Property Journal July-August 2015

Page 1

Property Journal IN CO RP ORAT I N G T H E C O M M E R C I AL P R O P E RT Y J O URNA L, R ESID E N T I A L P ROP E RT Y J O U R N A L A N D T HE A RTS S URV EYOR

Eye in the sky Learning to work with drones

PG.

44

COMMERCIAL

RESIDENTIAL

ARTS

How the Internet of Things will impact the built environment

Keeping up with the latest legal changes

When auctioneers may not have the right to sell

Connected world

PG.

20

Tenancy deposits

PG.

36

On good authority

PG.

50

July/August 2015 rics.org/journals



UPF R O NT CONT ENTS

RI CS P RO PERTY JOUR NAL

contents C ON TACTS

UPFRO NT

COMMERCIAL

5 Opinion

Editor: Claudia Conway   T +44 (0)20 7695 1605 E claudiaconway@rics.org Advisory group: Paul Bagust (RICS), Nicholas Cheffings (Hogan Lovells), Milton McIntosh (Excello Law), Nigel Sellars (RICS), Martin Francis (BNP Paribas), Simon Hooper (Edward Symmons), Lorraine Howells (RICS), Vivien King (Malcolm Hollis) RESIDENTIAL Editor: Jan Ambrose   T +44 (0)20 7695 1554 E jambrose@rics.org Advisory group: Peter Bolton King (RICS), Andrew Bulmer (RICS), Paul Cutbill (Countrywide), Graham Ellis (RICS), Georgiana Hibberd (RICS), Chris Rispin (BlueBox Partners), Philip Santo (Philip Santo & Co), David Smith (Anthony Gold Solicitors)

With the new government committed to austerity, Simon Rubinsohn suggests that the recovery in economic activity could still be vulnerable

6 Update 8 A valuable resource

Sarah Sayce looks at how valuation can be better promoted as a career

9 Small beer?

ARTS

Although introduced with good intentions, assets of community value appear to have added little to the planning system, suggests David Brammer

Editor: Jan Ambrose   T +44 (0)20 7695 1554 E jambrose@rics.org

11 Time for a change

Editorial adviser: Nigel Sellars 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 sales@proquest.co.uk T +44 (0)1223 215512 for online subscriptions or SWETS Print Institutional Access E info@uk.swets.com 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 lweale@rics.org Published by: Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)870 333 1600 T +44 (0)24 7686 8555 W www.rics.org ISSN: ISSN 2050-0106 (Print) ISSN 1759-3395 (Online) Editorial and production manager: Toni Gill Sub-editor: Gill Rastall Senior designer: Wasim Akande Creative director: Mark Parry Advertising: Emma Kennedy T +44 (0)20 7871 5734

E emmak@wearesunday.com

Design by: Redactive Media Group   Printed by: Page Bros

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.

12 Legal Q&A

Legal experts answer common queries

13 Settling scores

Liz Repper considers how best to prepare to enter dispute mediation, and how this differs from court procedure

14 Look before you leap

Raymond Smith advises on the personal and professional challenges of moving to another country

16 Taxing times

Jürgen Bauderer focuses on key taxation issues for occupiers of German properties

John Edwards sets out the case for apprenticeships as a route to creating sustainable recruitment

C

CO MME RCI A L

18 Giving a different account

26 Questions that count

20 Making the connection

28 Waking the sleeping giant?

22 Trust me, I’m a chartered surveyor

29 Loud and clear

Stacy Eden explains how changes to financial reporting will have a significant impact on property business accounts

Claudia Conway talks to Udaya Shankar about the Internet of Things and its impact on building users and managers

Cliff Hawkins examines where conflicts of interest may arise and suggests how these situations should be approached

24 Opportunity knocks

Nick Blenkarn discusses the practical application of building information modelling in refurbishment

Liz Cross explains how a ‘positive disruption’ approach can create innovative responses to clients’ needs

Georgina Squire looks at the potential impact of the high-profile Titan v Colliers case on commercial property professionals

Commercial letting agents need to be upfront with start-ups about the cost of business rates, says Matt Kerrigan

30 A 21st century Domesday Book

Governments around the world would gain much from consolidating their commercial real estate, suggest Dag Detter and Stefan Fölster

To change your preferences, visit www.rics.org/mydetails

J U LY/A U G U S T 2 0 1 5   3


RICS P ROP E RT Y JO URN A L

UPFRONT C O N TEN TS Property Journal INCORPORATING TH E COM M ERCIA L PROPERTY J OURNA L , RESIDENTIA L PROPERTY J OURNA L A ND TH E A RTS SURV E YOR

contents R

Kurt Mueller argues the case for build to rent

36 An improving situation

Robert Mullarkey explains the current situation regarding tenancy deposits

38 Causes, effects and solutions Michael Parrett looks at problems caused by high local water tables and flooding

Learning to work with drones

Connected world How the Internet of Things will impact the built environment PG.

20

RESIDENTIAL

Tenancy deposits Keeping up with the latest legal changes PG.

36

PG.

44

ARTS

On good authority

July/August 2015

rics.org/journals

When auctioneers may not have the right to sell PG.

50

Front cover: © ISTOCK

A

RES I DE NTI AL

34 Changing the way the UK rents

Eye in the sky COMMERCIAL

A RTS

42 Getting the measure of guidance

An important new guidance note places the relationship between client and surveyor at the heart of the contract, reports James Kavanagh

44 A future opportunity?

Roy Emmerson discusses the benefit of using drones

46 Are you moving with the times?

Ashley Stewart-Noble outlines the advantages of a digital presence

50 A right to sell

Milton Silverman cautions that everyone concerned with an auction needs to tread carefully

52 That’s a fair point

Claire Grindey looks at different methods of buying and selling

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 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: www.nationalarchives.gov.uk/doc/open-government-licence

4   J U LY/A U G U S T 2 0 1 5


UPF R O NT OP I NI ON

RI CS P RO PERTY JOUR NAL

OPINION With the new government committed to austerity, Simon Rubinsohn suggests that the recovery in economic activity could still be vulnerable

Y

Pushing through the pain

You do not have to be a cynic to see some value in the newly elected government getting as much bad news out of the way as early as possible in the new parliamentary term. The fact that it could be the current Chancellor who leads the Conservative Party into the 2020 general election merely serves to reinforce this suspicion. Of course, the art of the possible kicks in at this point. George Osborne could have loosened the reins in the March budget statement that preceded the election but he largely stuck to his guns of eliminating the structural current deficit by 2017-18 and the overall deficit by 2018-19. To meet these targets would require a set of fiscal measures or ‘austerity’ worth a hefty 5% of GDP. This was never going to be straightforward and is now compounded by the additional funding required to pay for the various commitments made in the run-up to poll, including the £8bn rise in NHS spending. The Chancellor could still backtrack come the

emergency budget on 8 July, but I sense that this is an unlikely course for him to take. Instead, it is probable we will get more detail on some fairly swingeing changes to welfare, more focus on efficiency savings and enhanced revenues from cracking down on tax avoidance as well a further substantial squeeze on the expenditure plans of the ‘unprotected’ government departments.

Impact on demand A key area of interest is the impact such a raft of measures will potentially have on the broader economy. There is, after all, no getting away from the fact that such a combination of policies could significantly impact on demand. Some comfort may be drawn from analysis conducted by the independent Office for Budget Responsibility. It shows the large scale fiscal retrenchment implemented so far to have lopped off more than 1% from GDP in each of the past four years, yet still been insufficient to impede a broad based recovery in economic activity, with growth climbing towards 2.5%. On the other hand, the sheer magnitude of the forthcoming measures could prove a little more painful and result in growth flagging over the course of the next year or so. I would not want to argue aggressively this scenario as a likely outcome but in terms of

managing both the economic and parliamentary cycles, it is quite possibly something the government could live with.

Interest rates It could also have a bearing on the deliberations taking place at the Bank of England. The recently published Inflation Report suggests that there is increasing concern at Threadneedle Street about the diminution of spare capacity in the economy. That has refuelled the debate about the likely course of interest rates as we head towards 2016, notwithstanding the headline inflation rate turning negative in April for the first time since the 1960s. Indeed, it may only be a matter of time before one of nine rates setters breaks ranks and votes for a modest tightening in the monetary stance. I certainly would not be foolish enough to rule out an increase in base rates in the early part of next year, particularly if governor Mark Carney is right is his conviction that the key inflation measure will move back up to the 1% area over the coming six months. However, given the nature of the forthcoming fiscal consolidation I would question just how far the Monetary Policy Committee would wish to go in reversing the course on interest rates. It is self-evident that the current level of base rates cannot persist indefinitely but the counterpart to a further wave

of fiscal tightening is almost certainly likely to be a more accommodating monetary policy than would have otherwise been the case. How this plays out in the real estate sector is open to debate but it is hard to believe that there won’t continue to be a strong regional dimension with heavy public sector job losses weighing on sentiment in some parts of the UK more than others. That said, one of the benefits of ‘lower for longer’ base rates is that those property markets more dependent on leverage than equity will have an extended breathing space as the cost of mortgage finance remains not too far away from current levels. b Simon Rubinsohn is Chief Economist at RICS and regularly provides comments for national newspapers including the Financial Times, The Guardian and The Telegraph srubinsohn@rics.org

J U LY/A U G U S T 2 0 1 5   5


RICS P ROP E RT Y JO URN A L

UPFRONT U P DAT E

UPDATE

Correction In ‘Auditing across borders’ (p24-25) in the May/June RICS Property Journal, Figure 1 should have stated that a qualifying business should have at least 250 employees or if fewer than 250 employees, then companies qualify if they have a turnover of at least €50m and an annual balance sheet of at least €43m.

Encouraging diversity The RICS is launching a new initiative to make the land, property and construction sector more inclusive and diverse. The Inclusive Employer Quality Mark is designed to help firms gain a competitive advantage and a diverse workforce. Launched in June, the scheme asks employers to pledge their commitment to adopting and continually improving against the following six principles: bb Leadership and vision bb Recruitment bb Staff development bb Staff retention bb Staff engagement bb Continuous improvement. Accompanying each of the six principles are multiple ‘proof points’, against which signatories will be required to assess – on a bi-annual basis – the actions they are taking and the outcomes to date. RICS has created two separate criteria metrics so that both small and large firms are assessed fairly, and will use the assessment to document the outcomes and trends for the profession as a whole.

Brooke-Smith: “Step change for the profession” Once a firm becomes a signatory they gain access to details about how they are performing (according to RICS standards) across all six principles in comparison with their peers, as well as a spread of support, ideas and case studies from high performers to help drive up improvements for all. Signatories will be published on the RICS website, and member firms may then use the logo and tag line “signatory to the RICS Inclusive Employer Quality Mark”.

Louise Brooke-Smith, RICS President said: “I am delighted to be launching the Inclusive Employer Quality Mark. It marks the step change that the profession needs. This initiative has been discussed with, and has the support and encouragement of, a number of leading firms – both large and small – across the land and property sector. “Employee needs are changing, along with their expectations and demographic make-up. The competitive war for talent has also shifted the focus to attracting and retaining talent in the industry. Only by doing so, can we deliver a sustainable future. By committing to the Quality Mark, firms will gain a competitive advantage. An inclusive approach allows organisations to reflect and engage with their clients more effectively and efficiently.” n Register your interest in the RICS Inclusive Employer Quality Mark with External Affairs Director Kim Worts kworts@rics.org

Valuation split off from Homebuyer Report RICS Home Surveys were established to advise homebuyers, sellers and occupiers on the condition and environs of a residential property, but are not intended as an opinion of its value. This message is reinforced in a video released by RICS, which can be viewed at www.rics.org/ pbksurvey. RICS members and affiliated firms can use it on their own websites. RICS is determined to differentiate between a valuation and a survey in 6   J U LY/A U G U S T 2 0 1 5

the three service levels: the Condition report (1), Homebuyer Report (2) and Building Survey (3). Accordingly, the valuation element will be removed from the Homebuyer Report, which will become a survey-only service to complement the Condition Report and Building Survey. RICS is working on the revision of the Homebuyer Report prior to its going out to member consultation, Content will differ only in that

references in the format and practice note to valuation matters such as the Red Book will be removed. This will allow RICS members who undertake residential surveys but are not registered valuers to offer the Homebuyer Report. It is expected to be available for use this autumn. In recognition of those members who are registered valuers and want to continue to offer both a valuation and a survey to meet their client instructions, RICS has created

the Home Surveys Additional Service – Valuation. This must be part of the RICS Home Survey, but it will require separate terms of engagement and will be mandated by the latest edition of the Red Book. The format is based on Section K in the current Homebuyer Report. Licence holders will be able to charge a fee for this additional service. The next stage is for RICS to review, improve and update the three RICS Home Surveys services.


UPFRONT UPDATE

In brief... New guidance The mundic problem, 3rd edition

New era for property measurement RICS Property Measurement, 1st edition has been released. It comprises three elements: bb Professional Statement: Office Measurement (applies to office measurements only) bb International Property Measurement Standard (IPMS): Office Buildings (applies to office measurements only) bb Code of Measuring Practice, 6th edition (applies to all other building classes, effective globally from 18 May).

This document will be revised over time to comply with other IPMS standards, including residential, industrial and retail, as they are published. Some elements are mandatory for RICS members and will be subject to regulation by RICS. Other elements are professional best practice and practitioners are strongly advised to follow them. n More details on this and other international standards will feature in future issues www.rics.org/ propertymeasurement

Investment trends tracked In 1990, 90% of global construction companies were UK owned. In 2015, that figure is just 10%. To demonstrate how significantly the UK business environment is changing and how international trade affects UK surveyors, RICS has produced an animated film and a series of case studies involving UK members who have worked on projects that have received high levels of international investment. n To find out more visit : rics.org/ukbusiness

In its first full revision since 1997, this 3rd edition of the RICS guidance note details a recommended sampling and testing procedure to identify the condition of aggregates used in domestic and small commercial properties. It introduces a streamlined concrete classification system, adopts revised methodology and consolidates and updates the alternative classification approach to certain types of mass concrete. It also improves guidance on sampling, gives background guidance on concrete materials likely to be encountered in the affected region and contains updated petrography reporting templates, developed and agreed by practising petrographers. n For more information, see www.rics.org/mundic

Commercial property service charge handover procedures, 1st edition This guidance note covers commercial multi-let property where there is a service charge. It deals with the handover of financial and supplier information between owners and/or managers.

Superseding the previous information paper of the same name published in 2011, the new guidance note is aimed at property owners and managers and their legal advisers. It sets out a series of procedures that will apply during any handover period to improve the quality of service to the industry’s customers and covers sale of a property, change of manager and example reconciliation statements. n For more information, see www.rics.org/cpsch

Valuation of intellectual property rights, 1st edition This guidance note covers the valuation of intellectual property (IP), a subset of intangible assets. Its purpose is to expand on the IVS 2013 and the Red Book to clarify the legal, functional and economic characteristics that IP valuers should consider and report on. The document includes: bb introduction and scope bb defining the subject IP and assessing legal characteristics bb clarifying and disclosing the extent of investigation bb assessing the functional and economic characteristics of the subject IP bb selecting an appropriate valuation approach bb integrating IP characteristics into valuation analysis. n www.rics.org/ipvaluation

J U LY/A U G U S T 2 0 1 5   7


RICS P ROP E RT Y JO URN A L

UPFRONT VAL U E R S U P P LY

Sarah Sayce looks at how valuation can be better promoted as a career

A valuable resource

T

he valuer training pipeline is under scrutiny like never before and recent RICS figures highlight both the current challenges and opportunities. The first and very real challenge is that the average age of valuers in the UK is mid-50s, so where will we find the valuers of the future? It takes some time for student numbers on RICS-accredited courses to recover from a recession; figures collected by RICS show growth is still slow after a very marked drop off. The greatest recovery is in construction-focused courses, while the numbers of real estate valuation courses are still well below prerecession levels (Figure 1). Another facet in the supply chain is a shift in real estate from undergraduate to postgraduate, with some 75% of students now entering at the higher level (Figure 2). But those prepared to accrue yet more debt with a further year of study will only do so if they see the prospect of well paid jobs at the end. Further, many of the postgraduate students are from the developing economies and do not plan to work long term in the UK, and due to visa restriction, often not even in the short term.

Key issues How do valuers’ earnings compare with those of related professionals? The RICS and Macdonald & Co Salary Survey 2015 (www.rics.org/salary) revealed that the average RICS member salary is £54,771; £56,609 for men and £44,794 for women, indicating a significant gender gap in pay. This compares with average valuer earnings of £45,948, only slightly above the earnings of real estate academics. Could this also make it difficult to attract people to valuation compared to other areas of surveying, or indeed to attract surveyors to follow an academic route? Oonagh Macdonald’s report, Balancing risk and reward: recommendation for a sustainable valuation profession in the UK (2014) (www.rics.org/ukvc) was the catalyst for a questionnaire to RICS registered valuers, aiming to deepen understanding of its findings. The questionnaire sought opinions on their 8   J U LY/A U G U S T 2 0 1 5

area of work, perception of valuer supply, skills and education. The respondents represented a good cross-section of areas of work and a typical age profile for the field. It was felt that the key issues that may lead to a shortage of valuers are: bb challenge of the work: some found it overly challenging, others insufficiently so bb poor image: other disciplines are seen as more inspiring bb fees v risk: the fees paid do not make up for the risks of being sued, and professional indemnity insurance premiums are becoming increasingly expensive bb long hours culture: heavy workloads lead to a poor work/life balance bb age of valuers: a significant proportion are approaching retirement bb careers advice: awareness of valuation is poor. While none of these results are entirely surprising, they add weight to the Macdonald report and reaffirmed that valuers considered their jobs require a broad spread of knowledge.

Figure 1 Graduate from UK accredited valuation courses 2009-2013 UG starters PG starters

2500 2000 1500 1000 500 0

2009

2010

2011

2012

2013

978 1057

1099 896

959 759

872 720

713 804

Figure 2 Entrants to UK accredited valuation courses 2009-2013 2000 1800 1600 1400 1200 1000 800 600 400 200 0

2010

2011

2012

794 946

797 959

820 905

675 896

Moving to questions about the appropriateness of the academic courses, respondents felt that their education had prepared them well for their current roles, but that the required skills and knowledge base were now changing. This suggests that keeping up with these changes is a high priority, adding to the pressures on valuers and leading to the need for effective CPD.

Moving forward So, what are the skills required and how can the profession respond to the dual challenge of low pay and too few trained valuers? Automated valuation models (AVM) are an obvious part of the future. These cannot supplant human judgment, but represent an opportunity to offer clients more and to use big data effectively. It will be up to professionals to respond to the changes taking place around them. There is a need to address the perception of valuation as difficult, risky and with a long hours culture. Is this indeed a reality? If so, the challenge is how to make valuation a better career choice. Women’s status and salaries also need to be tackled. The related question is to whom to promote a career in valuation: school students, graduates or even those midcareer in other areas? Or all three? At present, despite recent moves by RICS there is more to be done in promoting valuation and real estate related careers to young people in schools. The erroneous view is given that being a chartered surveyor is synonymous with being a construction professional or an estate agent. There is much work to be done, in improving fees and professional indemnity risk, in responding to new technologies and in inspiring the next generation, but raising awareness is the first step in moving towards a positive future for valuation. b Sarah Sayce is Emeritus Professor at Kingston University sarahlsayce@gmail.com

UG starters PG starters

2009

Skills and knowledge

2013 681 914

Related competencies include Valuation


UPF R O NT P LA NNI NG

RI CS P RO PERTY JOUR NAL

Although introduced with good intentions, assets of community value appear to have added little to the planning system, while interfering with landowners’ commercial objectives, suggests David Brammer

Small beer?

H Hundreds of local pubs have already been listed with local councils as assets of community value (ACV), preventing them from being sold off under the noses of the communities they serve. Those behind the listing get six months and the support needed to develop a community bid to buy the asset should it come up for sale. However, it is important to note that the listing is no guarantee of success – it only improves the chances of community groups being able to purchase by providing more time to raise funds. Introduced as part of the Localism Act 2011, one may question the rationale behind legislation that has a potential impact on breweries’ commercial estate and may even prevent or deter them from making decisions based on the financial viability of the pub in question. There have already been instances where the sale of pubs as going concerns has been lost or delayed because the ACV status has deterred prospective purchaser. Where a pub is no longer

viable, surely it is better to allow an alternative use for the building than to have an empty, boarded-up property vulnerable to squatters?

Right of appeal Owners can appeal the decision to list a pub as an ACV, particularly if it is believed the listing will affect its value. A review of the council’s initial decision can be requested, considering carefully whether the nomination has been correctly drawn up by the nominating body. Challenges can be made by written representations and/or hearings, and the asset owner should pay close attention to: bb the council’s position, including the reasoning behind the decision by the officer who conducted the review and the evidence considered, including any title documents/evidence of ownership/third party use bb is the asset used by the community as a recreational or other facility? bb has it been used in the recent past? bb is there any evidence confirming use and/or limitations of use? bb the history of the property/ asset and any other relevant evidence, such as planning applications/accounts/details of public use. Although the First Tier Tribunal (Community Rights) (FTT) has dealt with numerous appeals against

listing, it is inevitable some will be appealed further because so much is at stake for landowners. The FTT has generally taken a liberal approach to the listing criteria and has supported most registrations so far.

Change of use Pub owners also have to contend with significant changes to permitted development rights, which effectively remove existing rights for Class A4 drinking establishments. Introduced through the Town and Country Planning (General Permitted Development) (Amendment) (England) Order 2015 (http://bit.ly/1PcwVrZ), the changes undoubtedly impact any property development strategy with a pub at its core. The rights for A4 uses to be removed include: bb change of use to Class A1 (shops) Class A2 (financial and professional service) Class A3 (restaurants and cafes) bb change of use to flexible use Class A1 (shops), Class A2 (financial and professional services), Class A3 (restaurants and cafes), and Class B1 (business), for a period of two years bb change of use to a state funded school for one academic year bb demolition of the building.

Before any unlisted pub can have its use changed, or be demolished, the prospective developer must check whether the building has been nominated for listing as an ACV by a community group. If it has, then the national permitted development rights will be removed for a temporary period of 56 days. If it has not, then the building’s use may be changed or it can be demolished within one year of the date of the request, subject to the local authority notifying the developer if the asset is nominated or listed within this period. When a building is nominated, the national permitted development rights will be removed while the nomination is considered. this prevents buildings being demolished or having their use changed while their community value is assessed. The possible solutions will vary according to the circumstances and nature of the asset, so seeking legal advice as soon as possible makes sense. b

David Brammer is Partner in the Real Estate team at SGH Martineau david.brammer@ sghmartineau.com

Related competencies include Planning

J U LY/A U G U S T 2 0 1 5   9


RICS P ROP E RT Y JO URN A L

A DV E RTI S I N G

RESIDENTIAL & COMMERCIAL CONSULTANT VALUATION SURVEYOR OPPORTUNITY NATIONWIDE We are a national firm of chartered surveyors specialising in the bridging finance market for residential, commercial and development valuations. Due to recent significant growth in volumes of work, we are keen to recruit additional residential and commercial valuation surveyors in all geographical areas to carry out valuation work on a generous fee-share basis. Our client base requires valuation reports to be turned around quickly and we are looking to work with valuers who are able to work to strict deadlines. Valuation work is distributed from our admin centre and we offer the facility to type dictated reports. The opportunity would probably suit sole practitioners looking to add income to their existing workload. We can confirm that we provide the PII cover under which you would operate.

Please attach a brief CV and email in the first instance to: Jon Ellis-Smith MRICS, Director PLP Property Consultants jon@plpsurveyors.co.uk

Chartered Building Surveyor Salary commensurate with experience Hertfordshire/ Bedfordshire McNeill Lowe & Palmer are a busy and respected Chartered Surveying practice looking for an experienced Building Surveyor to join their growing team. The opening has been created due to a growing workload and recent retirement of one of the business directors. You will be a Chartered Building Surveyor (MRICS) who is confident in your abilities and able to critically appraise diverse residential and commercial building types. You will have experience in Building Surveys, Party Wall matters, contract administration, project management and preparing schedules of condition. CAD skills are preferable but not essential. This is an ideal opportunity for an individual to develop their own client base and to progress their career within an ambitious and growing practice. If you are interested please forward your CV in confidence to owen@mlpsurveyors.co.uk

STRIDE AND SON Estate agents, surveyors and Auctioneers

Surveyor/Planner An exciting opportunity for a driven and enthusiastic qualified individual to join a long established firm of Chartered Surveyors with a view to early directorship.

contact CV/covering letter to Lorna Turner lornaturner@strideandson.co.uk Telephone enquiries to Imogen Stewart 01243 813760 www.strideandson.co.uk

To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak@wearesu nday. c om 1 0   J U LY/A U G U S T 2 0 1 5


UPF R O NT FUT URES

RI CS P RO PERTY JOUR NAL

Time for a change John Edwards sets out the case for apprenticeships as a route to creating sustainable recruitment

A

s the property and construction industry starts to recover from one of the deepest and most prolonged recessions in recent history, we are facing an acute skills shortage. At one leading Scottish university, the number of students in their final year of quantity surveying honours study in 2009-10 stood at 54. This has dropped to only 20 in the current 2014-15 academic year. Of those, only two are female. Assuming that this paints a consistent picture across surveying disciplines and other accredited university courses in the UK, it presents a serious challenge as consultants, public sector agencies and building contractors chase this limited talent pool. While it is easy to accept that as the industry becomes more prosperous, more students will return, this does not represent a sustainable recruitment model, one that can avoid a ‘boom and bust’ scenario. Feedback from universities is that additional capacity on full-time surveying courses is unlikely to be expanded. However, a part-time student sponsored by an employer is an entirely different proposition and accredited universities have expressed a desire to develop this route.

Member firms and RICS need to look to school leavers and to offering apprenticeships. Raising the profile of surveying as a career option in schools is crucial, because once students follow a vocational degree course, the pool of available talent becomes restricted. As university education becomes increasingly expensive, the opportunity to gain five years’ work experience, receive a salary and obtain an honours degree with no student debt is significant. This should increase the number of entrants from lower socio-economic groups and thereby enhance diversity within the industry.

Employment benefits Apprenticeships incur a direct cost for the employer with annual course fees in the region of £3,000 to £4,000 on top of a salary, so what are the benefits to firms? First and foremost, the quality of students graduating via the part-time course generally tends to be better than via the full-time study route. According to one university, while the percentage of graduates gaining an honours degree is broadly similar between the routes (94% full time, 91% part time), only 3% of those full-time students obtained a first class honours compared to 20% of the part-time graduates. These figures are consistent over the previous two academic years. As well as emerging with better quality graduates, companies offering apprenticeships are also able to increase their marketability in the public sector, where increasingly demonstrating community benefit as part of the prequalification questionnaire process to win work. What better way to set yourself apart from your competitors than the creation of training and employment opportunities, which suddenly turns a cost into a benefit? Taking community benefit a stage further, as a way of reducing cost, firms creating apprenticeships can work in

partnership with local authorities to select candidates and take advantage of schemes where the apprentice’s salary is subsidised by as much as 50% typically for a period of up to 12 months. By helping local authorities place talented school leavers into training and employment, firms are raising not only their own profile but also that of RICS and the industry as a whole. The availability of employment grants has so far made no noticeable difference to the number of apprenticeships offered, but this may be due to a lack of awareness among firms of such schemes. With a target of hiring apprentices every two or three years, firms are guaranteeing a succession of talent in the medium term. In less prosperous times the recruitment gap period can be extended, and in healthier times shortened to every year. The evidence shows that apprenticeships, when delivered in partnership, offer benefits to the student, the company, the educational institution, the local authority and ultimately to the surveying profession as a whole. It will reduce the need to chase a decreasing number of full-time graduates and will give firms greater control over their staff training and retention. b

More information > RICS Futures www.rics.org/futures Chartered Surveyors Training Trust www.cstt.org.uk

John Edwards FRICS is Partner at Brown + Wallace, sits on the RICS in Scotland Board and is Vice Chair RICS Glasgow Local Members Group

Related competencies include Business planning

J U LY/A U G U S T 2 0 1 5   1 1


RICS P ROP E RT Y JO URN A L

UPFRONT L EGA L Q & A

Legal Q&A Going to mediation

Q

I am in a dispute and the other party wants to go to mediation, but I don’t wish to – are there any legal ramifications if I refuse?

> Jacqui Joyce

A

Parties who want to use the courts in England and Wales are subject to the Civil Procedure Rules, which set out the steps to take in litigation. These rules include the Practice Direction – Pre-Action Conduct (PDPAC). This provides that: “Litigation should be a last resort… the parties should consider whether negotiation or some other form of alternative dispute resolution (ADR) might enable them to settle their dispute without commencing proceedings. ‘‘Parties should continue to consider the possibility of reaching a settlement at all times, including after proceedings have been started.’’ One of the forms of ADR specifically mentioned is mediation. The consequences PDPAC also states that the court has power to impose sanctions on a party that has “unreasonably refused to use a form of ADR, or failed to respond at all to an invitation to do so.” The sanctions available include staying any proceedings, interest and costs penalties. There are many examples where the courts have imposed harsh costs consequences on parties who have unreasonably refused to mediate, e.g. not recovering costs to which they would otherwise be entitled and having to pay costs on an indemnity basis. Reasons given by parties that have been held by the courts to be unreasonable reasons to refuse to mediate include: bb wanting your ‘day in court’ bb having to ‘accept guilt’ bb failure of a previous mediation between the same parties on another dispute bb wanting disclosure or expert evidence first bb considerable dislike and mistrust between the parties bb belief in a ‘watertight’ case bb wide gulf on amount bb costs of mediation are disproportionate to the sums involved bb ignoring an offer to mediate is itself an unreasonable refusal. Compulsory mediation In Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, the Court of Appeal decided that to oblige truly 1 2   J U LY/A U G U S T 2 0 1 5

+info Jacqui Joyce is a founder member of The Property Mediators and Chair of the RICS Mediation Guidance Note Working Group jacqui@theproperty mediators.co.uk

unwilling parties to refer their dispute to mediation would be an unacceptable obstruction on their right of access to the court and a violation of Article 6 of the Human Rights Convention. However, more recently, in Wright v Wright [2013] EWCA 234, one of those judges, Sir Alan Ward, intimated very strongly that he has changed his mind, stating: “Perhaps it is time to review the rule in Halsey…” He questioned whether a stay of proceedings to try mediation is really an unacceptable obstruction to the parties’ right of access to the court if they had to wait a while before being allowed across the court’s threshold. He even went so far as to invite “some bold judge” to rule on these questions so that “…the court can have another look at Halsey in the light of the past 10 years of development in this field”. More recently, in Bradley v Heslin [2014] EWHC 3267 (Ch), which was an argument about a pair of garden gates in Formby, Mr Justice Norris suggested a form of wording for directions in boundary disputes and rights of way disputes, which in effect, would make it compulsory to attempt mediation in such cases. He said: “I think it is no longer enough to leave to the parties the opportunity to mediate and to warn of costs consequences if the opportunity is not taken. In boundary and neighbour disputes the opportunities are not being taken and the warnings are not being heeded, and those embroiled in them need saving from themselves. The court cannot oblige truly unwilling parties to submit their disputes to mediation: but I do not see why directing the parties to take (over a short defined period) all reasonable steps to resolve their dispute by mediation before preparing for a trial should be regarded as an unacceptable obstruction on the right of access to justice.” The benefits It is clearly a big risk for a party to refuse to mediate and there can be huge benefits to mediating. Mediating is much quicker and cheaper and the parties can agree solutions that a court could never order. Mediations are generally confidential and enable the parties to preserve relationships and move forward to concentrate on their businesses and/or lives. The latest figures state that 86% of mediated cases result in a successful outcome with 75% settling on the day of the mediation. Also that mediations save businesses around £2.4bn a year in wasted management time, damaged relationships, lost productivity and legal fees. That surely has to be worth considering. b


UPF R O NT LEGA L

RI CS P RO PERTY JOUR NAL

Liz Repper considers how best to prepare to enter mediation, and how this differs from preparing for court

W

Settling out of court

Why are many choosing mediation as a way to resolve disputes? Reasons may include: bb saving the costs of taking a case to trial, including (if limitation is not an issue) the new court issue fees that mean it now costs £10,000 to issue a claim of £200,000, rather than £1,515 bb avoiding costs sanctions being imposed because of an unreasonable failure to engage in alternative dispute resolution (ADR) (see p12 and http://bit.ly/1FCuFJM) bb complying with a stay for mediation and direction that parties must take all reasonable steps to conduct that mediation, whatever they might say about their willingness to engage in the process (http://bit.ly/1QTT5my). So, how do you prepare? The temptation, of course, is to do what is done when preparing for court; submit a

position statement that reads like a skeleton argument, prepare a speech that sounds like an opening and draft cross examination for those you view as your opponent. Before doing so however, remember: bb most mediators are appointed as facilitators, not decision makers, and so it is for the parties to persuade each other of their cases, rather than the mediator bb what each party wants to see and hear in order to be persuaded may be worlds apart from what a judge requires because, whatever the merits of the case, each party will have personal interests and solutions bb mediation is a voluntary process and so, unlike court, parties can simply walk away if what they are hearing is not convincing them. Also keeping in mind that some solutions can be agreed at mediation that a court cannot order, consider: bb what are options B, C and D if option A is not achievable? bb what may the other party really be looking for? Brainstorm by sketching out internally all the issues you want resolved, all the potential solutions and how critical each issue is to you overall.

Put yourself in the other party’s shoes. Do they have the funds to go to court? Would litigation have wider implications for them, such as blighting their property? Would a confidential resolution favour their interests? Is there a benefit in seeking to repair or save a relationship? It may be that the case could never be litigated proportionately and so, in reality, both parties must want to avoid incurring irrecoverable legal costs. Gilks v Hodgson (http://bit.ly/1Q7ve16), a dispute between neighbours with costs approaching £500,000 (in the context of a damages claim of £3,500) is a sobering recent example of a case that Judge Sir Stanley Burnton said “could and should have been compromised on terms that both parties could live with”. Turning to presentation: bb What would you most like to see or hear in order to be persuaded? bb What can you show the other party to persuade them? bb How can you best present your case in the time agreed?

agreed. Could it be presented on a sample basis? Could it be agreed in advance that only certain items will be addressed? Would a pre-meeting help? Could showing contemporaneous video or photo evidence short-circuit matters? As for the mediation day itself, consider also: bb who to bring? As well as someone with full authority to settle, who may the other party want to talk to? bb what might work in terms of format? There is no pre-determined procedure and the process often evolves during the mediation day. If, however, the parties have previously had a good relationship or never even met, consider whether it would help if the decision makers sat together and discussed some issues. bb where? Parties often agree an eight-hour mediation, which means venues need to be good working environments. b

Consider telling the other party in advance what you want to see, perhaps a receipt or a photo, or evidence of what their costs will be to trial. Failure to have documents ready that support key points of persuasion may mean the mediation fails. If the case is complicated by its size, plan in advance how best to deal with it in the time

> RICS Dispute Resolution Service www.rics.org/drs

Further information RICS Accredited Mediation Training: www.rics.org/mediation

Liz Repper is a Barrister and Accredited Mediator at Keating Chambers erepper@keatingchambers.com; @reppermediator

Related competencies include Conflict avoidance, Management and dispute resolution procedures

J U LY/A U G U S T 2 0 1 5   1 3


RICS P ROP E RT Y JO URN A L

UPFRONT R E LO C AT I O N

Raymond Smith advises on the personal and professional challenges of moving to another country

Look before you leap

M

any surveyors, mostly young but sometimes older, have the desire or opportunity to move to another country. In the majority of cases, this idea is not taken forward due to family ties, financial commitments or just a lack of real interest. In the 35 years I have worked in Brazil, having moved from the City of London, I have seen and helped many surveyors move, both to Brazil and also from Brazil to the UK. What I have seen is that there are as many reasons for someone wanting to move countries as there are countries to move to. However, one essential consideration is best summed up by the Roman poet Ovid as “Omne solum forti patria est” (Every land is a homeland for the courageous man). Making a move requires courage and persistence, to a greater or lesser degree depending on the country, and without these, no move will be entirely successful. It is impossible to set down rigid guidelines for a move, but there are some general principles that I believe should be carefully considered before committing to doing so.

Why move? The motives for a move is of primary consideration. These generally fall into three categories: taking advantage of aspects of one’s life such as language skills or family ties; opportunistic events such as job offers or taking a liking to a country after an enjoyable holiday, or lastly, as part of an ambitious life plan. In any variation and combination, each has produced its success stories as 1 4   J U LY/A U G U S T 2 0 1 5

well as failures. What is important is not necessarily the reason for the move but the degree of enthusiasm the person has when taking the decision. Starting with events or circumstances; this is perhaps the most frequent reason for a move, where a transfer by an existing employer, marriage to a local, previous residence in that country or other consideration provides a solid footing in the new country. Often this is a well-founded reason, as that person will already have an edge in making it a successful undertaking. Even so, courage is still required and without a determined effort to make the move a success, failure is still a possibility. Opportunistic movers are perhaps the highest risk group. I see those who, after a couple of weeks on Copacabana Beach decide that they would like to move to Brazil. Others may be running away from a divorce or failed career and think that their problems will be resolved by a move. Even those who receive an unexpected job offer are not necessarily guaranteed success. A poorly motivated basis for a move often results in failure. Finally, there are those who have a life plan, formed after much thought

and reasoning, where a move is an essential part of their career path This is the smallest category of mover and requires the greatest commitment and determination to achieve a successful move. This group generally seeks advice and approaches their move in a more rational way by taking strategic career steps that lead towards their relocation.

Practicalities The choice of country may be a relatively safe environment where chartered surveyors are an established profession and where English is the national language, such as Australia or New Zealand. However, some opt for more challenging moves to countries where RICS has no presence and where they may not speak the language, such as Columbia or Angola. There can be no right or wrong reason for a move, as discussions on the RICS LinkedIn page suggest; it depends on the individual. However, the more ambitious mover will need to consider the following points, which are based on my experience in moving to Brazil in 1979, a time when there were only two other chartered surveyors in a country of 150 million.


UPFRONT RELO C ATIO N

or other information is hidden or over- or understated for tax evasion. In addition, official published statistics may often be misleading due either to incompetence by the compiler or faulty input from organisations seeking to distort reality. Any information gathered should be viewed sceptically and checked against other sources before they can be used or relied on. Integrity This is of course of great importance to the chartered surveyor and features to a greater or lesser extent in all countries in the world. Many challenges will be presented and many opportunities lost in upholding standards. However, in the long run, the market will respect ethical professionals and their standards. Language This is the first and most essential difference in business dealings. It is therefore essential to obtain a reasonable proficiency in the local language before a move to that country. This may be done through an intensive course in a language school or over a number of years, making friends with natives of that country and reading press/internet or any other means to build up a sound knowledge of a country and its risks and opportunities. Low opinion of real estate sector In many countries, no one understands what a chartered surveyor is or does, and even more prevalent is the attitude that anyone involved in real estate is an unscrupulous individual who is always trying to sell something by whatever means. In order to defend against this attitude it is better to present oneself under a different context such as an asset manager, valuer, construction or facilities manager or similar more focused description. Lack of trust and cooperation This is especially prevalent in valuations, where advice or opinions from others

are required in the marketplace. Local operatives are very resistant to releasing information, as they are often suspicious of potential competitors trying to steal clients. Only after friendship and trust is established can this barrier be broken down but this may take time and be a difficult task where one is operating in a large country with many different markets.

In many markets, official records cannot always be relied on to tell the truth Transparency In many markets, official records cannot always be relied on to tell the truth. This is particularly so in countries where the true value of property transactions or construction contracts

Be prepared To sum up, a useful checklist on the route to a move is as follows: bb Be sure of your motives bb Be prepared for long haul, it can take years to find a job and become established in a new country bb Research all aspects of life and business in the desired country, meet people who know it and establish contacts there bb Visit the country and meet people who work there bb Make oneself known to companies that are active or moving into that country bb Stick at it. b

Raymond Smith is Partner at Câmara and Smith Chartered Surveyors rhwsmith@uol.com.br

Related competencies include Conduct rules, Ethics and professional practice, Client care, Business planning

J U LY/A U G U S T 2 0 1 5   1 5


RICS P ROP E RT Y JO URN A L

UPFRONT TAX I N G T I M E S

TAXING TIMES

A

Jürgen Bauderer focuses on key taxation issues for occupiers of German properties

A German corporation (e.g. with limited liability, GmbH) which generates income from real estate investments is subject to corporate income tax (CIT) at an effective rate of 15.825%. Further, trade tax (TT) may apply. The applicable TT rate depends on the municipality where the corporation is established and generally varies from 7% up to 17.15% levied on the CIT base, adjusted by certain add-backs and deductions. Consequently, income from real estate investments might suffer an effective tax burden of up to 33%. However, no TT will be levied on real estate investments under the so-called extended trade tax deduction (ETTD). This applies only to companies exclusively engaged in the management of real estate and results in a TT exemption of rental income as well as income from capital gains. The ETTD is, however, only granted on application on an annual basis and where its requirements are fulfilled during the entire assessment period. For the ETTD to apply, the company may not render entrepreneurial services such as short-term lettings or providing additional services to its tenants (e.g. security or cleaning services). Further, the company may not rent out 1 6   J U LY/A U G U S T 2 0 1 5

fixtures to its tenants (e.g. freight elevator) or act as a commercial property trader. Certain structuring options are available if the property contains fixtures or the provision of any potentially entrepreneurial services is intended. This requires careful tax planning during the acquisition process. The ETTD should in general not be an issue if the German real property is held by a foreign company without a permanent establishment in Germany and thus not subject to TT.

Substance requirements While in the past substance often has solely been linked to mere physical presence (e.g. office premises and staff), under the OECD Base Erosion and Profit Shifting project will be just as relevant to prove that business rationale exists and that contractual arrangements reflect the economic value added. According to German tax law, substance is in particular key for tax treaty benefits and tax residence. For example, dividend distributions effected by a German real estate company (typically GmbH) to its foreign shareholder would generally be subject to withholding tax (WHT) of effectively 26.375%. This even applies to hidden profit distributions. While tax treaties or EU directives generally provide for a full (reduction to 0%) or partial (in general, reduction to 15%) WHT relief, such benefits are subject to the limitations as set by the German antidirective/treaty shopping rule. In essence, a WHT relief would

be granted if there is proof that the foreign shareholder maintains sufficient substance for its business purpose (premises, qualified personnel as well as technical means of communications) or qualifies as an active management holding (i.e. making leadership decisions with regard to at least two subsidiaries). German tax authorities may challenge the tax residency of a foreign company if no physical substance is maintained. If, in such a case, a company made use of a local asset and property manager and cannot prove that actual management decisions are made abroad, German tax authorities might be willing to assume the company’s place of effective management to be in Germany, which may trigger an effective tax rate of up to 33%. Therefore, it is strongly recommended to continuously document all management decision processes.

Value added tax As a general rule, the leasing of property is VAT exempt. To avoid adverse consequences from non-deductible input VAT, the lessor may waive the exemption and opt for VAT on rental payments at the standard rate of 19%.

Substance is key for tax treaty benefits and tax residence

However, this requires that the tenant uses the rented premises (almost) exclusively for services that are not exempt from VAT. Consequently, the so-called VAT option may not be exercised to the extent the property is used as residential real estate or is rented out to banks, insurance companies or medical practitioners, as those typically render VAT-exempt services. In case the VAT option is only partially exercised (e.g. a multi-tenant office), input VAT can only be recovered on a pro-rata basis. The respective ratio will in general be determined on a per sqm basis. If the VAT status of tenants changes within a period of 10 years, the recovery of input VAT regarding acquisition/ construction cost and even certain operating costs has to be adjusted on a pro-rata basis. This may result in additional payments to the tax authorities or even in a tax refund. Tax authorities therefore require that landlords record all real estate costs and their VAT treatment in a separate VAT register (15a VAT Act register). Since an acquirer of such real estate in a share deal but also in an asset deal would typically have to assume VAT obligations, it is recommended that such a register be carefully maintained at all times. b Jürgen Bauderer is Partner, Real Estate at Ernst & Young Juergen.Bauderer@ de.ey.com

c


RICS P ROP E RT Y JO URN A L

COMMERCIAL

C

com mer cial J U LY/A U G U S T 2 0 1 5   1 7


C RICS P ROP E RT Y JO URN A L

COMMERCIAL AC C O U N TI N G STAN DA RDS

Stacy Eden explains how changes to financial reporting will have a significant impact on property business accounts

Giving a different account

A

ll existing UK accounting standards have been replaced by a single standard as from 1 January. Property companies’ financial statements will now have to be prepared under the Financial Reporting Standard (FRS) 102, rather than UK Generally Accepted Accounting Practice (UK GAAP) for years ending 31 December 2015 and beyond. For a property company with a 31 December 2015 year end, the 31 December 2013 balance sheet previously prepared under old UK GAAP will need to be restated under FRS 102, which could even give rise to a tax charge due to prior year adjustments. The effect on a property company’s net assets and reportable profit could be hugely significant, with implications to the entity’s tax charge and any bank covenants. Early planning is vital to ensure the issues are understood by lenders, directors and shareholders and critical decisions made on matters such as whether to hedge a swap. 1 8   J U LY/A U G U S T 2 0 1 5

The accounting for investment properties, lease incentives, deferred tax, construction contracts, financial instruments and holiday accruals will also be significantly different: bb Revaluation of investment properties will now be recognised through the profit loss account. bb Deferred tax will be recognised in full on all revaluations. bb Lease incentives will be recognised over the lease term as opposed to the period of the first break clause.

The effect on a property company’s net assets and reportable profit could be hugely significant Images©©Shutterstock Image

bb Construction contracts may result in revenue being recognised earlier, increasing a property developer’s tax charge. bb Financial derivatives such as swaps will now be held at fair value. bb Unused holiday will be accrued at the relevant year-end, potentially giving rise to a tax deduction.

Investment properties Financial reporting for investment properties has been substantially revised. Investment properties are defined as assets held for generating rental income or capital appreciation. Such properties will now be initially recognised at cost but will thereafter be valued at their fair value at the balance sheet date with all changes being recognised through the profit and loss account. Clearly, this can affect covenants, because developers will now be recognising unrealised property valuation movements on investment property in their own profit and loss account.


C O MME RCIAL ACCOUNT I NG STA NDAR DS

The only exception will be when the fair value cannot be measured reliably. In this case, the asset is treated as a normal fixed asset, carried at cost and depreciated over its expected useful life. The disclosures relating to investment properties have been extended significantly. The methods and significant assumptions used to determine fair value will need to be disclosed, together with the extent to which it is based on an independent valuation performed by an appropriately qualified valuer. If there has been no such valuation, this must be disclosed. In addition, any contractual commitments that have been entered into purchase, construct, develop, maintain or enhance investment property will need to be disclosed, as will the term and amounts of leases entered into.

Deferred taxation FRS 102 adopts a ‘timing difference plus’ approach to deferred tax. This is different to the approach currently undertaken in old UK GAAP and will result in the recognition of a greater array of deferred tax assets and liabilities. The main change will be the recognition of deferred tax liabilities on upward property valuations. For property investors with significant property revaluations, this will have a large impact on net assets in the Statement of Financial Position as additional deferred tax liabilities are recognised. This could cause issues with bank covenants as well as distributable reserves, which can affect companies that pay a high proportion of their profits by way of a dividend.

Lease incentives Incentives to enter into a lease will be recognised as a reduction to the rental income passing through the profit and loss account over the lease term. This differs from UK GAAP, which recognises this reduction to the next rent review rather than the end of the lease. As tax treatment follows the accounting treatment, a higher tax bill may arise because the lease incentive offered by the property investor is spread over a longer term.

Construction contracts When the outcome of a contract can be measured reliably, the property developer will recognise both income and costs

Property companies need to be prepared that their accounts ended 31 December 2015 and beyond will look radically different by reference to the percentage of completion. If the outcome cannot be reliably measured, all costs are expensed and revenue is only recognised to the extent that it is probable that costs are recoverable. When it is probable that a loss will occur on a contract, this is recognised in full immediately as an onerous contract provision. Consideration of revenue recognition should be simplified by a coherent set of criteria. For most property developers, application of these criteria should make no difference to existing revenue recognition. It could be argued that the general application of recognising revenue when it is probable (i.e. more likely than not) and that an economic benefit will flow to the entity, may mean that revenue is recognised at an earlier stage than previously and, therefore, the tax charge will be higher. Entities with transactions involving reservation of title, or contingent fee arrangements, may need to review their recognition policies in light of the revised guidance.

Financial instruments FRS 102 has a concept of basic financial instruments (such as cash, trade debtors, trade creditors) and other financial instruments (such as interest rate swaps and forward foreign currency contracts). Basic financial instruments are accounted at amortised cost or cost less impairment, whereas other financial instruments will be accounted at fair value with any movements recognised in the profit and loss account. For property developers that have other financial instruments (swaps, caps, etc), this will result in the recognition of

an asset or a liability on the balance sheet for the first time and the movements in the fair value will have a direct impact on the reported results for the year. The recognition of, for instance, a large fair value liability due to a swap taken out with a bank loan, can result in a reduction in net assets (affecting covenants), and a reduction in distributable profits (affecting dividends). There could, however, be tax benefits because it is possible to recognise the liability as a deductible item. Furthermore, a property developer may be able to reduce the effect on distributable reserves by demonstrating the swap was used as a hedge against a bank loan. Hedging or not hedging something such as a swap would have major implications on a property developer’s results, distributable reserves and tax charge.

Holiday pay awards FRS 102 requires holiday not taken by employees to be accrued. Property companies will have to calculate the amount of unused holiday at the relevant year end. This can be quite onerous, particularly if the holiday and accounting year ends are different. Clearly, any accrual should be tax deductible.

Conclusion Property companies, particularly those with investment property, need to be prepared that their accounts ended 31 December 2015 and beyond will look radically different, affecting bank covenants, distributable reserves and their tax charge. They also need to be aware that not only may their tax charge alter due to the change in accounting profit, this could even result in their quarterly tax instalment payments being increased. C Stacy Eden is Partner and Head of Property and Construction at audit, tax and advisory firm Crowe Clark Whitehill stacy.eden@crowecw.co.uk

Related competencies include Accounting principles and procedures, Property management accounting

J U LY/A U G U S T 2 0 1 5   1 9


C RICS P ROP E RT Y JO URN A L

COMMERCIAL I N TER N ET O F T HI N G S

Making the connection

Claudia Conway talks to Udaya Shankar about the Internet of Things and its impact on building users and managers

T

The Internet of Things (IoT) consists of ‘intelligent networks’ of interconnected digital devices that can provide manifold benefits through the masses of data that can be exchanged and analysed. CISCO estimates that by 2020, 50 billion data devices will be connected to one another. In the real estate environment, this generally translates into sensors tracking space use, temperature, energy consumption or security and used in conjunction with building management software to pull together and analyse the data they provide. This data may also feed into building information modelling (BIM) software, not only in new constructions but also older buildings where BIM has been applied.

Getting started Where should building managers start in creating a connected building? Udaya Shankar, Vice President and Head of Internet of Things at Xchanging, suggests the first stage is to ask what business problems are you trying to solve and associated process changes you might want to 2 0   J U LY/A U G U S T 2 0 1 5

deploy. Return on investment is key, so prioritising your business needs will attain the best value for money. For example, water and effluents could be a central issue on an industrial site. The wrong effluents could destroy a water treatment plant, resulting in weeks of shutdown and also reputational damage for a business – so gathering data in this area could be a priority. If you are not sure of the main issue, then monitoring and benchmarking what goes in and comes out of your building, from energy to people, will tell you what is essential and help you to understand the practice around these in your setting, whether good or bad. On a simple level, devices can start to replace manual interventions, such as control of lights or thermostats. Shankar recommends putting money into back-end services first, focusing after that on value-adding ‘nice to haves’ that will further improve working conditions and the bottom line.

Joining the dots In order for the IoT to function, a huge array of devices and systems need to be able to talk to one another, making interoperability the central challenge for mass viability. Shankar believes that all the technology exists for the IoT – “it just needs to be configured the most commercially viable way”.

He feels that currently many tech firms are offering businesses a service he would call an ‘internet thing’, but because it is not open to other systems and devices, it is not the Internet of Things. Providers need to be open to sharing systems to maximise benefits to the market. Organisations should avoid products that are effectively limited in scope and communicability, because these will not be adaptable to an increasingly open world of communication.

Sources of demand Currently, retailers are especially keen to reduce their energy use through sensors, whether because of businesses initiatives such as Marks and Spencer’s Plan A, or the opportunities for huge cost savings. Easier auditing is another reason that businesses are attracted to the IoT – it allows them to see and compare how whole estates perform. Information can be input directly to an electronic format making auditing faster and more affordable.

Five impacts Shankar finds it surprising that buildings are still being constructed without a smart infrastructure to take advantage of technology that is now widely available. He sees five key areas where IoT will have an impact in the built environment:

1. Hyperefficiency: connected buildings will allow for efficient management of activities and automated service delivery. 2. New business models: a more flexible approach is already being taken to office use, including temporary or short term space. Rather than renting for weeks or months, technology is allowing businesses to lease or occupy a desk by the hour. 3. Safety and security: controlled access to buildings and provision of security at a wider range of hours, as often required by international businesses. 4. Customer expectation management: building users and managers will increasingly expect greater access to data and control over their workspace. 5. Asset management: optimisation of built assets – “If you can audit what goes in and out and managed what is used within, i.e. water, energy, space and people, you can drive a whole list of efficiencies”. Energy is a prime example of where the IoT has a role to play, encompassing hyper efficiency and asset management. The lighting of empty space and overheating or excessive cooling of rooms all contribute to the waste of energy – around 50% of the energy that goes into buildings, according to


C O MME RCIAL I NT ERNET OF TH ING S

Shankar. Sensors ‘talking’ to one another could synchronise energy use of the building with when and how people use it. While many businesses are implementing programmes to change behaviour through turning off lights or equipment, or keeping windows closed, human fallibility prevents these programmes making the difference they intend.

Connected for efficiency Quite simple connections are still being missed in the built environment. Shankar gives the example of a large US insurance firm, where sprinklers damaged the upper storeys of a highrise building after a small electrical fire started on a Saturday morning. No linked systems existed to inform security or an external service provider that the sprinklers had been activated and they continued to run for two days, causing huge damage to the building and its contents.

This type of situation is easily avoided where sensors can communicate with one another, building managers and/or service providers. On a less dramatic level is the classic issue of the expired light bulb. The ‘traditional’ process in a large building may be that the person responsible for maintenance is called out, sees where the light is, notes the type of bulb, goes to get it and then comes back to fit it. The connected alternative, says Shankar, is that: “A really simple system can be put in place to say a certain light has failed at a certain location… the electrical scheme of a building can be plotted on a database and tell you exactly what light bulb it is.” As he points out, people’s time is the most expensive commodity for businesses – anything that saves time can have a great impact.

The human touch Could this world of hyper efficient reporting devices

ing ild

Com me rci

saving are huge, as are the benefit of meeting end user expectations for “more refined and intelligent environments”. The IoT is not just an idea, it is already here, and end users of smart systems for home heating or other aspects of household technology will soon expect them in the workplace. He recommends talking to technology specialists to find out what is available and what is coming up. It is clear that massive systems of communication devices and networks are set to change the face of service provision in the built environment. C Claudia Conway is Editor of the Commercial section of the Property Journal claudiaconway@rics.org

Related competencies include Property management

al Pr o pe

ction stru Con

Susta inab ility

rty

Bu

Valuation

g yin rve Su

present a threat to those working in the built environment? Shankar counters that people have been concerned that technology would take away jobs since the advent of computerisation, but “actually, we’re doing more with less”, meaning no shortage of work for human beings. There will be more alerts to respond to and higher end user expectations. Responsive, accurate service will be expected in buildings, with the need for more roles in service industries and people to manage these workers. For Shankar, automation creates more need for people to engage with one another: “There will be less monitoring systems and more helping people.” So what should built environment professionals do to benefits from this brave new world? Shankar urges RICS members to get involved, because the potential cost

isurv

l Rura

Profe s s i o n al C ond uc t

Work smarter not harder

How can I ensure that I am compliant with the latest industry regulations? isurv has the answer Updated by over 200 legal practitioners and industry experts, isurv provides you with the information you need to help reduce your legal risk. Get interactive access to all RICS Standards as well as hundreds of RICS compliant documents and templates.

Re s ide nt ial

g nin an Pl Legal

For more information about how isurv can benefit you visit rics.org/isurvhub or call 0247 686 8433 to buy now or request a free demo. To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak@wearesu nday. c om J U LY/A U G U S T 2 0 1 5   2 1


C RICS P ROP E RT Y JO URN A L

COMMERCIAL C O N FL I C T O F I N TEREST

Trust me, I’m a chartered surveyor Cliff Hawkins examines where conflicts of interest may arise and suggests how these situations should be approached

C

an you remember the day you qualified as a chartered surveyor? Many years of hard work had been rewarded with membership of RICS. From that point on your obligation as a professional would be to put your clients’ interests ahead of your own. Conflicts of interest would need to be avoided or exclusively settled in your clients’ favour regardless of the impact on you. Your personal integrity would allow no less. Since then, I am sure that you have encountered multiple tests of your integrity in resolving conflicts of interest. Some are easy to identify and resolve, others are more esoteric and require careful thought. Your obligation as a chartered surveyor is to identify them all and deal with them appropriately.

Checking conflicts of interest By now, you may be thinking that this is all a ‘given’. You have robust systems in place to trap conflicts and deal with them. It may surprise you to know, however, that the 2013-14 RICS Regulation Annual review recorded that the most common failing of registered valuers at audit was ‘‘lack of a robust/any system to check conflicts of interest and where one exists, failure to record result of checks’’. So what can we do to improve the way we handle this issue? There is a very simple test you can apply to virtually every situation where a conflict may arise. If you were to wake up in the morning and read a report of your dealings in the newspaper, together with all the speculation and innuendo that might accompany it, would you be able to successfully demonstrate that you had acted appropriately? A belief that you could ‘tough it out’ does not qualify as a justification, nor does an argument that while you knew a conflict of interest existed, your personal integrity did not allow it to influence you. Such defences are paper thin, and that is why you need good identification systems and diligent record keeping. The full consequences of weak systems may only become apparent when your reputation has been damaged or a client decides that you are to blame for their misfortune. 2 2   J U LY/A U G U S T 2 0 1 5

One of the most common conflicts is acting for more than one client in the same transaction. While it is easy for individuals to avoid such situations, it is much harder for larger businesses, particularly those with multiple offices. The first requirement must be to operate a company-wide registration system for all new business opportunities. This should include significant personal interests. If a conflict is identified, there needs to be robust rules in place regarding declarations, transparency and resolution. There may be differences of opinion internally about whether a particular situation can be allowed to continue. For example, having two colleagues who sit next to one another competing in a transaction is clearly unacceptable. What view would you take, however, if they were in different room, on a different floor, or in another building in the same city? Does it make a difference if they socialise together on a regular basis? Clearly, such situations are best avoided, but sometimes there are good reasons why a client might wish you to proceed. The important thing is that you do not end up in such a situation unknowingly. At the very least, you will need to declare the existence of the conflict to all relevant parties and secure their written agreement to proceed. Without written evidence, you will be vulnerable to action as a result of misunderstandings.

Think carefully The principle of transparency is at the core of good practice. The more open you can be with all parties to a transaction, the less likely that you will be accused of a conflict. This sounds easy, but there are often situations where the conflict is not obvious at first glance. A good example is when acting as both the introducer and adviser in respect of a property purchase. Investment agents charge very substantial fees, often 1% or more of the purchase price, following a successful introduction and purchase. It is fairly standard practice for a successful transaction to be accompanied by a report and valuation. For many years, I was asked by non-property colleagues why it was that surveyors seemed not to see the conflict in providing other services alongside or within such a large success-related fee. Image © iStock


C O MME RCIAL CONFLI CT OF I NTER EST

given an opportunity to discuss them. This should be followed by a written agreement on the approach adopted. A further complication in this example is whether the valuation contained in a purchase report should comply with the Red Book. Such situations are not specifically excluded by the Red Book and therefore it is my view that they are regulated valuations. That means they must be prepared and signed by a registered valuer. There are very specific requirements for Red Book valuations and declarations of conflict of interest are central to those requirements.

Sharpening skills

As an example, suppose you have introduced an investment property to a client and agreed a purchase fee, payable on successful completion of the transaction. The client requires a valuation and a building survey in addition to a purchase report. If you provide all three services to the client, do you have a conflict of interest? I would argue that you do. You will only receive the purchase fee if the transaction proceeds, so if any of the other services contain unfavourable advice, there is a risk to that fee. There are mitigating factors that could be seen as protective of the client’s interest. One is undoubtedly personal integrity and another is risk to professional indemnity insurance. In addition, it may be different individuals within the same firm providing each service. However, would any of these arguments stand up in court? Perhaps the most problematic additional service in this example is the valuation. There may have been significant ‘sharpening of pencils’ during the bidding process and it is quite likely you were the highest bidder, possibly setting a new market level. Will the client still proceed if the valuation provided does not fully support the price they have agreed to pay? Are you conflicted in providing that valuation? If the valuation had been prepared by an independent surveyor without knowledge of the purchase price, would they have produced a similar number? I would suggest that any situation where more than one service is provided to a client on the same transaction, there must be some tension between the individual providers of those services. If one of those services involves a success-related fee, those tensions become more acute. Of course, one simple solution is to adjust the fee to allow independent provision of the additional services by other firms. Multiple provision of services has, however, been market practice for many years and many firms will find the diversion of fees to a competitor unacceptable. The RICS UK Commercial Real Estate Agency Standards (www.rics.org/ukcrea) contain very good practical guidance on handling conflicts. It states that the terms of both sales and acquisitions instructions should be in writing, including one-off purchase transactions arising from introductions. As a minimum, the client should be made aware of the potential conflicts and be

Transactions like this are only one example of the way in which conflicts may arise in unlikely places. All practising chartered surveyors are now required to undertake formal CPD training and record their activity via the RICS website. For firms, it should not be difficult to construct a training session that will test the ability of individual surveyors to think through conflict situations. The scope of such sessions could also be expanded to cover the Bribery Act. Here are just a few ideas to get you started: 1. You are instructed to sell a property and a potential purchaser suggests they will instruct you to provide new services for them, should they be successful. 2. You are instructed to sell a property and one of the potential purchasers is: a) a personal friend b) a client of the same office of your firm c) a client of a different office of your firm d) the firm’s biggest client. 3. The local planning authority has recently declared its intention to introduce tough new restrictions on development and have asked you to assist in identifying specific sites to be preserved. You know a struggling local builder with a small land bank bought at historically high prices. That builder is: a) your father b) your cousin c) an acquaintance from the pub d) the president of a golf club you would like to join. 4. A client has asked you to advise on whether to proceed with a very high bid from a previously unknown buyer or lower bids from reliable purchasers. Should the higher transaction complete, it would significantly undermine the valuations you have given on other recent deals. Of course, the property market has functioned well for very many years and market practices have become established. One of the key objectives of regulation is to provide confidence and reassurance to the end customer that the service provided is of the very highest quality and uninfluenced by bad practice. The principle of openness should be embedded in everything we do. By being open and seeking agreement to our actions from the client, we need never wake up in the morning and fear the newspaper headlines. C Cliff Hawkins is member of the RICS UK and Ireland Regulatory Board cliff.hawkins@ntlworld.com

Related competencies include Conduct rules, Ethics and professional practice

J U LY/A U G U S T 2 0 1 5   2 3


C RICS P ROP E RT Y JO URN A L

COMMERCIAL BIM

Nick Blenkarn discusses the practical application of building information modelling in refurbishment

Opportunity knocks

T The pace of technological change brings with it a tide of risk and opportunity. For building surveyors, this is the time to assess workflows, gauge whether there is opportunity to offer clients new solutions, or at the very least not get left behind. RICS continuing professional development provides the prod we need to move outside our comfort zone and look at developments on the horizon, learn new skills and seek fresh opportunities. The organisation is pushing hard to update building information modelling (BIM) specifications, while working parties are researching the role of BIM managers. Why? Because chartered surveyors have the ability to step into the BIM arena and bring their skills to the fore in areas such as quantity surveying, facilities management and geomatics.

Retrofit reality From a geomatics (measured survey) and refurbishment perspective, BIM requires a step up in information capture 2 4   J U LY/A U G U S T 2 0 1 5

to enable the 3D reality of buildings or structures to be represented. A variety of methods can be chosen, but the stand out winner in terms of speed, accuracy and clarity of visualisation is 3D laser scanning. Decreasing costs, established workflows and increased usability have brought laser scanning to the masses; bringing efficiency to both the collection of data and the creation of BIM for existing buildings ready for renovation and retrofit. Laser scan data or point clouds are effectively a collection of 3D survey points in space, each coloured by laser signal intensity return (multihue) or RGB (red, green, blue via a digital image to represent ‘true colour’). Site work is extremely rapid, with scanners observing up to 1,000,000 points a second to millimetre accuracy – surveying complex 3D geometry ready for addition to or creation of the BIM. The detail in the point cloud will usually be greater than the BIM, due to the requirement to model 3D elements to an agreed level of detail. Where required, scan data can be directly overlaid on the BIM to show where generalisations have been made. Along with being used to create the BIM, scan data can be collected during the build process and held as a repository for the project team to use – checking build against design, querying key

dimensions, recording steel position prior to concrete pour. With free point cloud viewers available (Bentley Pointools) and point cloud engines being incorporated in design and management packages, this is another opportunity to collaborate around a central dataset.

3D specifications When planning a scan to BIM project, the specification for survey needs to move to the next level, compared to procuring 2D plans. Thought needs to be given to who are the stakeholders involved in the project, which disciplines will be working on the retrofit BIM; the requirements of how the BIM is created from the source point cloud data may differ depending on the respective needs of those who will be using it. Potentially, structural engineers, architects, MEP designers and quantity surveyors may all have slightly

different requirements that need to be addressed. This is why a refurbishment BIM should be described as a BIM-ready model; providing an accurate shell, to an agreed level of 3D detail and a set level of feature attribution (wall construction and covering). This model can then be taken further by professionals with niche expertise, because the geomatics teams are not able to attribute certain M&E plant or know the structural properties of a beam. The degree to which the BIM is generalised can also be discussed to agree wall alignment, for example. Should a wall be shown as vertical if within a certain tolerance, or be depicted as is, leaning at an angle? Should a beam be shown as a bounding area, or I beam shape or display every rivet? The bottom line is no more red line around a site and standard deliverables requested. Use a scan to BIM specification, ask a geomatics surveyor for a BIM execution plan, use the new RICS Measured survey 3rd edition guidance note and generally plan to raise communication with the project team.

New developments

k Capturing 3D geometry of complex elevation at RICS' Parliament Square office

A conventional laser scanning team observe from tripods and use conventional survey control to help ‘register’ individual scans together to create a point cloud of an existing building. With the


3D laser scanning survey on the RICS roof

rapid pace of technological advances, it is worth keeping an eye on what else surveyors could use to add value or to speed up data collection. What would you say if you knew there was a technique that could survey an entire 1km-long street scene in a matter of minutes and have a point cloud ready to model the next day? Well, with the help of missile guidance technology, GPS, high precision scanners and a van, we can map at driving speed and potentially get a relative accuracy or +/-5mm for a

C O MME RCIAL B IM

section through the street or +/-20mm with control if we measured from one side of a town to the other. This is the kind of speed and accuracy modern mobile mapping systems can bring, such as the Pegasus2. If you know what is possible, you can start to assess whether it is of value on your project, or bring innovation to the table and look good compared to your competitors. Increasingly, the 3D geometry of BIM is being used for rights of light calculations. So there is potential to look at the existing workflows and consider if mobile mapping could bring benefits.

Adding value? If BIM is already being used by a growing number of clients, what is the next risk/opportunity on the horizon? Well, with a 2D plan deliverable as the end game, there is little potential to add value, if the data use stopped with architects, engineers or

Chartered surveyors have the ability to step into the BIM arena and bring their skills to the fore surveyors, inevitably data rot would set in over time. The difference with BIM is that we have a 3D dataset capable of being visualised, used and understood by a much wider non-technical audience. Take marketing, for example; conventionally, a project may be 3D modelled by architects or engineers, but visualisation ends with high resolution renders and possibly a 3D flythrough animation. The opportunity is to repurpose the BIM as an interactive app that allows potential users of a new facility to train virtually. From enabling interested parties to walk around a model or to directors at board level using augmented reality to showcase a tender. One of the stated benefits of BIM is that it continues past construction for the usable life of the facility. From the building surveyor’s perspective, there is the opportunity to add more to the ‘I’ in BIM. As the intention is to avoid data rot and use

the BIM actively through the life cycle of a building, then key information such as the presence of asbestos, HVAC legionnaires’ risks or even georeference past accidents could be included. This then becomes a resource for safety briefings, Regulation 38 fire details under the Building Regulations, as well as a collaborative centre point for managing the facility. As surveyors, we could offer all these services to clients to allow them to leverage their investment in BIM for more than just design. BIM is here to stay and 3D deliverables will start to become the norm. In 2004, Severn Partnership purchased its first laser scanner and the response from clients was often: “If it costs more, we will stick with our 2D workflow”. In 2015, it features as a standard specification request from most clients. Compared to five years ago, I can now view the BIM of an entire school, complete with structural beams and sprinkler systems from my iPad. I can even choose to host the BIM securely online and work on it in real time with a team spread around the country, tracking edits with a digital paper trail. The BIM agenda has been gathering pace and once the private sector clients realise the government is pushing the BIM agenda to save 20% on construction projects by working faster, smarter and collaborating instead of cultivating a contract and claim culture, then it will really start to fly. C

Nick Blenkarn is Director at The Severn Partnership Ltd nick.blenkarn@sevenpartnership.com

Related competencies include Building information modelling, Conservation and restoration, Maintenance management, Data management, Inspection

k

BIM repurposed as interactive virtual reality app J U LY/A U G U S T 2 0 1 5   2 5


C RICS P ROP E RT Y JO URN A L

COMMERCIAL C O N S U LTAN C Y

Liz Cross explains how a ‘positive disruption’ approach can create innovative responses to clients’ needs

Questions that count

W

When you really think about it, most of us take for granted that the way the built form works is the way it should work. But accepting the status quo is not an accelerator of change or a springboard for innovation. Change happens when people become dissatisfied. It starts with being uncomfortable with the ‘as is’ and having a view of the ‘what could be’ if we just did things a little differently. Years ago, I heard about some research with groups of women in Liverpool who were asked about how they would design a house that worked best for them. Nobody expected them to ask for a laundry room on the same floor as the bedrooms and bathroom, but once they said it, it made perfect sense. Is it sensible to take dirty laundry downstairs to be washed and dried only to have to take it back up again? 2 6   J U LY/A U G U S T 2 0 1 5

A laundry on the first floor was the practical answer to those who would use it most and potentially better sited, it would be more likely to be used by all. So in learning from this research, should we not all explore the innovation that occurs when we start any conversation asking ‘what if?’ In asking, we may ensure the built form enables different ways of living and interacting, making life easier and new ways of being possible. How much more interesting for us all if we knew what people would change in terms of the design and functionality when unconstrained by convention? On a personal level, I have put my money where my mouth is, designing and building my own eco home, which was not informed by the inputs of architects but by investing time thinking about the scenarios central to my life and work.

A different approach At a professional level, our work at The Connectives is based on the idea that for change to occur we need to be uncomfortable with the ‘as

is’ or the status quo. We exist to bring ‘positive disruption’ either with individuals through casual conversation or a more formal coaching setting and with communities, businesses, sectors and policy makers. With all, we use a broad range of expertise and skill to bring about change that yields measurable impact and drives growth in social, economic and environmental value. Innovation does not come from being content with good enough and work arounds, it comes from the tension or the aspiration to improve, learn and achieve. We work as catalysts with others to solve

problems or invent solutions in new ways.

From ideas to reality One good example is our work with mental health youth charity 42nd Street in Manchester, where a simple conversation about what made its work difficult led to a discussion about its building. We discussed how a rent liability could be converted to a capital asset where work flows and people were enriched through the built form, not distressed through it, and from this something very special occurred. Young people used their life


C O MME RCIAL CONS ULTANC Y

The Space has changed understanding of mental health

experience to help change, design and build, all the while answering the question: ‘‘What if the built form better enabled you to do what you want to do and enhanced your mental health and wellbeing?’’ Today, 42nd Street owns a stunning, award-winning building, The Space (pictured), which has significantly strengthened its balance sheet and got many businesses and people talking about mental health. For us, this is positive disruption evidenced. We know we can measure the value of The Space in traditional ways; rent to mortgage, appreciation of assets, skills transferred. But what is even more exciting is to explore how the debate and understanding of mental health changed, how the young people using it see themselves and what they do now that they did not do before. How do you measure the added value that finding a voice and feeling a sense of ownership brings, as well as those things the client and project team take from this initiative? In addition, there is the value that investors and commissioners see in working

and contracting with an asset-owning social business rather than a charity with rent liabilities and lots of effort spent on workarounds. Add in the other impacts including staff feeling valued and improved productivity as the effort to impact ratio improves. Furthermore, people seeing the streetscape improve and a centre prompts a conversation: “How do you feel today? How is your mental health and wellbeing impacted by the spaces you occupy? What if you let your imagination loose in challenging the status quo? What is impossible – really?” So while more traditional measures of success are still relevant, the real measure is whether a building enables its users to function more positively.

Creating curiosity In whatever sector we are working, our aim is to get people curious and energised to seek the benefits of positive disruption. We unlock inspirational ideas and creativity, developing solutions that add value. It is also about ensuring we

remain and encourage others to remain open to learning, even from the most unlikely or unexpected places. Between 2006 to 2011, I chaired the judging panel and compered the Excel Women in Construction Awards ceremony. In my penultimate year in this role, I was pleased to have Professor Li Shirong, the first women president of The Chartered Institute of Building, as our keynote speaker. Professor Shirong was heavily involved in the Beijing Olympics and we were delighted to have a woman in front of us who had made it to the top of her profession. When I was asked to oversee this event for a sixth year, I was left with the dilemma of what else could excite and challenge this audience and the construction industry as we endeavoured to open up the sector further. We invited a keynote speaker from an organisation that built using straw bale technology. In a room full of industry champions I did not anticipate the impact on the audience. A great divide and debate emerged with those who thought this was a crackpot idea to those who said there was something to learn, challenging the givens and accepted norms, creating the condition for change to occur.

Where are you? Our hope is that whatever industry we are in and whatever role we play, as a customer or as a professional, we encourage naïve questions. Thinking differently starts by not always knowing the answers, rather it is about having better questions. It is about challenging the givens and constraints of

conventional wisdom. We must learn from experience and what has worked, but we must use this to shape what else is possible and how ambitious we might be if we really felt the only limitation is our imagination. In this exciting and important property and construction industry, all of us have a part to play in getting people to think about how the built form makes us feel and how it could be modified to enable rather than impede the realisation of peoples’ hopes and dreams. With changing demographics and the many takes on what families look like (including more inter-generational and mixed household living), we need to go beyond simply thinking that housing should look as it always has. When it comes to work and the variety of live/work preferences, many of us have already embraced change. Just look at how many now work from home, and also the cafés bursting full of coffee drinkers tapping on their laptops. Innovation comes about when we see the world differently and do not filter things we don’t know how to do, by thinking they just cannot be done. Join us in asking: “What could be if we did things just a little bit differently?” C Liz Cross is Managing Director at The Connectives liz@theconnectives.com

Related competencies include Strategic real estate consultancy

J U LY/A U G U S T 2 0 1 5   2 7


C RICS P ROP E RT Y JO URN A L

COMMERCIAL INTERNATIONAL VALUATION

Waking the sleeping giant? Georgina Squire looks at the potential impact of the high-profile Titan v Colliers case on commercial property professionals

I

t is the court case that is reverberating around the valuation, lending and commercial mortgagebacked securities (CMBS) markets and looks set to do so for years to come. Colliers International (UK) plc is appealing a Commercial Court judgment that ruled it had negligently overvalued a property in Germany by €32m and was ordered to pay that amount to Titan Europe 2006-3 plc, the issuer of CMBS loans secured against the Karstadt Quelle Nuremberg property in question.

Setting precedents The case is the first of its kind for a number of reasons. It involved the valuation of a huge German retail and office property by UK and German valuers under RICS Red Book principles. The judge, Blair J, was able to reach a decision as to the true value at the operative time, having heard expert evidence from valuers based in both the UK and Germany. Perhaps the most interesting and important point was that the special purpose vehicle Titan, as the issuer in the CMBS structure, was chosen as claimant. There were significant defences raised by Colliers as to whether it was the correct claimant and, more importantly, whether it had suffered any loss. Titan won, as the judge was of the view that it was a proper claimant and had suffered the loss. A number of other CMBS lenders have been following the Titan case closely and were awaiting the outcome before pursuing any similar claims. They are now reviewing their loans and deciding whether similar claims are appropriate.

2 8   J U LY/A U G U S T 2 0 1 5

More to come? Balance sheet lenders may have known about claims but seem to have had little appetite to pursue them before the Titan case result. Claims against professional advisers on loans originated in 2006-07 are still being discovered and there is talk of more being pursued; time has not run out for such claims. Rosling King advised Hatfield Philips International, the special servicer of the loan. The strategy was to inform the court as thoroughly as possible of real estate valuation methodology and the many variables that lie within it. The judge was then armed with all the necessary information and a ‘valuation toolkit’, which enabled him to reach his own measured conclusion as to valuation, as opposed to simply accepting one expert’s calculation over another. A range of lessons are there to be learned and the eyes of valuers have, understandably, been firmly focused on the case. It has endorsed the long recognised principle that valuation is not a science and so valuers are afforded a margin of error. This has been set in previous cases at 5% for a residential property and then upwards for more complex valuations. In Titan, the judge decided on 15%, and may well be said to have set the ceiling on the margin of error. The building that was the subject of the claim was as difficult to value as any and the judge would not contend more than a 15% margin, despite Colliers’ argument for a higher percentage. Whatever the margin, provided the judge decides that no reasonably competent valuer could have valued the subject property at the level of

the original valuation, it will be deemed negligent. The lender will be entitled to the difference between the original valuation and the true valuation at the date of origination as a cap on their recoverable damages. This was €32m in the Titan case. There are also lessons for new CMBS lending. Valuers may look to put caps on their liability or exclusions in their retainers. Attempts are also being made to restrict liability to a multiple of fees. These restrictions may sometimes be effective, but on the whole are not. They need to be negotiated in detail and agreed before they have any chance of biting in the event of a claim. When the market is hot and the deal flow is high, it is inevitable that professionals make mistakes. The surprising thing is that the transaction documentation on complex CMBS structures did not expressly cater for what happens when such a mistake is made. As the volume of CMBS issuance starts to increase, it is important that we have greater clarity in the documentation so that all parties within the structure know what to do and when to do it. The Titan judgment was a sobering moment for commercial property professionals and advisers and the sector will remain on full alert as the implications continue to unfold. C Georgina Squire is Head of Dispute Resolution at Rosling King LLP georgina.squire@rkllp.com

Related competencies include Valuation

Image © Shutterstock


C C O MMER C IA L T RA NS PA RENCY

RI CS P RO PERTY JOUR NAL

Commercial letting agents need to be upfront with start-ups about the cost of business rates, says Matt Kerrigan

Loud and clear

I

In any industry, one tends to become so accustomed to the acronyms and terminology used it is easy forget that to outsiders things are not so straightforward. The financial services industry is one of the worst offenders, with APRs, AERs and ERCs leaving many consumers confused, but the commercial property market is not far behind. This is never more apparent than when dealing with a new business. When searching for commercial property, many start-ups are surprised to learn they must pay business rates in addition to rent. Most non-domestic use properties are subject to business rates, calculated by multiplying the rateable value of the property by an appropriate figure set by the government, but uninformed potential tenants are left baffled and frustrated by this additional tax. Looking at how properties are marketed, they really cannot be blamed. We cannot necessarily take it for granted that would-be

commercial tenants understand the differences from renting a residential property – just as financial companies cannot take it as a given that a customer understands the different between a fixed rate and a tracker. As an industry, commercial letting agents should provide more information at the outset on business rates – what they are, how they are calculated and how to pay.

Rate calculation For new businesses nervous over cash flow in the initial years of trading, the added cost of business rates can be alarming, especially if it arrives unexpectedly. With the standard non-domestic rating multiplier currently set at £0.482 to £1 (rising to £0.493 to £1 for the 2015-16 financial year), this taxation typically equates to almost half of a property’s annual rent. For small businesses, the rate is lowered to £0.471 to £1 (rising to £0.48) but remains an important factor in terms of cash flow and profitability. When browsing for information about business rates online, central government and local authority websites are a good source. For example, Liverpool City Council provides a clearly illustrated guide focused on the calculation of business rates, the authorities involved, Image © iStock

property types exempt or qualifying for discounts, and figures detailing how the cash is retained for local services. Providing transparency and education, such information could usefully extend beyond local authorities and be offered by letting agents who have the expertise to advise clients and occupiers on the technicalities of renting and rates. A simple way is to feature additional information on the property letting details. At Hitchcock Wright & Partners, information about business rates is covered under a dedicated heading. If the property qualifies for relief, this information is also included. While it may be limited information, this assists potential occupiers in deciding whether they are able to afford a particular property. As letting agents, we could perhaps go even further by providing a generic leaflet to include information on business rates for the different property types, such as retail, office and industrial units. Over recent years, there has been widespread criticism from retailers, which believe the rise in online shopping coupled with business rates are the biggest threats to the survival of the high street. In light of this, the government

has allocated funding to local authorities to provide rates relief of up to £1,000 per year to retail premises with a rateable value of less than £50,000 for the 2015-16 financial year. Promotion of incentive schemes such as this would be particularly valuable to new business owners looking to open a shop, café or restaurant, at the same time as providing an extra level of customer service. As recent political activity has affirmed, new businesses and entrepreneurialism is vital to the UK economy and more should be done to make setting up a business as easy as possible. Commercial agents can play their part by ensuring that advertising is as clear and transparent as possible so those people looking to start businesses are able to make educated and informed decisions. C

Matt Kerrigan is Partner at Hitchcock Wright & Partners

Related competencies include Business planning, Local taxation assessment

J U LY/A U G U S T 2 0 1 5   2 9


C RICS P ROP E RT Y JO URN A L

COMMERCIAL GOVER N M E N T P R O P ERT Y

Governments around the world would gain much from consolidating their commercial real estate, suggest Dag Detter and Stefan Fölster

A 21st century Domesday Book

A

family owning a portfolio of properties would not lose sight of what assets they own, its value or how much money it yields each year. A private company failing to publish its financial accounts would face serious legal implications. In many countries, the government is the biggest owner of properties. The Greek central government is often cited as owning almost 100,000 properties and the government of the Ukraine almost a million. Although most of these are now theoretically consolidated under a single management, many properties are still not fully registered, with vital information missing. In fact, despite efforts lasting several years, the National Land Registry in both countries included only a fraction of the total land available, private or public. There is not a single government in the world that can truthfully say it knows exactly what real estate it owns. If property rights are one of the basic pillars of democracy, then surely a national cadastre is the obvious framework and a national land registry

the institutional body for safeguarding these rights. Why is there a deafening silence from the media, capital markets and investors about public commercial assets? Public commercial assets – able to generate an income, if managed properly – are not a trivial wealth segment globally. Their value, not including roads (unless toll roads), national forests or historic buildings, is estimated to exceed $75 trillion (Detter and Fölster, 2015). This is well in excess of global debt. The lion’s share of these assets is real estate. A relevant improvement in yield from these public commercial assets could be used both to finance infrastructure investments and lower taxes.

Uncovering real estate wealth Starting in the 1970s, corporate raiders and the threat of hostile takeovers pressured corporations to monetise their hidden fortunes, including vast real estate portfolios forgotten on their balance sheets. Properties were split off from operations and consolidated in an independent holding company, uncovering considerable wealth as well as making the core operations much more cost efficient.

The US federal government owns more than a quarter of the real estate in the country and some individual states control as much as four-fifths of their land. Along with all this land, the federal government holds buildings with a book value of $1.5 trillion. In addition, state and local government assets amount to four times these federal holdings, or a book value of $6 trillion, according to a cautious estimate by the International Monetary Fund. The US General Accounting Office (GAO), the US government spending watchdog, found that “many federal assets are in an alarming state of deterioration”, noting that the federal government has many assets it does not need. These include billions of dollars’ worth of excess, or vacant buildings. The federal government spends billions of dollars each year maintaining excess facilities in the Departments of Defense, Energy, and Veterans Affairs. Despite being in possession of such wealth, the US federal government is still unable to consolidate and manage the ownership of this wealth segment in a transparent and professional way.

National register A proper consolidation of the government portfolio under a single ownership, creating a national register of its assets would more openly reveal the

3 0   J U LY/A U G U S T 2 0 1 5

market value and potential for alternative use, as any professional private sector asset manager would. Also, with a cost attached to use of public real estate, it would include looking at the use per square metre/feet, energy and maintenance efficiency. Taking a more consolidated perspective on asset management would also allow for centralised procurement of services and goods that would have a substantial effect on the bottom line. The UK, the pioneer among privatisers and perhaps one of the most efficient governments in managing its real estate, publishes the Whole of Government Account (WGA). In this, HM Treasury is aggregating audited accounts of around 4,000 organisations across the public sector to produce a comprehensive, accounts-based picture of the financial position of the UK public sector. WGA is based on International Financial Reporting Standards. The accounts are independently audited by the Comptroller and Auditor General and puts the value of the government’s total assets at £1.3 trillion ($2 trillion), of which 60% is real estate, infrastructure and other property, plant and equipment; and some 40% being trade and other receivables, loans and deposits with banks, and other assets. This value might correspond to around 70% of GDP.


C O MME RCIAL GOV ERNM ENT P ROPERTY

Given that the fragmented ownership of assets in the UK is preventing a proper consolidated central cadastre or register for public assets, the question remains whether the government really has been able to capture all assets owned by governmental bodies, be it central, local or regional? Furthermore, if not centralised and consolidated under a single management responsible for both monitoring and ownership, is the data coherent enough to be able to assess a potential market value? Currently, the Treasury has to ask the various line ministries about their assets in order to be able to assess the portfolio. Furthermore, transparency is mainly focused on operational efficiency instead of value. It is not unlikely that the market value of UK public commercial assets owned by the central government exceeds public debt if properly consolidated and accounted for. Although the UK, along with Sweden, Australia and New Zealand are some of the most transparent countries in the world in terms of their public sector real estate, the various efforts in these countries would not compare well with what is required in the private sector or to professionally manage such a portfolio. In the private sector, it would be self-evident that the portfolio should be brought together under a single holding company, or National Wealth Fund, and professionally managed to realise all the possible cost efficiencies available to a properly incentivised management.

Transparency is mainly focused on operational efficiency instead of value Also, when suitable, the holding company would buy and sell assets to maximise value for the shareholder, as well as to optimise the operational use of the properties – not be subject to fire sales. As with National Wealth Funds such as Temasek in Singapore, ÖIAG in Austria and Solidium in Finland, which manage industrial assets, a number of governments have created specialised holding companies for some of their real estate assets, including Senate in Finland and BIG in Austria, while Temasek to some extent is active in both asset classes. All of these demonstrate an ability to produce a healthy rate of return.

Two models The holding companies for public real estate come mainly in two models – fragmented and consolidated. The fragmented model, represented by Sweden, is where each ministry vests only its own real estate assets into a separate holding company. This has created a number of specialised holding companies in segments such as real estate related to higher education,

railways or the defence segment. The consolidated version, represented by Senate in Finland, is where the central government has consolidated real estate segments from a wide range of ministries in the government under one single holding company. From a financial perspective, the consolidated model is preferable, as the resultant diversity and scale would have two benefits. The scale allows for improved access to and reduced borrowing cost from the international capital markets for financing infrastructure projects or other commercial ventures or assets. Aggregating a previously fragmented portfolio enhances the ability to produce an integrated business plan and create relevant asset classes across ownership boundaries that would not only give flexibility to maximise value and act on any potential divestiture at the individually most advantageous timing, but also reduce transaction cost and operational costs. The main purpose of using a private sector framework is to leverage existing accounting methodologies and corporate structures to improve transparency through a complete register of the assets and an understanding of market value in order to at least enable an assessment of the potential alternative use of each property. Such transparency

is an important ingredient of well functioning democracy. Seen as an enterprise, the government, taxpayers and society would gain from consolidating as much of its commercial real estate under a centralised holding company. This would avoid financial and operational inefficiency through incoherent transparency or suboptimal management. Developing real estate, including selling and acquiring assets and contracting developers, benefits greatly from professional management and a private sector structure able to incentivise the appropriate management to maximise value for the government and society as a whole. In fact, such an approach would also be an excellent way of freeing public resources for more infrastructure investments, which most countries sorely need. C

Dag Detter is Managing Director at Whetstone and former President at Stattum, the Swedish government holding company, and a Director at the Ministry of Industry dag@detterco.com and @DagDetter Stefan Fölster is Director of the Reform Institute and Associate Professor at the Royal Institute of Technology in Stockholm stefan.folster@ reforminstitutet.se and @SFlster

Related competencies include Corporate real estate management, Strategic real estate consultancy

J U LY/A U G U S T 2 0 1 5   3 1


RICS P ROP E RT Y JO URN A L

A DV E RTI S I N G

Everyone’s learning requirements are different Our in house training offers flexible, cost and time effective solutions. All of our scheduled courses can be delivered in house at your business premises at a time that suits you. RICS can deliver in house training on technical, membership or management and business skills to meet your learning objectives.

For more information visit

rics.org/inhousetraining e inhousetraining@rics.org t 020 7695 1613

RICS Recruit Where recruiters go to find the best surveyors in the industry RICS Recruit is the UK’s No. 1 built environment job recruitment board with almost 1,000 active vacancies in the UK and around the world. RICS Recruit is packed full of knowledge and guidance to support your career development.

Find your future job today

@ricsrecruit

RICS Recruit

ricsrecruit.com

To a d ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak@wearesu nday. c om 3 2   J U LY/A U G U S T 2 0 1 5


RICS P ROP E RT Y JO U RN A L

RESIDENTIAL

R

resi den tial J U LY/A U G U S T 2 0 1 5   3 3


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L B U I L D TO R E N T

Changing the way the UK rents

O

Kurt Mueller argues the case for build to rent

One defining characteristic of the UK housing market is its enduring lack of supply. Every year, the problem is compounded as household demand grows and housebuilding fails to keep pace. Between 120,000 and 150,000 new homes have been built annually, yet demand has been growing at 200,000-250,000 new units a year. Everyone agrees the UK must build more homes. This consensus has spread far and wide, even including the ‘not in my back yard’ contingent. Every major political party admits the need for more housing stock. It would be too much to hope that they would agree on how this will be achieved, but at least they are acknowledging the requirement. In parallel, a number of other seismic shifts are underway in the housing market. One of the starker and arguably more durable shifts is the change in tenures.

Shifting tenures From being the smallest tenure sector only a few years ago, private renting recently became the second largest in the UK after owner occupation, providing homes for more than four million households. Growth in the sector is set to 3 4   J U LY/A U G U S T 2 0 1 5

continue, with Savills predicting a 20% increase in just the next five years. This growth is not a new phenomenon. It was not sparked by the recent financial crisis and the constraints placed on mortgage lending; the tenure has been growing since the turn of the 21st century. Of course, private renting accelerated as a result of the financial crisis and constraints on mortgages, but it remained steady and established well before 2008-09. The underlying cause of this move away from owner occupation and into private renting is due to a cultural shift, rather than a specific one-off economic/financial event. The millennial generation displays distinct behavioural and cultural differences to their parents in terms of lifestyle, spending patterns and key life pathways. They prefer not to settle down as early, want to take more holidays and own the latest mobile phone or gadget; they change jobs more frequently, marry and start families later in life, as Census data confirms.

The social trends taking place among the UK’s millennial generation mean they are using the built environment differently, including housing. Importantly, while they still desire to own a home at some point, they are doing so later in life and are renting for longer. These merging social trends and their effect on the built environment are set out in Tomorrow’s home by Lily Berheimer (http://bit.ly/1Ez2EDS).

Investor appetite The unrelenting growth in demand for private renting has piqued the interest of politicians, media and global institutional investors, such as pension and sovereign wealth funds. There is an opportunity to supply both more homes in the UK and a new type of rental property. Unlike mainland Europe and North America, the UK private rented sector (PRS) does not always offer tenants good value for money, nor does it traditionally offer large investors a quality investment. According to DCLG Private

Grainger plc Grainger plc is the UK’s largest listed residential property owner and manager, with around £3.2bn of residential assets under management across the UK and Germany. Established in 1912, it is an FTSE 250 publicly quoted company, listed on the London Stock Exchange and recognised for its corporate responsibility credentials by its listing on the FTSE4Good index. Grainger was awarded the UK’s Residential Asset Manager of the Year at the RESI Awards in 2012, 2013 and 2014.

Images © Grainger

Landlords Survey 2010 (http://bit.ly/1Dk59Tr): bb 78% of landlords own only a single dwelling for rent bb only 8% of landlords are full-time bb less than 1% of landlords own a large portfolio of more than 100 dwellings. In the US and Germany, institutional ownership in the PRS is around 13% and 17% respectively. The untapped nature of the UK PRS, coupled with the steady growth in demand, creates a very attractive opportunity for investors. Combine this with a political consensus that supports an increase in housing supply and you have one of the hottest real estate asset classes for investors worldwide.

The case for build to rent While global investors start circling the UK PRS, many have begun to find a fairly


R ESIDE NTIAL BUI LD TO R ENT

m Abbeville Apartments are designed specifically for renting

significant barrier: there is nothing to invest in. After decades of a two-tier housing system catering primarily for owner occupiers and the social housing sector, the UK’s housing stock is ill-suited for those wishing to live in private rental accommodation. The solution is to build the right type of housing from scratch. Otherwise known as build to rent, the concept is in its infancy in the UK, but well known in the US. Unsurprisingly, there is cross-party support for the establishment of build to rent as a professional sector, backed by institutional investors. During the last Parliament, the coalition government introduced a number of schemes to support the growth of the PRS. The first was a £1bn Build to Rent programme, which is reportedly on track to create up to 10,000 new homes specifically for private rent. In addition, it established the PRS

Guarantee Scheme, offering £3.5bn worth of guarantees to finance investment in new privately rented homes.

The proposition Build to rent differs from the traditional PRS offering over the past few decades. Developers and investors undertaking such projects are employing new and innovative design techniques, many of which tear up traditionalist thinking, beginning instead with renters in mind. As part of the design process, the questions to be asked are: “Where will our tenants be working? How old will they be? What will they do in their spare time? What is their marital status and where do their friends and families live?” Armed with the answers, developers, investors and architects can better understand their future customers and reflect their needs into their new residential buildings. This could

take the shape of increased storage space, perhaps a rooftop terrace or a residents’ lounge, a fitness studio, café, communal garden or a concierge service. Such features can be seen as frivolous or costly, but if effectively applied, they become commercially savvy. They are aimed at improving returns by attracting more customers, commanding higher rents and securing tenants for longer. In financial speak, it is about maximising initial gross yield, reducing management costs, the gross to net yield leakage and reducing voids. There is even the potential to add revenue streams from paid-for ancillary services if the target customer group is right.

Making it a reality Grainger’s build to rent Abbeville Apartments development, in Barking, Essex, is one of the first in the UK designed specifically for renting. With customer needs leading the design, the 100 apartments (one, two and three-bedroom) all have double-sized bedrooms, lots of storage and appealing communal features such as a residents’ lounge,

fitness studio, green space and a loading bay. All apartments come with an optional furniture package. At no added cost, they include a balcony, free WiFi from day one, DAB radio sockets, FreeSAT, and are Sky TV-ready. Residents have concierge services, bike storage, car parking and added security with CCTV and video entry systems. The building is located next to a supermarket and a five-minute walk from Barking station, with rail and underground links to the City and Canary Wharf. Grainger has applied its long-term investment approach to this building. It offers flexible, long-term tenancies (up to three years) and transparent fees. Residents will deal directly with Grainger, the landlord. The building has a dedicated property management, maintenance and repairs team, and will have an online tenant portal where occupants can communicate directly with their building manager and store all the information they need for living in the building. Emerging social trends mean that private renting will continue to be an important and growing part of the UK housing market. Build to rent provides appropriate housing, giving customers greater value for money, choice and quality. It is also part of the solution to addressing the UK’s housing shortage. R

More information > www.graingerplc.co.uk

Kurt Mueller is Director of Corporate Affairs at Grainger plc kmueller@graingerplc.co.uk

Related competencies include Housing strategy and provision, Investment management, Property finance and funding

J U LY/A U G U S T 2 0 1 5 3 5


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L T EN AN C Y D EP O S I TS

T

An improving situation

Robert Mullarkey explains the current situation regarding tenancy deposits he law of tenancy deposits has caused headaches for landlords and agents since its introduction in the Housing Act 2004 (HA 2004). Unexpected decisions and changes in later legislation intended to reverse them have meant that the law surrounding this area has altered significantly since it came into effect. Since 6 April 2007, a landlord or letting agent who receives a deposit in relation to an assured shorthold tenancy (AST) must protect it in an authorised scheme. Chapter 4 of the Act sets out the requirements relating to tenancy deposits (section 213) and sanctions for noncompliance (sections 214 and 215). Failure to protect a tenancy deposit and serve the ‘relevant person’ with the prescribed information (PI) holds both practical and financial penalties. If the landlord or agent has not complied with the initial requirements of the scheme, then a valid section 21 notice cannot be served; the tenant can claim for the return of the deposit plus the equivalent of one to three times the original sum.

Localism Act 2011 This amended the HA 2004. The changes meant that a tenancy ‘in effect’ on or after 6 April 2012 also fell within the remit of 3 6   J U LY/A U G U S T 2 0 1 5

the HA 2004, which allowed a grace period for non-compliant landlords to protect the tenancy deposit within 30 days.

Court tests The decision in Superstrike v Rodrigues clarified the position on deposits taken before the legislation came into effect. It held that landlords must serve PI on tenants and relevant persons on every renewal and when the tenancy becomes periodic. This has had long-term effects and left many landlords and agents in breach of the requirements for past renewals, potentially facing multiple financial claims. The Court of Appeal decision in Charalambous v Ng surprised both landlords and lawyers. Previously, it was thought that a tenancy deposit taken prior to the legislation coming into effect was not captured in the HA 2004; the Court of Appeal decided that this was not the case, distinguishing between the financial penalties under section 214 and the practical ones in section 215. It was held that if a deposit taken prior to 2007 was not protected in an authorised scheme, the landlord could not serve a valid section 21 notice until the deposit was either returned in full or protected. The court made it clear that in this situation a landlord would not be liable for the financial penalties under section 214.

Deregulation Act 2015 This introduces the most recent change on tenancy deposit protection. The Deregulation Act aims to address uncertainty in the legislation and compounded by recent court decisions. Image © Shutterstock


R ESIDE NTIAL T ENA NCY DEPO SITS

Section 31 inserts new section 215A to 215B into the HA 2004. If a deposit was taken for a tenancy commencing before April 2007 and it becomes a periodic tenancy after that date, the landlord has 90 days from the amendments coming into force to protect the deposit and serve the relevant PI. In this case, it will be as if it was always served and the risk of a Superstrike-like claim will be averted. If a deposit was taken after April 2007 and protected and the PI properly served at some stage during the tenancy, then it will be deemed to have been served on every renewal. These amendments are effectively retroactive so any court proceedings relating to these situations will therefore be terminated when the provisions come into force. The second amendment clarifies the Court of Appeal decision in Charalambous. Despite the UK government taking the view that this was not what was intended, it has left the situation unchanged and codified Charalambous into the Act. Where a deposit is taken prior to April 2007 and the tenancy becomes periodic before that date, it must be protected prior to serving a valid section 21 notice, thus the landlord will not be liable for the financial penalties under section 215. The positive aspect is that all AST deposits will now need to be protected, removing lingering uncertainty and sending a clearer message to the industry. The final change is to the PI structure. The Act has amended this so that it is now clear that where the PI says the landlord’s information must be given, then giving the details of an agent

who protected the deposit for the landlord at the outset is also acceptable. In relation to current or ongoing claims, these changes also have an element of retroactivity in that they accept that previous provision of an agent’s details will be acceptable. Although not resolving every issue with tenancy deposits, these changes do lead to clear improvements. However, it is unlikely that the courts or Parliament will have seen the last of tenancy deposit protection.R

More information > Housing Act 2004: http://bit.ly/1Bs3Hkz Localism Act 2011 overview: http://bit.ly/1Ex3Nek

Robert Mullarkey is Housing Paralegal at Anthony Gold Solicitors robertmullarkey@anthonygold.co.uk

Related competencies include Housing strategy and provision, Investment management, Property finance and funding

CDM Regulations 2015

C

Homeowners looking to engage contractors need to be aware of changes to the Construction (Design & Management) Regulations 2015 (CDM), which came into force on 6 April

CDM aims to reduce accidents during construction projects through good design, planning and cooperation from concept to completion and ultimately decommissioning. It also specifies legal requirements on site safety standards and the provision of welfare facilities such as access to toilets. The full scope of

the updated regulations includes construction work carried out for homeowners who will live in the property after completion. Builders now have to create a construction phase safety plan for all domestic and commercial projects, which have to meet the same basic standards for the provision of welfare facilities. A health and safety file must be presented when work finishes on any domestic projects finishing after 6 April 2015, where there has been more than one contractor. This should include ‘as-built’ drawings or specifications of components that have been installed.

Conveyancing solicitors are likely to request this when property is bought and sold. For homeowners, CDM duties are passed to the contractor or the principal contractor if there is more than one. In this case, a principal designer must also be appointed to co-ordinate all health and safety matters. If the

principal designer is not engaged to the end of the project, responsibility for the file may rest with the principal contractor. R

More information > Managing health and safety in construction: guidance on regulations http://bit.ly/1BOOhVU

Related competencies include Health and safety, Housing maintenance, Repair and improvement, Property management

J U LY/A U G U S T 2 0 1 5 3 7


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L B U I L D I N G PAT HO LO GY

Michael Parrett looks at problems caused by high local water tables and flooding

Causes, effects and solutions

W

ater tables, substrata and flooding are inextricably linked. The effect of water tables depends on the substrata beneath a building and there can be huge variations in levels, for example, low water tables at the bottom of a valley and high perched water tables at the top of a hill. And while clay is highly impermeable to water, gravel beds are highly permeable and can allow rapid rises in water tables. An example of the link between water tables and flooding was in Carlisle in January 2005. Flooding caused £250m of damage, costing £38m to rectify. The main contributor was 175mm of rain falling in 36 hours over the high ground of the nearby Lake District and Pennines. The surrounding ground became saturated and the water table rose and could not drain away. Continued rainfall caused a vast volume of water to drain into the River Eden, on which Carlisle is situated.

Man-made factors Deindustrialisation and the withdrawal of human intervention can cause flooding. Around Nottingham, for example, coal mines have largely been closed, leading to much lower water extraction from aquifers. Water tables have therefore risen to create increased flooding risks at local and district levels. There was widespread flooding in Nottingham in 2000 after the River Trent burst its banks causing extensive damage, which cost more than £45m to rectify. The city’s Left Bank project was 3 8   J U LY/A U G U S T 2 0 1 5

completed in 2012 to reduce the risk of flooding to 16,000 homes and businesses along a 27km stretch of the river, which includes new flood barriers along vulnerable stretches. Another cause of flooding could be poor maintenance of underground water mains, which have corroded over time and leaked into the ground. I know of a basement workshop studio that began filling with water during a period of heavy and prolonged rainfall because its cementitious waterproofing protection failed. This was put under pressure because of a rise in the water table in the surrounding ground and an escape from a burst underground water main. The British Standard BS 8102:2009 suggests that with full-height structures below ground or full-height earth-retaining walls, the surrounding water table could reach approximately two-thirds of the height of the structure. This is useful guidance for designers when constructing below ground or retrofitting basement waterproofing to existing structures. Water mains supplying properties near railway lines often corrode much more quickly because an electrical discharge ‘earths’ onto metallic elements in the ground, which eventually leads to perforation of the pipes. Many Victorian and Edwardian properties had lead water mains routed under the timber suspended floor from the front of the property through to the rear kitchen. I have found many incidents of water escape from these old main supplies, which have often been confused with rising damp caused by a failed damp-proof course (DPC). Images © Michael Parrett

1 k1 Black mould on external walls where damp had been caused by replacing the original timber suspended flooring with a solid floor. A localised excavation found the floor had been laid without any damp-proof membrane

3

n3 Area of solid floor prone to internal flooding. A section of screed was removed to examine the make-up of the floor. This rapidly filled with ground water due to a high local water table and failure of the internal waterproofing

Concrete and hard surfaces New commercial or industrial developments are usually accompanied by copious amounts of concrete and tarmac. If this happens on a previously well-drained site, then water will just be displaced elsewhere. This issue is considered in detail in CIRIA’s 2007 SuDS manual, which contains best practice guidance on planning, designing, constructing, operating and maintaining sustainable


R ESIDE NTIAL BUI LDI NG PAT HO LO G Y

l2 Pattern of internal

flooding caused by a rise in the local water table following sustained and heavy rainfall

2

drainage systems. These are water-management practices and facilities designed to drain surface water in a slow sustainable way, e.g. using ponds with reed beds to encourage transpiration and underground water surge balancing tanks, rather than routing directly to a watercourse. I found an example of this displacement during work for Hong Kong’s Antiquities and Monuments Office while surveying an ancestral

home of the Tsang family from the Qing dynasty. Several high-rise apartments had been built nearby, as had the new Canton Railway into China. The additional concrete in the ground from these developments had caused the water table to rise and completely cover the ground floor of the 19th century building. The best way to preserve the building was to recommend dismantling and reconstructing it on a raised platform so the water just flowed underneath, similar to a storm drain. The alternative, which was neither sustainable nor energy efficient, was an underground substation to pump the water away. Another case I investigated was in Surrey with some newbuild properties in an area containing typical 1930s properties with semi-circular bays, cavity walls and timber suspended floors. Soon after the newbuild completion, damp was found in the 1930s houses and we discovered the timber suspended floors were full of water, with condensate dripping off the underside of the floorboards and joists. Airborne moisture was also wicking into the walls, giving the illusion of a failed DPC. It transpired the builder had gone bankrupt before the development was completed, and had not installed a dewatering substation as part of an agreed water table attenuation scheme. This caused localised flooding to properties.

Properly designed attenuation schemes can help manage the water table As a pumping substation would take time to install, we laid perforated pipes in external trenches in an attempt to drain off the water, but this was futile. We had to install sumps with mains and batterypowered self-priming pumps underneath the suspended floors to continuously siphon into the existing drainage system to keep the water table from rising above oversight level below the timber suspended floor. Some residents replaced their timber suspended floors with solid concrete, but this did not address the issue of a high water table and just pushed the water elsewhere. Their damp problems were exacerbated because the damp-proof membranes in the solid floors were never properly interleafed into the existing horizontal DPC in the walls so moisture was easily pushed up around the perimeter of the floor into the walls. These examples illustrate the risks of increasing the density of J U LY/A U G U S T 2 0 1 5 3 9

n


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L B U I L D I N G PAT HO LO GY

A holistic approach

n buildings in areas without fully considering their impact on the water table and associated properties.

Warning signs Timber suspended floors and cellars may show signs of excessive hydration, e.g. water marks on walls and timbers. A water table pushing up under a suspended floor would so hydrate the subfloor area that the timber flooring and skirtings will absorb moisture. Older properties in which timber skirtings are set off the wall on timber ‘soldiers’ have a void where moisture can condensate and wick up into the plaster, giving the illusion of rising damp, or a missing or failed DPC.

What can be done? Properly designed attenuation schemes can help to manage the water table and/or surface water flooding to minimise or eliminate collateral damage to property, but these can be complex and expensive, as evidenced in Carlisle and Nottingham. Even in areas less prone to flooding, a fluctuating water table can still be problematical for ground-floor areas and basements in buildings. Consider excavating trenches to install perforated drainage pipes that are either connected into the existing underground drainage system, or led to soakaways some distance from the property, as a means of attenuating and managing water levels in the ground. Typically, perforated drainage pipes would be set below ground at the base of walls at the toe or top edge of the foundation or basement slab level to prevent the water table rising higher in the ground. Narrow trenches can also be dug and backfilled with washed gravel or pea shingle to encourage better drainage around a building and perimeter channels can be installed at least 150mm below the height of the physical horizontal DPC. These avoid bridging the DPC and encourage any excess rainwater to drain away into the existing drainage system. In rural areas, ditches or dykes are often dug to drain the land and alleviate flooding from water tables and periods of intense rainfall. External abutting ground levels should be kept at least 150mm below a DPC or 200-250mm below the internal finished floor level. The most important aspect is 4 0   J U LY/A U G U S T 2 0 1 5

Even in areas less prone to flooding, a fluctuating water table can still be problematical for ground-floor areas and basements to reduce the amount of additional hard surfaces introduced around a building, e.g. driveways, concrete hardstands and solid patios. Think about draining the land in the spirit of the SuDS manual. If a solid floor gives high moisture readings from electrical resistance or capacitance meters, use a floor hygrometer to measure how much moisture is being exuded. If the relative humidity is consistently above 75%, suspect either a missing or impaired damp-proof membrane. Should solid floors exhibit relative humidity in excess of 80%, the next step would be to recommend a localised excavation of the solid floor to determine the existence of any damp-proof membrane and then carry out appropriate remediation works to repair or renew.

Information sources The Environment Agency website has interactive maps showing flooding predictions by location. Local authorities, neighbours, builders and shopkeepers are also good sources of information about flooding events in the area. The British Geological Survey has an app that uses GPS coordinates to give details about the substrata under a location. Insurers can advise on areas prone to regular flooding because this would be reflected in premiums charged or, in extreme cases, cover being declined due to a perceived high risk or past history. Groundwater monitoring is increasingly important to understand the flood risks to proposed newbuilds or redevelopments. The British Standards for site investigations and geotechnical investigations and testing require groundwater levels to be monitored for 12 months, but this is rarely done.

The spirit of the Victorian ‘three-foot rule’, which aimed to reduce the density of buildings by maintaining a gap between them, is now long forgotten with today’s trend for high-density building. But a lack of intelligent and considered site investigations may have consequences for nearby properties, neighbourhoods, districts and towns. So if damp is found during a survey, do not just look at the property; consider its environment. Understand what has happened in the past, look for any nearby newbuilds, speak to residents and neighbours, because several factors can cause a damp problem. R The next article will cover physical blockages under suspended floors and blocked external vents to ground floors.

More information > Approved Document C of the Building Regulations 2004 + amendments 2010 and 2013 The SuDS manual (C697), CIRIA http://bit.ly/1bAblkV BS 8102:2009 Code of practice for protection of below ground structures against water from the ground http://bit.ly/1LcNzr8 BS 8203:2001+A1:2009 Code of practice for installation of resilient floor coverings http://bit.ly/1EPZ6bO BS5930:1999 +A2:2010 Code of practice for site investigations Geotechnical investigation and testing standards BS EN ISO 22476:2012 and BS EN ISO 22282:2012 BRE good repair guides http://bit.ly/17qkObt Diagnosing damp Ralph Burkinshaw and Mike Parrett http://bit.ly/1G2tEsb Mike Parrett’s guide to building pathology http://bit.ly/1zeIO7X

Michael Parrett is a Building Pathologist, Chartered Building Surveyor and Founder of Michael Parrett Associates. He is an Eminent Fellow of RICS info@dampbuster.com www.michaelparrett.co.uk

Related competencies include Inspection, Building pathology, Environmental assessment


Are you looking to turn the heat up on your career this summer? Talk to Capstone Property Recruitment today The Real Estate Division at Capstone Property Recruitment exclusively services the built environment covering funding, investment, surveying and asset management. All of our consultants within the General Practice team are ex-industry and have the knowledge and expertise to offer tailored professional advice on your career. Meet the team

Rob Johnston Senior Consultant r.johnston@capstone-recruitment.com

Alex Bowman Freelance Division a.bowman@capstone-recruitment.com

Daniah Williams MRICS FNARA Senior Consultant daniah@capstone-recruitment.com

Emma Merrick Building Surveying Consultant e.merrick@capstone-recruitment.com

James Burton Consultant j.burton@capstone-recruitment.com

For all Cost Management and Project Management opportunities please call Matt Cary and Rob Joslin respectively. Contact our team on 0203 757 5000

www.capstone-recruitment.com


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L GEO M AT I C S M EAS U R EM ENT

Getting the measure of guidance

T

An important new guidance note places the relationship between client and surveyor at the heart of the contract, reports James Kavanagh

The ‘purpose’ of the measured survey as the driver of everything that follows from methodology to output is the highlight of the new RICS Measured surveys of land, buildings and utilities, and is the key question to be answered during that critical first meeting between surveyor and client. The long-awaited revision of the industry standard is arguably the finest piece of geomatics guidance to be produced by RICS in many years and of which RICS Geomatics can be justifiably proud. The publication represents a complete root and branch review and supersedes Surveys of land, buildings and utility services at scales of 1:500 and larger, published in 1986 and updated in 1996.

A different world It became clear that a specification in 2014 would have to cater for many more complex survey products than was the case in 1996, when point clouds did not exist and ground-penetrating radar for detection of underground utilities was a luxury rather than the necessity it is today. As with its predecessors, the new document is a product specification, not a methodology, but the edition includes numerous panels of recommended good practice and explanatory notes. Intended as a core document, it includes a section for project administrative details, survey accuracy (covering control surveying and the relationship between control and detail surveying), topographical surveys, measured building surveys and 4 2   J U LY/A U G U S T 2 0 1 5

underground utility surveys, written to conform to the recently launched UK PAS128. One of the primary changes and a central element of the new edition is the use of a survey detail accuracy band table, which takes into consideration client requirements for scale independent metadata and digital data handling environments (see Table 1). The table classifies surveys into accuracy bands A to J, features 1 and 2 sigma plan and height accuracy figures and minimum feature size as related to legacy scale. As such, it has enormous potential for client education and in explaining the relationship between scale, accuracy, feature size and methodology, as well as being applicable internationally. The banding table is contained in the in-depth section 2 Survey accuracy, control, coordinate grid and datum, which focuses on the need to retain classical survey best practice principles. The new edition emphasises the importance of measurement good practice and will hopefully stand the test of time. It need not be connected directly to specific survey technologies or methods and can be applied generally to underpin survey products and services. This is considered particularly important in light of the growth of building information modelling (BIM) and its wider application to the built environment. Measured building survey has an enhanced section of extended output and feature tables. Topographic survey also gets a similar enhanced section. Utility, setting out and monitoring/deformation survey sections are also included. Another new concept is the use of BIM (or more accurately Survey for BIM) as an output. The importance of ‘output’ within the context of measured survey is underlined and an extensive ‘deliverables’ section is also featured. It is hoped that the new edition will provide a reference document that supports downstream survey data users as well as enhanced collaboration processes

such as BIM. Another change is the integration of the feature detail annexes into the main specification document according to survey application. This underlines that decisions on what to include in the measured survey are critical to the success of any project relying on survey information. It is hoped this will further complement the concept of level of detail (LOD) and standardisation of metadata to support BIM among other design, build, maintain and operate (life cycle) processes. This document is intended to provide guidance only and is not intended to be incorporated verbatim into the text of individual contracts. In particular, it requires choices to be selected throughout, thus making alternative choices inapplicable. Users are free to select the parts that are relevant to them. However, the value of this specification is its structure, which will become familiar to clients and surveyors. Users should therefore ensure that they retain the order of clauses within their documents and acknowledge RICS as source where used.

Customise and use The new edition provides one document that includes the core specification and specifications for common surveying products. The specification is intended to be customised and can also be converted into a Microsoft Word document. It is advisable to keep the section and paragraph numbering as in the master document as this will help clients and surveyors to get accustomed to the layout and enable the survey requirements to be related to the notes and recommended practice. For example, if you are procuring a monitoring survey you will need sections 1 and 2; you might need the topographical survey section 3 but will not need sections 4, 5 or 6. The notes and recommended good practice boxes can be removed and instead referred to by means of a note at the beginning of the specification, directing


R ESIDE NTIAL GEOM AT I CS M EAS UR EMENT

Table 1: Survey detail accuracy band table

See section 2.3.1 and multiply by 2 for 2 sigma values. 1

Example survey types/ uses: The table includes examples for users of the types of survey and plot scale output that may be suitable for different accuracies. However, this is not an exhaustive list of examples nor fixed to each band. 2

Legacy plot scale output: – This has been included for the benefit of previous users of this document to understand the historical requirements for plot scale relate 3

Add more customised rows if required

4

the reader to the master specification. The client then has to write a survey brief, which will be much shorter than the full document. Most clients will order particular types of survey and would be well advised to produce a customised version for their use. Further sections could be added to the specification for specialised survey applications. Items of best practice have been absorbed into the survey brief, not as explanatory notes on the left-hand pages, as was the case with the second edition, but within the text. A standard data specification is unfinished business. It is expected that as the requirements for BIM become more certain, this specification will be updated to reflect new developments. However, the introduction of accuracy banding, clarity on grids and transformations and survey outputs should

provide a solid foundation for surveying to underpin the continued improvement of the built environment, virtually and physically. This is a modern specification for a modern survey era and will raise standards across the industry by promoting and using it to educate and assist clients. RICS believes that engineers, architects, planners, developers and other related professions will also find it essential for understanding and specifying the measured surveys that they require. The edition has been endorsed by both The Survey Association and the Chartered Institution of Civil Engineering Surveyors. But the key message from this document is that a good, agreed and fit-for-purpose measured survey specification de-risks a project and must be seen as an essential element by clients. R

More information Measured surveys of land, buildings and utilities 3rd edition guidance and specification 2014 can be downloaded from www.rics.org/measuredsurveys

James Kavanagh MRICS is Director of the RICS Land Group jkavanagh@rics.org

Related competencies include Measurement of land and property, Engineering surveying, Geodesy

J U LY/A U G U S T 2 0 1 5 4 3


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L DRONES

Roy Emmerson discusses the benefit of using drones

D

A future opportunity? Required procedures

During their careers, a question frequently facing surveyors and builders is: “How do we get to inspect that?” It was also a problem encountered by building contractor Mike Szkoda and me, a chartered building surveyor. The answer at that time was a very expensive cherry picker. However, our interest was piqued and after detailed research and enquiries, we developed the concept of using an unmanned aerial vehicle with a camera and our company HeliDrone Surveys was born. This was not a new idea, but one with very limited use in the surveying profession at that time. It soon became apparent that there are stringent rules and regulations when flying for commercial gain. The Civil Aviation Authority (CAA) requires minimum standards for pilots, involving a theory examination, a practical flying test and approval of an organisation’s operations manual. All this can be very daunting. 4 4   J U LY/A U G U S T 2 0 1 5

Prior to visiting a property, we produce standard risk assessments and method statements, which are then reviewed and amended as necessary before we contact air traffic control for approval. Without stating the obvious, we also have a sizeable public liability insurance cover. On arrival, we establish our safe zone together with a secondary zone, run through pre-flight procedures and then start the drone, allowing it to establish its GPS location. This is very important because in the event of a problem, it will come ‘home’.

Pros and cons In our opinion, the advantages of drones far outweigh the disadvantages. Dealing with the latter first, it is not advisable to fly a drone in strong or gusting winds. Despite their GPS technology, they can be pushed off course and if they strike a tree or building, you could be looking at a replacement or worse. Heavy rain also causes the photographic images to blur. But put bluntly, how many of us would want to stand in a cherry picker carrying out a survey in heavy rain or strong wind? The advantages of the drone are: bb A much reduced health and safety risk: there are no people or plant up in the air, only a vehicle with inbuilt safety features including battery power monitor,

come-home locator and kill switch. If operated correctly, the drone knows the location from where it took off and if the battery runs low, it ignores all external commands and comes home; equally, a switch on the control panel achieves the same function. bb Minimal disruption: the pilot only requires a clear line of sight of where the drone is flying and can operate it from a distance of 400m. Therefore, unlike a cherry picker or scaffolding that may obstruct an entrance or occupy parking spaces, a safe zone can be established away from the building. bb Better quality images: a drone-mounted camera takes photographs at predetermined intervals (ranging from one to 30 seconds) together with continuous film footage. Images © HeliDrone Surveys Limited

There are very stringent rules and regulations when flying for commercial gain The images are very high resolution, enabling the viewer to zoom in and see a high level of detail. They can also be issued electronically within a few hours of the survey or if required, downloaded onto a USB while still on site. bb Reduced survey time: compared to cherry pickers or scaffolding, the drone can be set up and ready to fly in approximately 20 minutes.


R ESIDE NTIAL D R O NES

mA drone survey allowed inaccessible areas of Spains Hall, Finchingfield, to be inspected

The usual flight operation is 30 minutes and covers a very large area. Because it flies in different directions over the target building, images are obtained from various angles. bb Environmentally friendly: because they are operated by rechargeable batteries, drones do not generate any fumes. The only potential disturbance is the whirring of the rotors. bb Access: in some circumstances, it may not be physically possible to use a cherry picker or scaffolding to reach a roof or high-level elevation due to access or weight constraints, which could result in very high costs. The costs of using a drone are fairly low, they are carried in a case that is easily accommodated on public transport and only need an area of around 4m x 4m to be set up.

Benefits for surveyors During the survey, the surveyor will be given a remote monitor allowing a drone’s-eye view of the building. They can direct the flight path or request more time in the event of unforeseen elements that are only visible once the drone begins flying. The monitor works over quite a distance, giving the additional advantage that they can remain in the warm while the pilot is outside. Numerous people, e.g. clients and occupiers, can view the monitor at any one time. It is very easy to reassemble the drone at another property, perhaps just around the corner or a few miles up the road. We always travel with spare batteries; the more surveys that can be carried out on a single visit, the more financially beneficial it is for the client.

The feedback on the use of drones has seen some surveyors immediately excited by the new technology, while others were sceptical about the potential results and advantages. When given the opportunity, we hope we have proved the sceptics wrong. We initially launched HeliDrone Surveys at the RICS Dilapidations Conference 2014 and the interest shown was amazing, with surveyors all keen to find out its capabilities. The same was experienced at the RICS Building Surveyors Conference 2015.

Since the organisation was granted permission for aerial work by the CAA, it has undertaken numerous surveys nationwide, ranging from large industrial facilities to small city-centre terraced houses. We are getting repeat instructions from surveyors, and although the initial aim was to photograph, be it roofs or elevations, we are now receiving more complex and varied requests. The possibilities are probably only limited by imagination. Unfortunately, unqualified people are using drones to the detriment of the many responsible pilots, resulting in bad reviews that are not reflective of the industry. Use of drones is relatively new and existing regulations are being reviewed and adapted. Other than the CAA, there are various forums and groups (we belong to the Association of Remotely Piloted Aircraft Systems UK), which are all striving to make drone use more accepted while maintaining safety standards.R

More information > www.helidronesurveys.co.uk Should you pursue drone technology? http://bit.ly/1JYwMct

Roy Emmerson MRICS is Director at HeliDrone Surveys info@helidronesurveys.co.uk

Related competencies include Inspection, Building pathology

J U LY/A U G U S T 2 0 1 5 4 5


R RICS P ROP E RT Y JO URN A L

R E S I D E N TI A L ESTAT E AG EN C Y

Ashley Stewart-Noble outlines the advantages of a digital presence

Are you moving with the times?

C

ommerce is now digital; a big statement, but it is the reality. Despite this, recent reports have highlighted that many estate agents have little or no web presence, preferring to rely on the giants of the industry to do the legwork. If your clients are online, then why aren’t you? Your digital presence does not have to be a full ‘bells-and-whistles’ website. We are all governed by economies of scale and your site could simply show your contact details, or be a fuller representation of your work and the properties on your books. However you decide to develop your online presence, here are some tips to help you build something meaningful.

Know your audience A house is likely to be the biggest single purchase consumers make and your online presence will encourage buyers and sellers to contact you. Convoluted language is a huge turn off. Keep sentences short, do not use jargon and avoid abbreviations. The property market can be confusing for the uninitiated, so give clear instructions. Use active verbs and sentences to keep your copy trim and your message clear to convey a sense of ownership and responsibility to your clients. You want to come across as approachable and authoritative; use ‘we’ and ‘you’ to help overcome the ‘us’ and ‘them’ divide. Using plain English allows the information to be more easily understood by the reader and gives a more friendly tone than bureaucratic language. 4 6   J U LY/A U G U S T 2 0 1 5

Stay in touch Make sure your contact information is clearly visible and accessible from all your pages. The biggest source of user complaint on any website is the difficulty in contacting companies. Not having upfront information creates frustration, distrust and annoyance among your clients. Consider setting up an auto-response from your email that acknowledges the client’s communication, sets a timeframe for a response and details your office hours. Then deliver on the promise you made. Some people find interacting with agents daunting. Unfortunately, the reputation of a few taints the image of many, so consider using live chat functionality. This onsite messenger service is an easy-to-implement tool that engages your audience in a non-confrontational way. It can be switched off when you are out of the office.

Bring personality to the mix The internet is an impersonal and often desolate place, so putting a face to your business will immediately establish a relationship with your clients. Remember you want to appear authoritative and approachable – plain, instructional language addresses the former, a picture and small biography the latter. Many of your clients naturally feel anxious when buying or selling their property. When they are deciding which organisation to approach, the chances are they are going to choose the agency with a face and personality. You should add this personality to the services you offer. We have all seen staff recommendations in bookshops and off-licences; the same principle can be Image © Shutterstock

n A website can enhance your High Street presence applied to the property market. Using your name, annotate each property with notes on why you like it, the key features and selling points. This brings legitimacy to your practice – you are putting your weight behind your services. Sellers feel they are getting value for money, while buyers feel you are invested in the property you are selling.

Say it with pictures Photographs are your greatest asset when promoting your practice and selling your products. Prospective homebuyers want to see what the price includes. How can they imagine their life in a space if they have no visual reference? The camera on your smartphone can be as powerful as a digital camera. This means your mobile device is a valuable tool for capturing images for your site. Here are the rules: bb The rule of thirds: imagine that the picture you are taking is split into nine equal parts by two equally spaced horizontal lines and two equally spaced vertical lines. The most important aspect of your picture should be placed along these lines or their intersections. bb Hold the phone as you would a camera: grasp your phone with both hands to ensure you get a steady shot. If possible, place it on a level surface with a good line of sight to your subject. Keep your phone in position for a few seconds after you have taken a photo to avoid blurring the image.


R ESIDE NTIAL ESTAT E AG ENC Y

Blow your own trumpet

Putting a face to your business will immediately establish a relationship with your clients bb Avoid using the camera’s zoom: photos become pixelated if you zoom in on your smartphone camera. Where possible, move closer to your subject. bb Take multiple pictures of the same subject: you may find one turns out better than the others. Do not delete images until you review them on a computer; you may be happier with the results on a larger screen. bb Do not be blinded by the light: photos taken in lighter surroundings will produce better results. Stand with the light source behind you and avoid taking photos into direct light as this will put your subject into silhouette. bb Use high-quality picture settings: make sure your camera is set to the highest resolution and picture quality. bb Move around and get in different positions: take photos of your subject from different angles. bb Clean the lens: high-quality images can be spoilt by dirt on the lens.

When you have completed a sale, do not consign your digital promotional material to the bin. Successes encourage potential clients to sign up to your agency, and if they can see a catalogue of sold properties, they will think that you can work the same magic for them. All you need to do is reflect the property as sold, move it to another area of the site and you have a back catalogue of successful sales you can use as testament to your work. The RICS logo is a quick and effective way to promote confidence through its professional standards to your clients. Regulated firms can display the logo on their websites. If you are a member, but your company is not regulated by RICS, you can display the logo on your profile page on your company website. Full guidance and the logos are available at www.rics.org/logo R What do you think of Ashley’s advice on how to create an online presence? Have you created your own website and would like to share your ideas with readers? Please email the editor at jambrose@rics.org

Advice for SMEs bb You do not have to spend a fortune bb Keep it simple bb Use visual imagery that shows off your services and the locality you cover bb Put your contact details on each page bb Use strong mission statements and straplines bb Personalise it: set out your background and experience bb Emphasise your professional status (e.g. RICS-regulated) bb Target your audience (e.g. B2B, B2C) bb Keep content up to date bb Maximise use of the RICS brand and RICS resources. Graham Ellis MRICS is RICS Associate Director of the Residential Professional Group and a Director of Greenhouse Surveyors gellis@rics.org

Ashley Stewart-Noble is RICS Lead Digital Editor astewart-noble@rics.org

More information >

See Modus March edition, New market entrant sets out stall, p55 http://bit.ly/1FzCtJA

Related competencies include Purchase and sale, Leasing and letting, Business planning

J U LY/A U G U S T 2 0 1 5 4 7


RICS P ROP E RT Y JO URN A L

A DV E RTI S I N G

We are the leading supplier of Books JCT and NEC contracts Standards and other digital products for professionals throughout the property and the construction industry. Free UK delivery on orders over £75

RICSShop

Visit, Click, Browse, Buy at rics.org/shop

New look BCIS The BCIS Online Platform has changed: • Enhanced usability through an intuitive colour scheme • Improved legibility • Fresh look and feel If you are a current subscriber log in today to see the changes.

BCIS – Provider of independent cost data and analysis For your free demo visit rics.org/bcisdemo To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak @wearesu nday. c om 4 8   J U LY/A U G U S T 2 0 1 5


RICS P ROP E RT Y JO URN A L

ARTS

A

ar ts J U LY/A U G U S T 2 0 1 5   4 9


A RICS P ROP E RT Y JO URN A L

ARTS L EGA L

Milton Silverman cautions that everyone concerned with an auction needs to tread carefully

A right to sell

I

sometimes think that the law relating to auctions is like a giant hidden spider waiting patiently at the top of a high-ceilinged saleroom. At the right moment, it will pounce on its unsuspecting victims below. Two recent disputes brought this image to mind again, along with an old but relevant case from 1814 (Peto v Blades). An auctioneer acting on behalf of a sheriff sold ‘260 chaldrons of soil’ to the plaintiff. It turned out that the soil belonged to a trader who had been made bankrupt, so that there was a dispute in relation to the title. The plaintiff now had neither his money nor the soil and so made a claim against the auctioneer. In those distant days, juries were still used in civil cases. The jury decided that the auctioneer did, in fact, know of the dispute on title and had failed to communicate this dispute to the plaintiff, and so was liable in this case. As the judge put it: “It is an action against an auctioneer, on a promise that he did know that he had no right to sell the goods: the auctioneer stated that he didn’t know it, but that the fact was notorious: the 5 0   J U LY/A U G U S T 2 0 1 5

jury therefore heard him confess that he knew of the claim of the assignees and that he never mentioned it… It does not appear that the Plaintiff in the execution knew of the commission and bankruptcy; and therefore if the action lay not against the auctioneer, it might not lie against anyone.” The fundamental point that emerges is that the auctioneer warrants that they know of no defect in the title of the principal and have their authority to sell. So as long as the auctioneer reasonably follows the instructions of the consignor and is not aware nor could reasonably have known of any problem in relation to ownership of the consigned work, they are off the hook. Perhaps you think this is fair enough. Reflect on this principle, and consider the following: the entirely innocent

If the auctioneer acts outside their authority, then they may well be liable to the aggrieved purchaser Image © Shutterstock

and diligent auctioneer follows the consignor’s instructions, the work is sold, the purchaser pays, and it then turns out, as happened in a recent case of mine relating to an important 16th century statue, that the work was stolen. The consequence of the rule outlined above is that the aggrieved purchaser cannot get their money back from the auctioneer, but has to sue the vendor. Suing that particular vendor might be a fruitless quest if they were the thief, which would be most unfortunate for the purchaser. However, if the auctioneer acts outside their authority, i.e. beyond the terms of their agency, then they may well be liable to the aggrieved purchaser. Consider the following, which is again a real-life sequence of events: a receptionist at an auction house takes a normal enough message concerning a possible instruction involving visiting an address to discuss items for possible consignment and sale. It transpires that the client is an important national institution holding many hundreds of works. The auction house is neither the smallest nor the largest in the world and it proves to be a very big instruction involving a large part of its manpower. It reflects very carefully on whether or not to take the assignment on and after much consideration, finally chooses to do so.


ARTS LEG AL

A large contingent of the auction house’s employees attends to visit and a lengthy and time-consuming first inspection and discussion is held at the institution. Subsequent further visits are made, all appears to be going smoothly, and finally instructions are given to the auctioneer’s staff to remove a large number of works for sale. Unfortunately, due to a rather comic breakdown in the chain of communication, the auctioneer removes a piece that was meant to stay put, and fails to take one that was intended for sale. The wrongly taken piece successfully sells at auction and the mistake is then discovered. This time, because of the facts, it was indeed the auctioneer’s fault, and they are liable to repay the purchaser. Another case, from 1925 (Benton v Campbell, Parker & Co Ltd) concerning

Perhaps to the surprise of many, auctioneers do not underwrite good title to the goods they are selling the sale of a car, makes clear that an auctioneer does not impliedly warrant the title of the principal (even though the name of the principal has not been disclosed to the buyer). In this case, it transpired that the auctioneer entirely innocently sold a car that was being bought on hire purchase and the true

owner had never authorised the sale. The fault did not lie with the auctioneer, who was not held liable. To summarise the effect of all this: perhaps to the surprise of many, auctioneers do not underwrite good title to the goods they are selling. However, they do underwrite to the purchasers that they are acting within the terms of their brief and have no information that there is any problem with the title of the consigned work. If they act beyond their authority, or conceal something dubious concerning ownership, then they will be liable, as is shown in these real-life examples. A

Milton Silverman is a Senior Partner at Streathers Solicitors LLP mcsilverman@streathers.co.uk

RICS Accredited Mediation Training Mediation must be considered as an alternative to litigation. Are you qualified to take advantage of this fee-earning opportunity? This five day programme is designed to: • Assist you in appreciating and anticipating the complexities, pitfalls and opportunities of mediation • Equip you to mediate in a variety of commercial situations • Build a high level of knowledge, skill and experience.

Contact the DRS team to find out more: 024 7686 8584 drstraining@rics.org rics.org/mediation

To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak@wearesu nday. c om J U LY/A U G U S T 2 0 1 5   5 1


RICS P ROP E RT Y JO URN A L

A DV E RTI S I N G

®

TenantVERIFY for Quality Credit Checks & Referencing ®

We verify thousands of Tenants and Guarantors for busy Landlords & Agents every year. We pride ourselves on our First Class, Fast & Efficient Credit Checks & Referencing Residential & Commercial Tenants, Guarantors & Limited Companies. Basic Credit Checks within 2 hours, full Referencing Checks normally within 2 days, & International Checks within 5 days.

Professionals Rely on TenantVERIFY

®

Long Established - 0845 260 4421 - TenantVERIFY.co.uk

To ad ve rtise con t a c t Em m a Ke n n e dy +4 4( 0 ) 20 7 8 7 1 5 7 3 4 or emmak@wearesu nday. c om 5 2   J U LY/A U G U S T 2 0 1 5


A A RTS A RT S A LES

RI CS P RO PERTY JOUR NAL

Claire Grindey looks at different methods of buying and selling

That’s a fair point

T This summer has once again seen the annual explosion of fairs across the London art and antiques sales calendar. June saw a proliferation of events, including Masterpiece, an international multidisciplinary fair selling museum-quality works, the long-established Olympia International fair and Indian art week. Master Paintings’ week, where leading galleries and auction houses exhibit new discoveries, follows in July. Alongside the everincreasing auction sales calendar and global fairs such as Art Basel, Frieze and TEFAF Maastricht, to name but a few, how do you navigate buying and selling in the art world, especially given the proliferation of online marketing? The total global art market, now

worth £37bn (€51bn) in 2014, offers a vast landscape of available options.

Experience My career started almost 20 years ago, when I worked in Amsterdam and London in the silver department at Sotheby’s as a cataloguer. I was also responsible for sales business development in Europe and the UK and contributed to many auctions, working on valuations in Italy and Scandinavia and developing sales of continental silver in Paris. Now as a qualified chartered art and antiques surveyor, my RICS membership demonstrates to clients that I operate under a strict code of conduct, with the highest level of knowledge and professionalism in the industry. My independent art consultancy provides advice

k Glass and polished bronze sculpture, Tristano di Robilant on the acquisition and sale of works of art. Other services range from valuations to guidance on buying. I still work closely with ex-colleagues and consult other experts in their field.

Changes Throughout my career, I have watched the ascendency of the contemporary art market and the change in fashion towards collecting habits and disciplines such as silver. In 2014, post-war and contemporary accounted for the largest sector of the fine art market, representing 48%

How do you navigate buying and selling in the art world, especially given the proliferation of online marketing?

of all fine art sales by value. In other fields, the demand for works of art that are the best of their type continues, with good provenance and condition remaining an important factor. Sotheby’s and Christie’s now curate ‘treasures’ sales for top-quality decorative arts and sculptures, which target the high end of the market. Both auction houses have also moved into selling exhibitions, formerly dealer territory, some of which are held online only. Although selling art online is not new, the use of high-resolution images and condition reports has given greater confidence to buyers who do not inspect the work prior to sale. The middle market has become a focal point with sales of between £633 and £31,730. Private treaty sales have also seen a significant rise, which again blur the n J U LY/A U G U S T 2 0 1 5   5 3


A RICS P ROP E RT Y JO URN A L

n traditional lines of auction sales versus dealing. There are reportedly a minimum of 180 art fairs with an international element, accounting for 40% of all dealer sales in 2014 or £7.09bn (€9.8bn). In this changing landscape, agents and advisers play a key role. In certain cases, private individuals may choose to sell directly through their own network, if they have an interested party. Another aspect of selling online is the social media site Instagram, which is proving to be an immediate way of showcasing forthcoming works for sale. Selling art can be a lengthy and time-consuming process. Consideration must be given to knowledge of the works that have recently sold, not only to be aware of demand but also to avoid flooding the market with too many similar works at one time. The internet has given clients greater access to market knowledge, with readily available databases such as artnet.com and invaluable.com as well as auction houses uploading their sales results. However, this does not take into account any private sales results or give a broad reflection of the market, for which specialist guidance and an in-depth knowledge are often required. The TEFAF 2015 Art Market Report highlighted an enormous rise in the number of art consultants and advisers, many of whom

ARTS A RT S A L ES

do not have an education, training, or experience in an unregulated market

Selling methods There are many reasons why a client may wish to sell a work of art or a collection, which will help to determine the selling method, and where best to place a work of art for sale. Selling privately through dealers, at international fairs or auction houses, is often the best option for top-quality works of art. Clients who may be forced to sell quickly may find arranging private sales to collectors, museums or dealers can be a more discreet approach. As the art market is unregulated, an independent valuation and impartial advice are the first step for the best route, whether by auction or private sale. While looking at the reasons for sale, it is also important to consider the wider market influences. Is the work currently in demand? Very often clients say they no longer wish to live with a piece, because it is not now in fashion and this can help to explain why their work has a low estimate.

Research When placing a work at auction and in the public domain, it is worth researching what is available on the market, or has recently sold, which can determine its saleability. A piece that has been shown around the market can lose some of its appeal, and in the private

As the art market is unregulated, an independent valuation and impartial advice are the first step for the best route 5 4   J U LY/A U G U S T 2 0 1 5

k Soldato innamorato 2010, glass sculpture, Tristano di Robilant sales market, advisers and dealers are bombarded with images of works of art that can be sent via email. Researching comparables and gaining impartial advice help clients to know whether a dealer or exhibitor is selling at a fair market price. Remember that everything has a value and in certain cases lowering estimates or a reserve may be the only realistic option to sell.

Fees Fees can vary from flat-rate commission to a percentage of the sale. Auctions are recognised as fair market value, as the sale is between a willing seller and buyer. In very rare cases, some auction houses guarantee lots, or facilitate a third party to do so. If the lot fails to meet the reserve price, the consignor does not suffer any financial loss, but correspondingly, in the event of a successful sale, they do not gain any Images © Francesco Ferruzzi

amount above the reserve. Much is written about art as an asset class and the fact that it is an illiquid form of investment; however, many clients consigning works for sale are still surprised at receiving a lower valuation than expected for failing to factor in the percentage paid for a work in a gallery or fair. Specialist advice is essential for the subtle navigation of a sales strategy and the successful placement of a work while remaining impartial between an auction house, dealer and private collectors. A

More information > All figures sourced from TEFAF 2015 Art Market Report http://artnt.cm/1K6ffA8

Claire Grindey MRICS is Founder of Claire Grindey Fine & Decorative Art Consultancy www.clairegrindey.com


Property Management Software Driven by Sage Catering for Landlords, Letting Agents and Block Managers.

www.decorus-pms.com 0114 230 7305


WE’VE HEARD THE ONE ABOUT THE FLYING FISH At Hiscox, our claims experts always begin by believing your claim is valid. As your home becomes more important, so does your insurer.

Home insurance 0845 365 1734 | hiscox.co.uk/rics Terms and conditions apply, for full terms and conditions see www.hiscox.co.uk/rics The Royal Institution of Chartered Surveyors is an Appointed Representative of Hiscox Underwriting Ltd which is authorised and regulated by the Financial Conduct Authority. For UK residents only. 14658 06/15