is within the zone where this policy disintegration is at its most pervasive, conflict and protests are now endemic in the process. Building consensual or shared visions through up-front investment would be more productive in the long term. Thus, we need to better understand the pieces of this complex jigsaw and how they fit together across scales (global, European, national, regional, local and neighbourhood) and sectors (e.g. housing, transport, environment, community and economy). This demands working at the most appropriate scale and unit, but ensuring that this decision is informed by evidence rather than politics. The principal delivery vehicle to achieve this is an effective partnership that cuts across these scales and sectors. However, in practice this is rarely achieved. Strategic vacuum Unfortunately, there is no spatial plan or vision for England within which strategic priorities can be translated into plans at regional and local scales. Indeed, strategic planning has become weakened by the hasty ‘pickling’ of regional scrutiny with policies championing localism. The result has been many local authorities becoming reluctant to accommodate neighbouring authorities’ housing requirements, particularly where green belt extensions are deemed necessary. Thus new housing proposals are significantly below what is needed, with no strategic oversight to identify optimum sites or cross-boundary solutions for development. The new duty to cooperate within the NPPF attempts to plug this gap, but it generates ad hoc activity predicated on interaction between individual local authorities rather than any substantive strategic consideration involving all relevant stakeholders, and with little recognition of the legal status of cooperation. Authorities struggle to work with this arrangement, and planning inspectors are failing to draft local plans as a recent Coventry City Council decision shows – the inspector failed the plan due to a perceived failure in cooperation4 . Lord Heseltine’s review on growth5 seeks to position the newly-created LEPs in this role, but this ‘back-door’ approach to strategic planning is problematic given that not all areas of England are covered and LEPs do not equate with conventional travel-to-work patterns or natural regions such as water catchments, which arguably offer more logical strategic oversight for effective planning and development matters. Furthermore, the failure of 52% of all local authorities to meet the NPPF target to have an approved local plan in place by April this year is likely to result in opportunistic applications in the RUF, seeking approvals based on meeting sustainable development arguments alone. This counters good planning practice, which uses agreed plans as the basis for making long-term decisions for areas in the public interest. New ways of thinking Since the launch of the NPPF in March 2012 there have been many incremental add-ons, most notably the Taylor review of planning guidance after the launch of the NPPF. Within the Growth and Infrastructure Act new planning provisions include permitted development to housing extensions up to 8m (subject to neighbour consultations), taking some planning decisions away from local authority control, and reducing affordable housing quotas and community infrastructure on viability grounds. There are also separate proposals to allow conversion from business to residential use. Together these signal a government lacking a clear strategy and ill at ease with the NPPF and localism as the prime tools to kick-start growth. Cumulatively this risks creating a short-term investment landscape dominated by uncertainty and conflict. Far from speeding up decisions, the reforms are likely to embroil the planning system in legal appeals and challenges, especially when combined with a lack of planning staff and inspectors. n
  8. 8. RICS Property JOURNAL 1 0   J u ne /J u ly 2 0 1 3 Acknowledgement > This article stems from research funded under the UK Research Councils’ Rural Economy and Land Use Programme ‘Managing Environmental Change at the Rural-Urban Fringe’; a collaboration between the Economic and Social Research Council, the Natural Environment Research Council and the Biotechnology and Biological Sciences Research Council, with additional funding from the Department for Environment, Food and Rural Affairs and the Scottish Government. The author would like to thank Mark Reed, Peter Larkham and Claudia Carter for comments on an earlier draft. UPFRONT planning CRelated competencies include T061Further +info The key question, therefore, is how to escape the thinking that constrains the options for the RUF and promote effective working across the town-country divide. It is here that the Ecosystem Approach6 may help us progress more theoretical thinking into practice; informing planning and development proposals and outcomes. Moving away from the sole focus on economic land values and economic assessments of impact, planning tools could usefully measure and financially value the increased benefits or costs in key environmental and community assets (e.g. flood protection, water quality, carbon reduction, air quality, food, landscape value), which currently are not effectively factored into decision-making. Thus we can then start to map who provides these environmental services and who benefits from them within new payments schemes. For example, a number of water companies now pay farmers to manage land in order to reduce water treatment costs downstream. Markets exist for biodiversity in England and Wales and for climate regulation via tree planting (the UK Woodland Carbon Code). In future, there may also be markets for climate regulation via peatland restoration. By combining payments for many different environmental services in this way, it may be possible to deal with environmental problems more holistically, rather than within sectoral boundaries. Here, positive environmental change benefits economies, society and environment. Green infrastructure (which encompasses ‘blue’ – water) also helps to connect town and countryside. The identification of a network within planning frameworks of authorities, incorporating community-led approaches and management, can help to identify multifunctional opportunities associated with wildlife corridors, flood alleviation, public access and recreation and land management. The value of green infrastructure in Birmingham has been estimated to be £12m annually or £420m capitalised over 50 years7 . However, there has been a tendency for authorities to consider green infrastructure as a bolt-on to existing masterplans rather than embedding it in planning processes. A successful strategy requires partnerships across different sectors, authorities and geographical scales and integrating different themes in a way that provides improved understandings of the asset base of the natural and built environment. This can be used proactively by planners in policy development, masterplans and in planning proposals. Conclusion Uncertainty and disintegration are the enemies of good planning and long-term economic growth in the RUF and there are dangers in viewing any one component of the growth jigsaw in isolation. The current policy direction is at risk of leading towards more uncertain, opportunistic and disintegrative planning predicated on urban growth. In response, we should boldly go into the RUF with more strategic, proactive and inclusive planning to secure and maximise economic, environmental and community benefits based on maximising connectivity. R More information > 1 n 2 Scott AJ et al 2013 ( in press ) ‘Disintegrated development at the rural urban fringe: re-connecting spatial planning theory and practice’ Progress in Planning 3 Scott AJ , Gilbert A, and Gelan A (2008) The Urban Rural Divide: Myth or Reality, SERG Policy Brief (2) Aberdeen: Macaulay Institute 4 n www.planningresource. 5 Heseltine Review (2012) No Stone Unturned: In Pursuit of Growth n 6 The ecosystem approach is ‘…a strategy for the integrated management of land, water and living resources that promotes conservation and sustainable use in an equitable way’. UNCBD. (2010) Ecosystem approach [online] n 7 Oliver Holzinger Personal communication. An Ecosystem Assessment of Birmingham’s Green Infrastructure with Birmingham City Council (In press) +info Image©getty Allister Scott is Professor of Spatial Planning and Governance at Birmingham City University n
  9. 9. RICS Property JOURNAL J u ne /J u ly 2 0 1 3   1 1 UPFRONT BOPAS F Philip Santo looks at the UK’s housing shortage and describes a ground-breaking new scheme that will boost mortgage lending on innovative forms of house construction Beating the offsite rule February’s Offsite Housing Review, compiled for UK government by the Construction Industry Council (CIC) revealed a broad level of agreement among experts that the housing shortfall in England is likely to get worse and confirmed the view of the Future Homes Commission by Sir John Banham in 2011 that in the region of 300,000 units are needed every year to avoid a serious stock deficit by 2030. The report makes a number of striking observations. One of the most interesting, perhaps obvious on reflection, is that the housebuilding industry is very clear that it exists to make money for its shareholders and not to further government policies for housing or sustainability. While the industry would certainly like to be in a position to build more homes, provided there is demand to sustain sales and maintain current profit margins, they will not build at a higher rate than their local markets can absorb. This explains why volume builders are content to build out their sites with completions running typically at one per week with no interest in increasing their speed of construction. Even given the opportunity to resource an expanded programme, the private sales sector of the housebuilding industry would only ever aspire to deliver around 140,000 new homes a year, well below the 240,000 currently targeted by the government and far short of levels needed to meet anticipated long-term demand. Expansion The report identifies three residential construction sectors where there is scope for expansion. First, self-build is already a growing sector. Compared with European averages of around 50% of national annual completions, it is starting from a low base of only 7%, but even at this level it is delivering as many houses as the largest of the major national housebuilders. Second, the social rented sector has been operating at modest levels in total market terms for the past 50 years and is unlikely to increase significantly without a major shift in government policy. Third, building for private rent, which has historically been very small, has attracted much interest recently. Even using optimistic projections, however, there will still be a significant shortfall in total provision. The CIC report, as its title suggests, focuses on opportunities to increase the role of offsite solutions to improve the delivery of new homes for both sale and rent and examines the actions that stakeholders, including government, can take to meet current and projected housing needs. Extensive use is already made of offsite components in the housebuilding industry, with factory-manufactured trussed rafters, floor joists, windows and doors, and particularly timber-frame walling systems. The report recognises, however, that while established volume builders have no objection in principle to adopting offsite methods for whole-house construction, the consequent improvement in productivity actually conflicts with their slow-burn business model. Conversely, reduced construction time on site has significant benefits for other sectors, especially for landlords wanting to have tenants in completed units and paying rents as soon as practicable. Improving quality A further telling observation in the CIC report is that housebuilders currently have no commercial interest in the performance of their houses beyond the obligations that apply for the first two years of the free-standing 10-year structural warranties on most new homes. Builders say they cannot justify the added expense of building to higher standards than the minimum required by the relevant regulations because neither purchasers nor professional valuers differentiate sufficiently on price or valuation between energy-efficient, cheaper-to-run properties and those that are not. The government’s ambition to n Image©alamy
  10. 10. Offsite message heads to India > Western Europe and Scandinavia have established housing markets with successful high-performing offsite products. North America has an offsite housebuilding market operating at scale, but not primarily providing high-performing products. The Japanese offsite housing market is very well developed with the potential for high performance and has established strong housing brands that are pursuing export opportunities, for example in Australia. The challenge posed by the UK housing market is modest in comparison with developing countries. In India, the determination to address the problem also provides great opportunities for UK companies. The importance of the Indian market recently saw the Prime Minister, accompanied by one of the largest UK trade delegations ever assembled, visit the country in support of collaboration and trade. RICS has recognised India as a priority market for the UK construction industry and has established a strong presence there. The current Indian Five Year Plan, for example, calls for a construction spend in the region of $1.5 trillion and everywhere there is hard evidence of investment in essential infrastructure including new transport hubs, a rapidly expanding motorway system, utilities and new commercial districts. The pace of Indian urbanisation will continue to increase with a migration to the cities, in turn requiring the delivery of a 21st-century infrastructure. The immediate challenge is to deliver tens of millions of new homes to support the pace of urbanisation, and India will not settle for yesterday’s construction technologies and processes. The construction industry in India is looking to adopt cutting edge techniques and is already using innovative methods, such as offsite construction, to deliver new infrastructure. This includes new communities of up to 20,000 homes being built using offsite construction manufacturing. While the Prime Minister was in India, a delegation from the Buildoffsite organisation met local companies and organisations looking to adopt innovative offsite construction practices. The delegation included representatives from design, manufacturing, contracting and service interests. Says Richard Ogden, Chairman of Buildoffsite: “A professional presence on the ground is essential if any business is going to make progress in this huge market, but the job can be made just that bit easier through the actions of RICS and others to act as a focal point to bring together those people and organisations who have shared interests.” Highly educated and astute industrial managers and government policy-makers in India are looking to do business with overseas partners who can offer the best solutions and help to inform the decision-making that the country will demand. UK leadership in design, exploitation of Building Information Modelling, developments in offsite construction solutions and project management means there is much to offer. An additional advantage is that many Indian professionals and senior managers have studied in the UK and have an excellent understanding of UK practices, technical standards and the excellence of our consultants and constructors. 1 2   J u ne /J u ly 2 0 1 3 RICS property JOURNAL UPFRONT BOPAS improve the thermal performance of new homes will challenge this position by progressively raising the requirements. Builders are likely to find it more difficult and therefore more expensive to meet the prescribed levels with traditional forms of construction. Offsite solutions then offer a means of providing the necessary quality. Assuring lenders Increasingly then, surveyors and valuers are likely to be confronted with non-traditional forms of construction. Whether acting for lenders, housing associations or institutional clients, the professional challenge will be to advise whether these non-traditional forms are sufficiently durable and adequate in all respects to meet the necessary standards for funding. Private purchaser clients will want reassurance about properties during their own occupation and also that mortgage funding will be available to prospective buyers when they come to sell. Historically, the provision of such advice in respect of properties built with non-traditional methods has proved a sticking point in the sales process. Lenders understandably have been unwilling to commit themselves without valuer reassurance and valuers have been professionally unable to provide it within the limited remit of the standard mortgage valuation process. In parallel, manufacturers of offsite systems – often with extensive track records of provision to non-residential clients – have found it exceptionally difficult to obtain confirmation from lenders that their particular system would be accepted for lending purposes. Recognising these difficulties, RICS has worked with Buildoffsite, Lloyd’s Register and Building LifePlans in consultation with the Council of Mortgage Lenders and the Building Societies Association to develop a scheme to provide assurance to the lending community that innovatively constructed properties will be sufficiently durable to be readily saleable for a minimum of 60 years. The resulting Buildoffsite Property Assurance Scheme (BOPAS) comprises a rigorous durability and maintenance assessment and process accreditation, supported by a web-enabled database giving access to details of assessed building systems, registered sites and individual properties that have been warranted under the scheme. This will not only apply to first sales after construction but will be accessible for the life of a property, allowing all subsequent sales to be similarly checked against the database. Forthefirsttime,valuerswillbe abletoreceiveindependent confirmationthataparticular constructiontechnologyhas beenapprovedinprinciple forlendingpurposes “ n
  11. 11. mike Fairey, Fusion Building systems (left) receives Bopas accreditation from Richard ogden, Chair of Buildoffsite (left) receives Bopas accreditation from Philip Santo FRiCs is director of philip santo & Co and acts as a consultant to Buildoffsite Related competencies include T041 For details of the Buildoffsite Property Assurance Scheme, see The CIC report can be downloaded at J u N E /J u Ly 2 0 1 3 1 3 UPFRONT Bopas BOpAS launch event > It was standing room only in the RICS Lecture Hall when the Buildoffsite Property Assurance Scheme (BOPAS) was launched at a conference examining offsite solutions to UK housing needs on 26 March. Described as ‘game-changing’, the BOPAS scheme enables residential valuers for the first time to access a dedicated database of innovative forms of construction ‘approved in principle’ for mortgage lending. During the conference, addressed by Alan Collett, RICS President and Michael Newey, RICS President-elect, the Offsite Housing Review was considered and an innovative housing collaboration between Kent County Council and Kier Partnership Homes was outlined. The significance of the BOPAS launch was reflected by the attendance list, which included Stephen Hodder, President-elect of the Royal Institute of British Architects, and representatives of government, local authorities, manufacturers, builders and housing associations as well as lenders, surveyors and valuers. The BOPAS scheme provides absolute confidence to valuers and lenders that particular forms of construction have been subjected to a rigorous appraisal process that ensures they meet lender requirements for durability and suitability for lending. While not guaranteeing mortgage finance, which is subject to the valuer’s report and valuation of individual plots, the scheme removes the crucial area of uncertainty that has prevented lending on countless occasions – lender acceptability of non-traditional forms of construction. BOPAS database entries are online and therefore effectively accessible from site. They are plot specific and accessible for the lifetime of a dwelling and thus available for all subsequent sales and also for advising owners in residence. For the first time, therefore, valuers will be able to receive independent confirmation that a particular construction technology has been approved in principle for lending purposes, often while still on site. Accreditation does not guarantee a mortgage per se, because the valuer still has to consider aspects such as location and value, but it removes the uncertainty over the construction that has proved such a blockage in the past. Accreditation under BOPAS is not limited to residential developments and is potentially open to any manufacturer, but the initial focus of this ground-breaking initiative has been to eliminate a frustrating obstacle in the mortgage lending process that has previously been very difficult to overcome. Manufacturers of offsite systems now have the opportunity to enter all sectors of residential sales and letting development and, with the support of BOPAS accreditation, can be confident that their particular form of construction meets the relevant criteria for funding provision. In the longer term, this even creates the potential for offsite providers to become a new force in the quest for the provision of mass housing. Offsite forms of construction are, by their very nature, ideally suited to meet the challenges of speed, volume and quality posed by the current housing crisis. It is no surprise that government is taking such a close interest. C image©pHilipsanto
  12. 12. RICS Property JOURNAL 1 4   J u ne /J u ly 2 0 1 3 +info Q&A PROPERTY JOURNAL Legal +info V is for service of applications Q I have received a Notice of Disclaimer from the liquidator of a tenant, stating that the lease has been disclaimed. According to the company’s most recent accounts it is not insolvent. Can it do this? > Ed John A A company can resolve to put itself into liquidation either when it is solvent (i.e. can pay its debts – a ‘Members Voluntary Liquidation’) or insolvent (i.e. cannot pay its debts – a ‘Creditors Voluntary Liquidation’). In this case, unless you have been given notice of a creditors’ meeting, it is likely to be the former. If a liquidator regards a lease held by the company as ‘onerous property’, they are able to ‘disclaim’ it. A disclaimer operates to determine the interests of the tenant in the disclaimed lease, but the rights and liabilities of third parties such as guarantors and original tenants under pre-1996 leases will generally remain in place as if the lease continued in existence. If the landlord cannot recover the rent from a guarantor or former tenant, they are able to recover their losses caused by the disclaimer (including the loss of rent and other sums for which the tenant is liable under the lease) as a creditor in the tenant’s liquidation. In principle, the landlord should be no worse off as a result of the disclaimer, however the amount payable in each case depends on several factors, including the landlord’s ability to re-let. W is for Without Prejudice Q I am negotiating a rent review with a tenant. The tenant has sent a letter marked ‘Without Prejudice’; what does this mean? >Lucinda Hutton A If a letter is marked as being ‘Without Prejudice’ this would generally prevent any statement or concession made within the letter being used in court or arbitration as evidence against the party that sent the letter. The without prejudice rule is an exception to the rule that where a party admits or concedes something against their own interest it can be used against them in court. The without prejudice rule encourages parties (or potential parties) to litigation to settle their disputes out of court. If parties believe that their admissions cannot be used against them in court should settlement discussions break down, they are willing to speak more freely in order to reach a settlement. However, if a letter is marked ‘Without Prejudice’ and in substance it is not a genuine attempt to settle an existing dispute, it will not be protected by without prejudice privilege. Indeed, a letter need not contain the words ‘Without Prejudice’ in order to benefit from the without prejudice privilege, as long as in substance it is a genuine attempt to reach a settlement. X is for eXperts Q The rent review on one of my properties was subject to expert determination. The expert sided wholly with the other side and I believe may have made some serious errors of judgment or miscalculations in arriving at the rental figure. Is there anything I can do? > Ed John A In this case, the lease will probably provide that the rent will be determined by an independent expert if not agreed. If the parties agree the expert who determines the rent, that determination is binding between the landlord and tenant, even if the valuation was negligent. It can only be ‘set aside’ (determined by the court to have no contractual effect) if the expert has: bb failed to do what was required of them (e.g. valued the wrong property) bb acted fraudulently bb colluded with one of the parties. An expert appointed to determine a rent review has a contract with each party to the lease. They owe both parties a contractual duty of care and will be open to a claim in negligence by the party that has lost out as a consequence of their mistake. So, if the expert has undervalued the rent as a result of a negligent mistake, the landlord can recover damages comprising the shortfall between the rent as determined and the rent it would have been had they done their job correctly. C UPFRONT Legal Q & A V + X Ed John Senior Associate Solicitor, Hogan Lovells International LLP ed.john@hoganlovells. com W Lucinda Hutton Trainee Solicitor, Hogan Lovells International LLP lucinda.hutton@ +info
  13. 13. RICS PROPERTY JOURNAL com mer cialJ U N E /J u ly 2 0 1 3   1 5 S E C T I O N C
  14. 14. Image:Batterseapowerstation RICS property JOURNAL 1 6   J u ne /J u ly 2 0 1 3 C Simon Williams considers how developers go beyond physical assets to create a sense of place Building on a vision CoMMERCIAL Place-making In recent years, real estate businesses and developers have started using the expression ‘place-making’. Witness the large-scale developments underway at Paddington and King’s Cross or the proposals for development at Earls Court and Battersea Power Station – they all have one thing in common. They are more than just a series of buildings with the developers keen to create a sense of place – dynamic urban settings where people can comfortably live, relax, shop and work. Although the expression is new, the concept is not. London, perhaps uniquely among world cities, has large estates with landowners such as Grosvenor, Howard de Walden and the Crown Estate exercising careful management over vast swathes of the capital. Over the decades, this control has enabled them to create the type of areas that the modern breed of developer is now seeking to emulate. If we look at the history of the Grosvenor Estate, it is clear that it did not shape one of the most desirable places to live and work overnight. Mayfair and Belgravia were ‘created’ in the 17th and 18th centuries and can be viewed as among the earliest examples of planned communities. Grosvenor had a clear vision and a consequent strategy and continues to evolve that vision today. In addition to managing its London estate, Grosvenor decided to take its expertise and apply it to one single large-scale development in Liverpool. It worked with Liverpool City Council on the Paradise Project, which ultimately became the award-winning Liverpool ONE – the complete regeneration of 17ha of the city centre that subsequently spawned more than 40ha of further transformative development. Any real estate or development business that is considering a place-making scheme needs to have both a clear and consistent vision and a substantial area of contiguous land ownership. While the developer or the landowner will put the vision in place, to succeed it has to be communicated to everyone involved whether through its construction, letting or ongoing management once completed. It is for this reason that knowledge of place-making is relevant not only to real estate companies or developers but also to investors, agents and banks, as well as the future occupiers or tenants. Keeping your vision intact is probably the biggest concern and, to do this, a robust legal framework is needed or the long-term success of the estates will be compromised. The framework consists of five factors. Funding structure Place-making developments by their very nature are large and will require significant investment. Careful consideration needs to be given to the vehicle that will ultimately hold the completed asset. This needs to be flexible enough to: bb appeal to a wide variety of different investors I
  15. 15. J u ne /J u ly 2 0 1 3   1 7 Commercial Place-making Simon Williams is a Partner in the Property team at law firm Boodle Hatfield swilliams@boodlehatfield. com n bb cater for phased development (and funding) bb allow easy entry into (and out of) the investment bb permit changes in the future. Currently the limited partnership is seen as the vehicle of choice, not least because of its tax-transparent nature, allowing each investor to be taxed according to its own circumstances. The reality of the current economic climate means that funding, both equity and debt, is becoming ever harder and more costly to secure. Consequently, it is more common today for large-scale developments to be financed and constructed in phases and build programmes to extend over a number of years or even decades. The heady days of projects such as Liverpool ONE, which was funded and built in seven years, are unlikely to be repeated in the near future. This requires a considered approach to funding, which needs to be flexible enough to adapt to changing market conditions and the economic environment. A place-making developer is clearly looking to its long-term vision, but if it is clear that this will need to be adapted (or the development altered), funding arrangements need to permit this. Management plan Following completion of the development, a long-term management plan needs to be established, in accordance with the vision, governing: bb who occupies the scheme bb how they operate and occupy space bb how different occupiers interact bb how public realm is used. These controls are generally woven into the occupational leases and licences for both residential and commercial occupiers and also into the contracts agreed with managing agents. It is crucial that the vision is sold by the landowner to the occupiers at an early stage of negotiations to ensure that they buy into it. Occupiers need to accept the consequent controls that the landowner requires, such as limitations on use or to whom a lease could be assigned. These may initially seem unduly harsh to an occupier used to having more flexibility. But even slight deviations can be seen as ‘the thin edge of the wedge’ that could erode the vision if some occupiers observe others being released from similar controls. Occupiers need to be prepared to accept service charge costs that are commensurate with a higher quality development. The landowner must demonstrate not only the value that this additional cost brings but that strict financial discipline is being brought to the levels of expenditure. Place-making schemes should not be seen as being of interest only to the property sector. The retailers, restaurants, coffee shops and office tenants attracted to such schemes have a vested interest in ensuring that the landowners remain true to the vision. This will ensure that the quality is maintained (or even enhanced) over the years following completion. View as a whole Any successful place-making scheme needs to be run for the benefit of its whole. Deals should not be negotiated in isolation on the basis that any single deal could have serious ramifications for the scheme as a whole. A cohesive letting and tenant mix policy will assist, accompanied by universally applicable estate rules and regulations. Long-term value Well-run place-making schemes will see capital values (and rental returns) steadily increase if the vision is followed. The original quality, both in terms of appearance and type of occupier, must be maintained. Nowhere is this more important than in the public realm. Landowners such as Grosvenor have long realised that the space between their buildings is just as important as the buildings themselves. Their occupiers expect the public realm to be managed in a proactive way and the newer place-making schemes have a strong sense of community. They want to involve the local residents and businesses in the use of the public realm and public events, street theatre and displays of artwork are actively encouraged. Short-term profit Landowners should not succumb to the temptation of short-term profit if this comes at a cost to the integrity of the vision. They may have to settle for a lower short-term return, which could mean: bb exercising pre-emption rights (and accepting voids) to prevent less desirable occupiers obtaining space bb resisting the demands of large commercial occupiers more used to taking space on ‘their’ terms bb allocating the time to wait for the right occupier when space becomes available. The creation of a place-making scheme is an immensely complex task. Success will be measured over decades, not months, and the accompanying strategy (which will need to cover periods of economic hardship) must be explained to investors at the outset. Residential property Any place-making scheme is likely to include a significant amount of residential accommodation. With the seemingly never ending rise in residential values in London, developers are keen to cash in and many schemes are seeking to revise upwards the number of residences they are creating. Successfully managing residential accommodation is an art in itself. When making decisions that affect people’s homes, landowners need to keep in mind that an Englishman’s home is indeed his castle. That emotional angle combined with the statutory rights of long leaseholder residential tenants (such as the right to acquire the freehold, to extend a lease, challenge the service charges or take over the management) calls for special care and expert legal advice should be taken before any problems escalate out of control. However, provided the strategy is carefully thought through and properly implemented, there are significant advantages to the presence of residential property. The daily activities of the residents can enhance the overall feel of an area, creating an urban bustle that will be attractive to workers and visitors alike. The new ‘places’ that are being created by modern developers and landowners across London have the potential to transform the city. However, the long-term success of these schemes can be realised only if landowners are clear on their vision and how it will be implemented and maintained over decades to come. Having a legal team that understands that from the outset is a must. C Related competencies include T061, T079, T048
  16. 16. RiCs pRopeRty JouRnal 1 8 J u N E /J u Ly 2 0 1 3 C QMichael Baynes looks at the unique issues of valuing vineyards COMMERCiAL VineyaRds Qualifying as an investment surveyor some 27 years ago it was natural that my attention would be drawn to the centres of real estate investment, above all the City of London, where the demand for space sees maximum use of every conceivable rentable corner. But while the sophistication of the city is interesting and fun, I dreamt of a place where it might be possible to work in an investment environment that matched the power of the city with the tranquillity of the countryside. The Bordeaux vineyard market is just such a place. There are vineyards, not for sale I might add, that were we to value them would probably start at half a billion euros. At Maxwell-Storrie-Baynes, we have seen sales at €4m per hectare and offers refused at €7m per hectare. I speak of course of the investment grade Premiere Grand Cru Classé wines and those vineyards designated under the Bordeaux classification of 1855. Trading region The city of Bordeaux became a powerful merchant trading area in the 14th century thanks to its strategic waterways and natural port with access to the Atlantic. By the 19th century, wine had become its core export. But the first known vineyards date back about 2,000 years and it was the Romans who most likely identified and exploited the natural environment and climate so well suited to wine growing. Bordeaux is the world’s largest wine region – there are approximately 126,000ha of vines there, all pruned by hand. Bordeaux has 57 wine appellations (think Heinz!) 8,000 wine-producing châteaux and 13,000 grape growers. With an annual production of approximately 850 million bottles, Bordeaux produces large quantities of everyday wine as well as some of the most expensive wines in the world, which combined creates an industry of some €14.5bn a year. Vineyard market yet the vineyard market is small, discrete and, excuse the pun, illiquid. In London, there might be single streets in Chelsea that see 35 transactions in a year; there were a total of 35 vineyard transactions in Bordeaux in 2011 and the SAFER reports a total of 37 for 2012. This number will increase for 2013 with the continued strong interest from China, but at any given time there are rarely more than 80 chateaux estates on the market for sale. Furthermore, the sales process is slow and fraught with complications and exceptions. How to set a value In February, my company was invited to the Bordeaux business management school, Inseec, to lecture the Masters of Wine students on how to value a vineyard. I went through a case study before having them complete a valuation of a hypothetical estate themselves. They were surprised to learn that the income stream from a vineyard is not valued in the same way as many other businesses or commercial real estate. With the vast majority of businesses an exit strategy is envisaged and the accounts are organised to demonstrate a steady rise in revenue to impress the target for the exit after a certain number of years. But with Bordeaux vineyards it is very rare, particularly in the lower end of the market under €20m, to see a normal business/exit strategy being pursued by owners. The vast majority run the vineyard as a family business and intentionally follow a strategy of tax minimisation while at the same time maximising the French government’s financial support for farm operations. At university I was taught to look at the income stream from the real estate and then apply a year’s purchase capitalisation multiplier to arrive at the valuation. But the vineyards’ income stream is very hard to discern from the accounts as outlined above, and also from the rental stream. The ownership structure is commonly held in two companies, with a commercial company renting from an agricultural holding company. Since the ultimate owner is the same, the rental agreement between the two is not at market rates and is purely a strategic manoeuvre. In this way, when valuing vineyard properties we place no value on the investment value or ‘goodwill’ of the business and income stream. We do not take the net operating income and apply a cap rate multiplier, instead we value the assets only, and if there has been a legitimate reason for poor performance in recent years we apply a discount to asset value Surveyors among the vines
  17. 17. IMAgE©miCHaelBaynes J u N E /J u Ly 2 0 1 3 1 9 Michael Baynes is Co-owner and managing director of maxwell-storrie-Baynes michael@ COMMERCiAL VineyaRds accordingly. So the skill of the valuation entails a detailed understanding of each composite part. Each asset is therefore broken down to its unit size; square metres for building and hectares for the land surface. Depending on the condition and amenity of the buildings the appropriate multiplier is applied. For example a well presented chateau residence of 400m2 might be valued at €3000/m2 = €1.2m. In the same way a multiplier is applied to the chai (storage sheds for casks), offices, tasting rooms, barrel storage, bottle storage rooms and equipment garages – each one different. Likewise with the vines, each parcel is analysed on the basis of its plant density, age, condition, aspect, ventilation, soil and drainage. These qualities will place the vine’s value within the range for a given appellation. For example, a Bordeaux Superieur in the Entre-deux-Mers region will have a value range of €12,000 to €30,000 per hectare. The strength of these qualities will determine where the valuer positions their final value on a parcel-by-parcel basis. Other influences will be the notoriety of the wine, its prizes and press strength, strength of sales contracts and marketing brand. There may be some of the vineyard’s parcels closer to the lower end of the range and others in the middle or at the top end depending on their strengths and weaknesses. Finally, the vineyard valuation will review the materials and equipment for farming and making the wine. Their age and condition will be significant factors and the company accounts will list all of the equipment owned by the estate. The global market The Bordeaux vineyard market has in many respects followed the fortunes of its wine market. While the investment grade wines have behaved like luxury goods, the vast majority of Bordeaux wines have had to adjust to the arrival of some very competent offerings from elsewhere in the world – from Chile, South Africa, Napa, Australia and New Zealand. Perhaps the most surprising newcomer to the world of modern wine-making is the uK itself, which in the past 10 years particularly has seen some interesting if not highly technical wines winning accolades and praise. Maxwell-Storrie-Baynes in Bordeaux is affiliated through Christie’s to Strutt & Parker in the uK, which is one of the leading experts in the emerging uK vineyard market. Our new initiative together, named Vineyards by Christie’s, brings the foremost vineyard experts from around the world together to advise on this nuanced area of real estate investment. I asked my associate from Strutt & Parker, Nicholas Watson, to comment on what he is observing in the uK vineyard market. The uK has been largely populated by ‘hobby’ vineyards, which are often attached to an impressive house. The vineyards are not commercial ventures and in most cases the vines are managed by the owner under contract by a wine producer, thereby separating production from location. While Bordeaux has a very mature and ancient vineyard market, the uK is so young that there are very few comparables on which to base valuation evidence. This is further compounded by the embryonic nature of the industry, which has perhaps half a dozen serious businesses in the whole country. Watson explains: “Most vineyards are not profitable ventures, so if their value is acknowledged at all, it is simply as an amenity to the country house that is the principal focus of value.” Through Strutt & Parker, Watson acts on behalf of some of the most significant wine estates in the uK. Of particular note, he says, is the focus on sparkling wine products. As in the Champagne region, there are parts of southern England – Kent, Sussex and Hampshire – that have ‘terroir’ and climatic conditions that are very well disposed to sparkling wine production. The market leader, Nyetimber, is one of Watson’s clients and is taking a significant share of the uK market. But as he points out: “Domestic demand for high-quality English sparkling wine continues to outstrip supply, but as supply increases the challenge for producers is to compete in the international marketplace and establish a reliable export market.” The AOC system Of course I am biased, I admit it, but to my mind there will never be another Bordeaux and no other region in the world can match its depth of knowledge, history and suitability for the growing vines. But above all, and the thing that will always distinguish it from other wine growing regions, is the Appellation d’Origine Contrôlée (AOC) system imposed on anyone that wishes to state that they are making a true Bordeaux wine. While irrigation is standard practice in Chile, the uS and Argentina for example, I bet you did not know that irrigation is illegal in Bordeaux. What makes each Bordeaux vintage unique is the winemaker’s interpretation of the sun, the rain, the frost, the soil, the drainage, the plants’ grape variety and what the market wants. This is what underwrites the Chinese interest in Bordeaux, and this, in my opinion, is what underwrites Bordeaux’s long-term future as a world leader in wine. C Related competencies include TO83
  18. 18. RICS property JOURNAL CoMMERCIAL TUPE 2 0   J u ne /J u ly 2 0 1 3 Conditions of service C Why is TUPE relevant? TUPE will generally apply on entry into and exit from an arrangement for the management of one or more properties in a retendering situation. This is because the change of responsibility for the property management services is likely to amount to a service provision change and, in many cases, a transfer of an undertaking. In particular, TUPE is likely to be relevant when: bb a client first appoints a property manager, having previously managed properties in-house bb a client terminates the contract with a property manager with a view to managing the property or properties themselves bb the property manager subcontracts all or part of their obligations under the property management contract, or terminates any subcontract arrangement bb the property manager contracts with facilities management providers for the relevant properties, albeit in this scenario they should not inherit any liabilities under TUPE because they are simply dealing with TUPE issues as agent for the owner. Recent case law has also looked at when TUPE, particularly the service provision change test, may not apply; therefore property managers should have a clear understanding in advance of any property transactions. Recent case law Introduction of the service provision change test in 2006 was intended to clarify when TUPE applied. However, T UPE provides protection to employees when there is a ‘relevant transfer’. A relevant transfer takes place where (a) a business or undertaking or part of one is transferred or (b) where there is a service provision change. In the case of (a), the economic entity must retain its identity after the transfer. In the case of (b), a service provision change occurs when: bb activities cease to be carried out by an organisation on its own behalf and a contractor is engaged to carry out the services (contracting out or outsourcing) bb a contract is reassigned to another contractor (second generation contracting or outsourcing) bb an organisation brings the activities back in-house (contracting in or in-sourcing). TUPE only transfers the employment of employees who are ‘assigned’ to the transferring services (e.g. property management services) immediately before the transfer. While there is no legal definition of assignment, case law suggests that employees should spend the majority of their time on the services, or have the services as the majority of their responsibility, in order to be assigned. Practically, in the case of property management contracts, any employees based on site will usually be assigned to managing it. For head office staff, further analysis will be needed to determine whether or not they are assigned to the transferring property management services for the purposes of TUPE. It does not generally apply to casual or agency staff or to self-employed contractors. Service provision changes If TUPE applies to a change in property management services, employees who are assigned to the transferring services immediately before the transfer automatically become the employees of the new property manager. The new property manager must step into the shoes of the old one and employ the employees on the same terms and conditions they enjoyed before the transfer, save for a limited number of exceptions. Under the current TUPE legislation, terms and conditions may only be varied where the variation is unconnected with the transfer or, where the variation is connected with the transfer it is made for an economic, technical or organisational reason entailing changes in the workforce (ETO reason). The new property manager also inherits all liabilities that arise under or in connection with the transferring employees’ employment contracts, which is potentially very costly. For this reason, any property manager that may become responsible for transferring employees should carry out as much due diligence as possible before any potential TUPE transfer. This will help to gauge what indemnity protection to ask for in the tender process. It is generally unwise to rely on the provisions of TUPE to obtain information because employee liability information (ELI) only has to be provided 14 days before the transfer. That is far too late in the day for any company to make a commercial decision on whether or not to proceed with any transaction. The information that has to be included in ELI is also too limited, e.g. it does not include information about enhanced redundancy rights. Jane Fielding explains the working of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and why they might become more ambiguous for property managers in the future
  19. 19. J u ne /J u ly 2 0 1 3   2 1 Jane Fielding is a Partner and Head of the Employment Team at Wragge & Co Commercial TUPE Related competencies include TO48, T070 Thenewproperty managermust employthe employeesonthe sametermsand conditionsthey enjoyedbefore thetransfer “ recent cases have instead muddied the waters, finding that a service provision change will not occur when: bb the services are not fundamentally or essentially the same before and after the transfer bb the services become fragmented after the transfer (an example in the property management context might be where a large property portfolio is broken up) bb there is a fundamental difference in ‘ethos’ between the services pre- and post-transfer (less likely to be relevant in the context of property management) bb employees undertaking the services are not sufficiently organised in delivering the service to the property owner to constitute an ‘organised grouping’. One case that has attracted a good deal of attention is McCarrick v Hunter. The Court of Appeal found that a service provision change does not occur in circumstances where a change in service provider (in the case, a property manager) occurs at the same time as a change in client. When a property is sold and a new manager appointed by the new owner at the same time, TUPE will therefore only apply if there is a transfer of a business or an undertaking. The facts of the case are complex but can be summarised as follows: bb Mr McCarrick worked for a property management company (PM1). In 2009, a winding up petition was lodged against PM1. On the same day, a contract was signed to transfer control of PM1 to a second property management company (PM2). McCarrick’s employment transferred to PM2. bb The mortgagee of the properties now managed by PM2 appointed LPA receivers to take control of the properties, who at the same time appointed a third property management company (PM3). (At this point, the mortgagee and/or the receivers became the client for whom the property management services were performed.) bb Mr Hunter, managing director of PM1, wanted to maintain good relations with the mortgagee and the owner of PM2. As a result, at the point PM3 was appointed, he began paying McCarrick to continue assisting with the management of the properties. This was at no cost to the LPA receivers. bb When, in 2010, McCarrick was dismissed, he brought a claim against Hunter for unfair dismissal alleging that his employment had transferred to him. The Court of Appeal dismissed his case on the basis that there could not be a service provision change where the client also changed. While the facts of the case are perhaps unusual, it is relevant to commercial property transactions where ownership and management of a property changes at the same time. Where this occurs, the court is likely to adopt a restrictive approach and determine that there is no service provision change for the purposes of TUPE. The only other case to consider this point, Taurus Group Ltd v Crofts, followed the Employment Appeal Tribunal’s decision in McCarrick. Property managers must therefore plan for the possibility that they may be liable for any redundancies if they lose a contract and are unable to continue employing certain employees, unless there is a business transfer or they have some contractual protection against redundancy liabilities on exit from the contract. Potential changes The government has been consulting about proposed changes to the existing TUPE legislation. These changes include: bb repealing the provision that introduced service provision changes bb repealing the specific requirements regarding the provision of employee liability information bb relaxing the restrictions on changing terms and conditions of employment post transfer and protection against dismissal so that the current domestic legislation more closely reflects the Acquired Rights Directive (the European Directive that TUPE implements) bb broadening the meaning of the ETO defence to cover changes in the location of the workforce bb ensuring that consultations on collective redundancies with staff who are due to transfer count for the purpose of collective redundancy consultation. The proposed changes aim to reduce the burden on employers faced with a TUPE situation. However, the relative stability of knowing that TUPE will apply in most cases of a change of property manager may be removed, meaning that employers will once again have to grapple with domestic and EU case law to determine whether or not TUPE applies. Check the terms When read together with the case of McCarrick, the proposed changes do make the TUPE picture less clear, at least until the outcome of consultation is determined*. Existing property managers should check their standard terms to see what protection they have in the event that TUPE does not apply on exit from a contract. It may be that, depending on the circumstances, and particularly if McCarrick applies, they will not be able to pass their existing workforces onto any new property manager if they lose a contract. They will instead face redundancy liabilities if they are unable to redeploy staff onto other work. As a result, pre-contract negotiations will become increasingly important and potentially lengthier. Although there is a logic to the McCarrick decision on one level, it does appear to give scope to avoid the service provision change provisions applying simply by the timing of a decision on when to appoint a new property manager. However, clients who prefer to have continuity of site staff, for example, may want the provisions to apply. For now though, it is a case of watch this space. C *At the time of writing, consultation on the proposed changes to TUPE was continuing but due to close on 11 April. The outcome was therefore unknown. More information > The RICS information paper TUPE: Information for property managers is available at
  20. 20. RICS property JOURNAL 2 2   J u ne /J u ly 2 0 1 3 C Jim Ware and Paul Carder look at how facilities managers can play a greater strategic role in business Raising the bar CoMMERCIAL facilities management We rarely see organisations map out a cause-and-effect chain to guide FM strategy, which is why heads of FM are so often told to cut (or freeze) their budgets without reference to the causal chain of consequences to the workforce, to work processes and productivity and to the bottom line. Without understanding the consequences of these budget cuts, FM has all too often become a commodity rather than a professional skill in many organisations, to be maintained at lowest cost. Worse still, the FM industry does not yet have the sophistication to be able to analyse and report on the consequences of lowered standards and reduced (or lower-cost) resources. T here have been many assertions over the years that facilities management (FM) should be more strategic. Recent research provides evidence that indeed it can and should play a strategic role in enterprise, but the level of influence in any particular organisation depends entirely on the actions taken by senior FM executives. To be effective, FM leaders must change their behaviours and their very identity. We believe strongly that FM is no longer just about managing facilities per se; rather, it is about enabling the workforce to be productive and engaged and to produce value for the organisation. In our view, and in the view of leading FM executives, today’s workplace is nothing less than a tool for supporting work, for shaping the experiences of the workforce, and for producing competitive advantage. Our perspectives are based largely on a survey completed by almost 400 FM professionals across six continents in summer 2012. The research focused specifically on how FM is currently organised, governed and measured, as well as on how FM professionals interact with their peers in other infrastructure disciplines. Our understanding of the issues was enriched by direct conversations with almost three dozen senior FM and corporate real estate (CRE) executives in the US, the UK, Australia, and Hong Kong, as well as with thought leaders from academia and international professional associations. It is clear to us that to be effective and to serve an organisation’s real estate and business needs, FM leaders must work on a number of multidisciplinary relationships within it. They must focus on gaining the buy-in needed to provide coordinated workforce support from all the infrastructure functions. The overarching goal must be to achieve a deep common understanding of the strategic imperatives of the organisation as a whole. What stands in the way? In our experience, the ‘Head of FM’ – a generic title for the senior functional executives ultimately responsible for facilities, corporate real estate and workplace – is often poorly led from above. Not nearly enough thought goes into considering business strategy and how to translate it into tangible targets and actions for facilities operations. Becoming strategic To have a strategic impact, an activity or capability must differentiate the business from its competitors. It is worth noting that in some industries (retailing comes immediately to mind) the facilities are absolutely central to brand strategy and to generating business revenue. In a 1996 Harvard Business Review article ‘What is Strategy?’1 Harvard Business School Professor Michael Porter identified three basic principles: bb strategy is the creation of a unique and valuable position, involving a different set of activities [from competitors] bb strategy requires you to make trade-offs in competing—to choose what not to do
  21. 21. J u ne /J u ly 2 0 1 3   2 3 Commercial facilities management Jim Ware and Paul Carder are Directors of Occupiers Journal bb strategy involves creating ‘fit’ among a company’s activities. Operations, including facilities, can clearly help an organisation to be competitive in the marketplace. But the key idea is differentiation. It is not enough just to have lower-cost facilities than your competition. The questions that must be asked relate to how well your facilities/ workplace strategy contributes to your business strategy. Is FM aligned with the requirements of your business units, in the locations where you need to be? Do your facilities support your talent recruiting and management strategies? Are the workplace designs consistent with the business technology needs and strategy? Does the facilities cost structure support the company’s financial strategy and cash flow requirements? Perhaps even more importantly, facilities managers have to ask themselves this very basic question: “What is the facilities function doing to strengthen the company’s strategic positioning with customers, with employees (and prospective employees), and with the communities where we are located or want to do business?” Summary of findings The 2012 global survey compiled responses from FM professionals in over 40 different countries. It revealed that: bb facilities are increasingly being recognised as a strategic resource bb FM has had mixed success in achieving strategic alignment with other elements of business bb large, global organisations face dramatically different challenges to those of smaller, more local businesses – and they manage their facilities very differently bb financial metrics and cost control continue to dominate FM bb heads of facilities are still buried in day-to-day operational concerns bb FM career paths are undergoing significant change, and the FM profession faces a potentially serious future talent shortage. Recommendations for action Think strategically It may sound simplistic, but thinking strategically means focusing on competitive advantage, as suggested above. And when heads of facilities focus on helping their companies establish competitive advantage, they are paying attention to – and even helping to shape – business strategy. Thus, our first recommendation for action is that heads of facilities develop a deep understanding of the business they are supporting, its customers and its competitors. In addition, strategic thinking includes understanding how to develop financial models, how to build and analyse alternative future scenarios, how to see ‘over the horizon’, and how to link causes and consequences in areas as diverse as HR, IT, finance, operations and even marketing and procurement. Act strategically Strategic action begins with strategic thinking, but thinking is only the first step. When heads of FM behave strategically, they are spending more time on the future than on the present—and they are focusing their staff’s attention on business issues. An effective head of FM develops and applies measures of FM’s impact not only on the bottom line (which of course can be very strategic), but also on performance outcomes such as attracting and retaining talent, staff productivity, the ‘triple bottom line’2 , community recognition, and even broader metrics such as brand recognition, market share and net profit. Rebuild the FM role The heads of FM must also take several basic, short-term actions that serve to free up their time to focus on the core strategic issues. First among these is to develop a strong layer of operational management within the existing corporate FM organisation. Recruit subordinates with strong FM and management experience; be willing to bring in strong managers even if their FM-specific experience is weak or non-existent. The in-house (occupier) team in an outsourced FM model requires business and management competencies more than technical skills. Outsource activities We believe that the best pathway for making FM more strategic is to outsource as much of the operational, routine work Related competencies include T019, T079 to third-party service providers as possible. Spending less time ‘firefighting’ will free up in-house resources and allow heads of FM and their immediate staff to focus much more on long-term planning and strategic challenges (both FM-related and business-focused). Among the organisations we interviewed, those that were clearly operating more strategically (and were recognised as a strategic resource by their senior business executives) had outsourced far more of their operational activities than those in which FM was struggling to get resources and recognition. Ask for support One of the most critical activities for heads of FM is to educate their senior business executives and functional colleagues about how to work with FM. FM is most successful when business leaders know how to define their requirements, how to establish performance goals beyond simple financial measures, how to assess outcomes and how to plan ahead to ensure that their facilities do in fact help to create strategic advantage. Effective heads of FM do not buffer their business counterparts from the details of FM; just the opposite. They take every opportunity to help their clients to understand the strategic role of facilities and ensure that facilities and workplace design issues are part of every strategic conversation. C This is a summary of the full report Raising the bar: Enhancing the strategic role of facilities management, published by RICS on 1 November 2012 More information > 1 Porter, M (1996) ‘What is Strategy?’ Harvard Business Review, November- December, reprint #96608, p.1. Available from 2 The ‘triple bottom line’ was first defined in 1994 by British consultant John Elkington. It refers to measuring organisational performance along three complementary dimensions: ‘people, profit, and planet’. See ‘Triple Bottom Line’, The Economist, 17 November 2009 (, for a more complete discussion of this important concept
  22. 22. RiCs pRopeRty JouRnal 2 4 J u N E /J u Ly 2 0 1 3 C COMMERCiAL liCenCes to alteR David Gardiner looks at a contentious area in landlord and tenant relationships – the granting of licences for alterations – and reports on how new guidelines can help avoid problems for both sides Changes for the better T he scenarios can be very different but ultimately the situation is the same: a tenant wants to make an alteration at their property and needs the landlord’s consent to do so. Alterations can be anything from a multinational investment bank wanting to repurpose a trading floor in a Grade A office building to a one-man band wanting to put a mezzanine floor into a warehouse or a retailer changing the signage on the front of a shop. All of these works will invariably be covered by provisions in the occupational lease that require the tenant to get the landlord’s consent before works begin. A question of timing In the 2012 Property Industry Alliance Occupier Satisfaction Survey, the satisfaction score for the application for consents process, which encompasses licences for alterations, was 4.7 out of 10 – one of the lowest ratings across the survey and below the overall satisfaction rating of 5.1. It is perhaps timing that is at the heart of most aggravation caused by the application for and granting of licences for alterations. By definition, a tenant would not be proposing the works if they were not intrinsically business critical – the altered workplace would deliver improved operational efficiency or value. A landlord, however, does not want changes made that could compromise the fabric of their property and possibly have a negative impact on its future operation and value. In business situations, where one party wants to proceed with haste and the other needs to evaluate circumstances with careful consideration, it is always going to be hard to reconcile the needs of both. Generally, larger and more sophisticated occupiers, particularly those with their own estates departments, will be well aware of the procedure to obtain a licence for alterations. However, this group does not represent the majority of business tenants and, unfortunately, the natural inclination of some is to progress with works and cross the bridge of necessary consents when they come to it. Sometimes this error springs from ignorance rather than an intention to evade the process. A not inconsiderable proportion of tenants think that because they have signed up to the rigours of a full repairing and insuring lease and are paying the rent, then the space is theirs to do with as they see fit. Retrospectively unpicking a situation where the necessary licence has not been obtained can be very bad news for both sides. Not only may the work have to be reversed, it is likely that remedying the situation will incur more professional fees than a simple grant of a licence would have done at the outset. New guidance To address the growing level of conflict in this area of landlord-tenant relationships, RICS set up a working party to create a new set of guidelines to assist both sides. The result is the Licence for alterations in commercial property guidance note, published in January. It provides a comprehensive guide to best practice in dealing with applications. As with all RICS guidance notes, surveyors following the advice will benefit not only from the process running more smoothly, but they will also lessen the risk of potential negligence claims. When an allegation of professional negligence is made against a surveyor, a court or tribunal may take account of the contents of any relevant guidance notes published by RICS in their decision. In the opinion of RICS, a member conforming to the practices recommended in a guidance note should have at least a partial defence. It is for each surveyor to decide on the appropriate procedure to follow in any professional task. However, where members do not comply with the practice recommended in a note, they should do so only for a good reason. What does it cover? The alterations guidance note is most relevant to surveyors dealing with tenant applications at office and industrial properties in England and Wales. While it is also applicable to retail premises, a more detailed sector-specific process can be found in the Guide to retail delivery, which is published by the British Council for Shopping Centres. As illustrated in the flow chart (see right), the guidance covers the whole licence process from the tenant making an application through to the final inspection of the completed works at the property. The response from a landlord or their management surveyor will be driven by the nature of the works proposed by the tenant: an application to undertake major alterations at a property is likely to require far greater consideration, including specialist advice. Conversely, a simple application may be dealt with swiftly and with minimal effort. It is good practice for the surveyor involved to re-read the lease to ensure they are comfortable that the proposed works are permitted and that a formal licence is, or is not, required. Additional issues to consider include whether the proposed works fall fully or partly outside a tenant’s demise. An example of this potential grey area would be where plant is to be installed on a retained roof area. It is also important to cover how the proposed works will be assessed and