ISSUE 2 AUTUMN 2015
Planning gain: opportunity knocks for big infrastructure
Lease expiry: planning for a smooth exit The commercial impact of LBTT The true worth of a transaction An urban perspective on land reform Vital role of the project monitor The value of facilities management Are you being (correctly) insured?
www.galbraithgroup.com
WELCOME
CONTENTS
Key issues: land and adding value
4 Capital city apartment appeal.
Peter Scott Aiton explains how planning ahead can avoid issues for tenant and landlord at the end of a lease.
Getting ready to sell. ELcoME to the second edition of Commercial Matters. Following our successful spring launch, we continue to highlight the key issues of the commercial property sector and the work we are involved in.
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In this edition, we look at many aspects of the commercial property process from acquisition, project monitoring, property and facilities management, asset management and ultimately sale. Whilst all seemingly separate areas, the future performance of a property requires these disciplines to be inextricably linked. We also touch upon the the potential impacts of Land Reform and Community Right to Buy, large infrastructure projects and planning. Land is the key aspect to all property-related matters and changes in legislation and focus will affect the future development and land use.
5 The real worth of a transaction.
6 Facilities management reveals true holding costs. Deal round-up.
7 The value of a project monitor. A day in the life of a property manager.
We hope you find something of interest in the following pages and would be delighted to hear your feedback and suggestions for future topics. Please do get in touch via email or social media with any burning questions, requirements or thoughts. Iain Russell
Chairman of CKD Galbraith, Iain also heads up our Rural team, working from the Inverness and Edinburgh offices.
cKD gALBRAiTh is Scotland’s leading independent property consultancy. Drawing on a century of experience in land and property management, the firm is progressive and dynamic, employing more than 250 people in offices throughout Scotland. The firm provides a full range of property consulting services across the commercial, residential, rural and energy sectors. CKD Galbraith provides a personal service, listening to clients and delivering advice to suit their particular opportunities and circumstances.
8 An urban perspective on the Land Reform (Scotland) Bill. How has the new Land and Buildings Transactional Tax affected commercial property investors?
10 Planning gain under the microscope. Getting the right insurance. Cover image: The Culzean Building, Glasgow. McAteer Photograph.
Our associate, CKD Kennedy Macpherson, is based in London. Follow us on Twitter: @CKDGCommercial Like us on Facebook: www.facebook.com/ckdgalbraith Join us on Linkedin: www.linkedin.com/company/ckd-galbraith
commercial Matters is produced by JK Consultancy, Glasgow, and designed by George Gray Media+Design, St Andeux, France. © CKD Galbraith LLP.
T iS gEnERALLy accepted that, at the end of a lease, the exiting tenant must undertake or pay for reinstatement, repair and redecoration to leave the occupied space in a condition that is compliant with the specific lease obligations.
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A dilapidations schedule will pick up all matters of internal reinstatement, repair and redecoration, but how do landlords of multi-occupied buildings reclaim any costs relating to the common areas? Our commercial team’s joined-up working relationship between the specialist areas of asset management, building management and building surveying ensures that a tenant cannot walk away from their internal repairing lease while the common parts are in poor repair. Although they cannot be included within the dilapidations claim, as they are not the tenant’s direct responsibility under an internal repairing lease, allowing a tenant to walk away from a 25-year lease without paying their part of the maintenance bill for common parts could have major financial consequences for the landlords. They may have to foot the bill themselves, or, should the disrepair be noted by any future tenants, they will have grounds to negotiate more robust service charge caps. To avoid a situation like this, some forethought is required in the last few years of the lease to ensure that all common parts are in good repair and decorative order. This can be achieved by ensuring that
Lease expiry countdown Jill Gayford has advice for landlords and tenants. WhEn iT coMES to the expiry of a lease, timing and communication is key. In Scotland, if neither party serves 40-day notice the lease will continue on the same terms for 12 months, known as tacit relocation. Using a professional can reduce costs and achieve the best results for everyone. Here’s our countdown guide to getting it right.
Page 2 | Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial
Dilapidations: the bigger picture l The Culzean Building, Glasgow.
multi-occupied buildings have a preplanned maintenance schedule that is annually reviewed by a building surveyor. A PPM will project all work that is required in the short-, medium- and longterm. It will also assist with service charge budgeting, which, in turn, will aid tenants when budgeting for their own business. Asset managers and managing agents can regularly refer to the schedule to check that the common parts are not falling into
disrepair and that all repairs are up-todate when leases are coming to an end. A PPM fee is a small price to pay when compared to the consequences of not recovering the cost of common repairs from tenants. The fees involved will also often be justifiable as service charge expenditure. In addition, any consequential damage within a tenant’s demise at lease-end puts the landlord in a difficult negotiating position when it comes to
dilapidations – would the ceiling need to be replaced if the building had been kept watertight? All this can be easily avoided with some joined-up thinking and forethought. Peter Scott Aiton, part of our building surveying team, undertakes commercial projects and professional work. petersa@ckdgalbraith.co.uk 0131 240 6967
36 months in advance
not moving is too high.
Landlord: If discussions are not progress-
Landlord: Examine the lease and prepare a
Landlord: Ensure all
PPM report to see if any areas of M&E and the common fabric of the building can be budgeted into the service charge.
demands are issued in the correct company name. Engage with the tenant to understand their intentions, requirements and the opportunities within the current building. In a rising market this might not be a concern, but in a stagnant or depressed market many landlords’ key focus is tenant retention – can you afford a tenant to vacate?
ing, check if a marketing board can be placed on the property. It may focus everyone’s attention or it may aggravate the situation, so think carefully.
Tenant: Check for additional expenditure or large increases in service charge to ensure that what is being proposed is within your lease obligations – and is required.
12 months to go Tenant: Ensure rent, insurance and service charge payments are paid on time. Before entering into negotiations with the current landlord, speak to an agent about other market options and potential moving costs. In a rising market the cost of moving may not be affordable; in a depressed market the cost of
6 months to go Both: Consider dilapidations costs – they could be a deciding factor for a tenant to stay or a landlord to serve notice.
Time’s up If either party intends to serve 40-day notice, it must be served on the correct day to the correct company at the correct address. If no notice is served, the lease will run for a further 12 months.
Jill Gayford is based in Edinburgh and specialises in commercial management. jill.gayford@ckdgalbraith.co.uk 0131 240 6987
www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 | Page 3
l Blackfriars Lofts is a new apartment project set in a former Old Town church.
getting ready to sell David Clarke takes the owner’s perspective. inVESTMEnT PRoPERTiES usually have one or a number of different tenants, so the first question should be about any issues with those tenancies and performance of the terms of the lease. Other issues could be outstanding rent reviews or leases continuing under tacit relocation under Scots law or “holding over”, in the case of England and Wales. Issues often arise when properties are under offer and in the due diligence process, when purchasers and their solicitors become aware that there are rent arrears or other charges overdue or unpaid, or that leases may have reduced repairing provisions or schedules of condition attached. It is prudent to declare any issues in sales particulars so that purchasers are fully aware from the outset. Where obligations fall to property owners, under leases or on vacant properties, it is sensible to prepare a schedule of repairs that identify and cost the issues for the owner. An allowance can be made in the sale pricing and, if need be, the schedule can be provided to a purchaser as part of the negotiations. Sales can also be frustrated by discrepancies in the title information or issues with neighbouring land. Where these are known it is possible to take out title indemnity insurance to indemnify the risks, or detailed title searches can clarify the position. It is important to remove any possible issues before a sale so they cannot impact on pricing or the sale completing. Solicitors should be instructed early in the process to verify the information in sales particulars and collate the legal information for a purchaser’s solicitor as soon as heads of terms are agreed. With tenanted properties, involving managing agents is key to providing the purchaser with all the rent collection, service charge and insurance information at an early stage. Other parties to be notified include any lenders who may have to give consent for a sale to take place. A vendor considering a sale should aim to iron out any wrinkles and collate a full pack of information prior to bringing a property to the market. Unresolved issues or complications with a property could have cost implications to a purchaser, which may impact on pricing – or even halt the sale. They can also influence the ability to raise funding against the asset if the purchase is to be debt backed. A vendor may have easily raised finance on a property a decade ago despite issues, but the views of lenders are significantly different in today’s climate.
David Clarke provides commercial investment, agency and portfolio management services. david.clarke@ckdgalbraith.co.uk 01786 434 630
Apartment appeal Jill Gayford investigates the upsurge of serviced apartments in the Scottish capital. hiLE ThE coMMERciAL development sector kick starts after a number of years of limited activity, one sector which has bucked the trend is Edinburgh city’s serviced apartments. But why has this sector flourished – and continues to do so – and what opportunities are there for the small investor?
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In recent years, Edinburgh has seen its population increase to more than 495,000 and in 2012 the number of tourists coming to Edinburgh hit nearly 4 million. Andrew Craig of property developer Stone Acre has been involved in the serviced apartment sector for five years and believes that the driving force behind its popularity is a demand for more freedom and flexibility from travellers. Business travellers may want a flexible base for a longer period of time but don’t want to be tied to a short assured tenancy. Likewise, travellers with young families are looking for more flexible accommodation than a traditional hotel or B&B.
Online companies such as Airbnb allow individuals and smaller scale investors to take advantage of the growing trend of people preferring the home-from-home experience of an apartment. Recent evidence from the sale of individual apartments within The Malt House Serviced Apartments in Edinburgh’s West End, indicates that returns of 6-7% are possible. Future yields look healthy as Edinburgh’s permanent and temporary populations increase. The city continues to attract large corporate serviced apartment operators, but also offers opportunities for smaller-scale investors. Whether buying an apartment to let through Airbnb or working with one of the few smaller-scale operators, the right location and quality for your target market are key. Stone Acre is developing three city-centre sites over the next 12 months with opportunities for investors to buy well-located serviced apartments. Our advice is to speak to the experts to ensure you are buying in the right location and at the right price. Jill Gayford is based in Edinburgh and specialises in commercial management. jill.gayford@ckdgalbraith.co.uk 0131 240 6987
Page 4 | Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial
Finding the true worth of a transaction Pamela Gray looks at the complexities of analysing a deal to assess its real value. ALcuLATing ThE net effective rent of a lease or proposal helps the landlord and tenant evaluate the true value of a deal and enables the parties to assess the true worth of a proposal.
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The purpose of transaction analysis is to look behind the headline rental and consider the specifics of a deal to ensure we are comparing like with like. This is a crucial part of property valuation and is the foundation of all that we do in our property dealings. We have been through a period in the market where most deals have involved incentives of some sort. The main incentives, which need to be devalued, are the rent-free periods and capital contributions known to have been offered by the landlords. Increasingly, incentives are extending to other facets of the lease, which are more difficult to obtain information on and even harder to quantify. Other influencing factors are length of lease, repairing obligations and rent review provisions. The surveyor’s biggest challenge is to secure as accurate a picture as possible to enable a consistent approach
to the devaluation and comparison of deals. Lease concessions can vary enormously and can have a major bearing on the level of rent actually paid. Examples of some potential clauses affecting value include: • Lease length – including tenant breaks / options to extend • Break penalties / break incentives – some have rental penalties if the break is
THE MAIN PRIORITY FOR THE SURVEYOR IS TO CHALLENGE THE INFORMATION PROVIDED AND TO ADOPT A CONSISTENT APPROACH TO THE DEVALUATION.
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exercised; others include further incentives if not exercised • Limitations on repairing obligations – including schedules of condition and service charge caps • Non-compete clauses • Rent review provisions – either to open market rent or fixed uplifts or linked to RPI (sometimes with a cap and collar). Not all rent reviews are upward only. There are two primary methods of analysis: • The devaluation of each comparable, making appropriate adjustments for differences (such as lease length or term certain to the first break) that might cause the appropriate scale of the incentives, and hence the net effective rent, to differ. • Use the comparable evidence to find the market package (the headline rent and incentives) likely to be agreed in the market place for the subject premises, then adjust that transaction to reflect the specific terms. The period of time over which any incentive should be analysed is also much negotiated, given the impact this can have on the eventual analysis, i.e. is it to the first break or over the period of the lease or over the write-off period for fit-out? The valuer has to consider the overall effect of all the incentives, anticipated rental growth and average lease lengths (which vary depending on the property sector) and what, in reality, might be achieved in an open market letting on the hypothetical terms. The main priority for the surveyor is to challenge the information provided and to adopt a consistent approach to the devaluation, noting the key assumptions. It is an increasingly complex but crucial process in the valuation of all property assets. Pamela Gray is in charge of our commercial property asset management team. pamela.gray@ckdgalbraith.co.uk 0131 240 6963
www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 | Page 5
DEAL RounD-uP into a second floor suite at Crichton House in 2012 with three initial members of staff and plans to grow their Crisis Skylight Edinburgh team. The new space, let at c.£20/sq ft, now accommodates 20 members of staff.
7 Bankhead Medway acquired for private client On behalf of private clients, CKD Galbraith has acquired 7 Bankhead Medway, Edinburgh at a price reflecting a net initial yield of more than 8.75%. Located in Sighthill, the substantial industrial investment is currently let to Onyx Group Ltd and operated as a state-of-theart datacentre. With excellent longer-term asset management opportunities, we look forward to working with the clients to deliver additional value over time.
above, includes a spiral staircase and has been finished internally to a high standard following a refurbishment led by our building surveying team.
Refurbished mews off the market
Crisis charity expands at Crichton House
A quirky mews at 39 Thistle Street Lane SW, in Edinburgh’s city centre, has been let to healthcare communications group Synaptiq Ltd at £14.50/sq ft by CKD Galbraith, on behalf of CBREi Global Investors.
Acting on behalf of Merse Properties Ltd, CKD Galbraith has let the third and fourth floor suites of Crichton House in Edinburgh to Crisis, the national charity for single homeless people, in a significant expansion to their first office in Scotland.
The open plan, self-contained property, pictured right and
Situated in the Holyrood area of Edinburgh, midway between the historic Royal Mile and the Scottish Parliament, Crichton House, below, is a modern open plan office development that was acquired for the private owner by CKD Galbraith in an off-market deal for £1.62million in 2011.
The charity originally moved
how FM reveals true holding costs In the second installment of the series for investors, Kash Bhatti breaks it down from a facilities management perspective.
hE PuRchASE PRicE of a commercial property is derived from a number of sources, particularly a tenant’s covenant strength, lease details and rent paid.
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But the services managed by facilities management (FM), which reflect the everyday holding costs of the property are often overlooked – with potentially damaging consequences for the purchaser or the occupiers in the long-term. FM is an integrated approach to operating, maintaining and adapting buildings to create an environment that supports the objectives of the building. It is a key managerial discipline that intertwines with asset management, building surveying and letting agents to provide the desired results. Services managed by FM are split into soft
and hard services, which all have a life cycle and need to be regularly appraised. Soft services include landscaping, cleaning, security, refuse collection and help desk service, however, it is the impact of hard services, such as lifts, heating boilers and intruder alarms, which need further consideration at purchase. For example, a multi-occupied building, managed by CKD Galbraith, has six airhandling units each costing around £50,000 to replace with a life cycle of 15-20 years. Should this building come to market, it would be prudent for any purchaser to budget the plant’s replacement. Other typical plant equipment life expectancies are: • sequence boilers: 25 years • condensing boilers: 15 years • chillers: 15-20 years • air conditioning units: 20 years • wet/dry risers: 20 years • fire alarms: 20 years • electrical switchgear: 30 years • CCTV: 10 years • water tanks: 10-35 years • lift replacement: 15 years The best way to source these costs is to instruct a full building surveying report
during the building’s evaluation stages. This planned preventative programme (PPM) provides a full appraisal of all the hard services within the building for which the facilities manager will ultimately be responsible. The PPM report is an essential tool in budget setting, tenancy meetings, client interface and onsite staff resource, and can be used by the asset manger for any negotiations with a tenant for service charge caps. It should consider a schedule of works over a five- to 10-year period and include all components that are maintained under a landlord’s obligations and generally exclude tenanted areas, as these are normally demised to tenants. CKD Galbraith provides FM service to a range of properties across the UK, from multi-let retail, shopping centres and parades to individual retail units, industrial estates and office complexes. Kash Bhatti heads up CKD Galbraith’s Facilities Management Department. kash.bhatti@ckdgalbraith.co.uk 0131 240 6970
Page 6 | Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial
A WEEK IN THE LIFE OF…
A property manager with Colin Black. i’VE BEEn A PRoPERTy MAnAgER for 19 years and I still love the fact that no two days are alike. I manage properties across the UK, so being organised is a must, as is dealing with the quick-change tempo of daily challenges. A love of travel also helps! l The Holiday Inn Express in Middlesbrough: Monitored by CKD Galbraith.
Project monitor: the client’s eyes and ears Pam Over explores the multiple roles of a project monitor. RojEcT MoniToRing is a fascinating role for a proactive, skilled surveyor. Monitors protect the client’s interests by identifying and advising on the risks associated with acquiring an interest in a development that is not under the client’s direct control.
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They provide impartial advice about how the developer and the project team are managing the construction process to ensure the end user is getting what they are paying for and that the building has been constructed with due care and attention in accordance with the pre-agreed financial constraints. A project monitor requires considerable experience and a working knowledge of the sector the project relates to, be it retail, offices, industrial, nursing home or hotel, to ensure the design and end product is fit for purpose. If acting for a tenant it is also imperative to understand the client’s business, particularly if it is of a specialist nature such as an auction market. Good working relationships are key to ensure the monitor is included in the development process and its challenges to provide a sounding board and give accurate, timely advice to the client. CKD Galbraith acts on behalf of: funding institutions buying an investment once the building contract to construct the property has completed; banks or funders lending
monies to finance the development of a property; tenants or purchasers entering into a lease or purchase before the property has been constructed. Each instruction starts with a comprehensive review of the status of the project at that date, including reviewing appointment documents, building contracts, design detail, financial detail and statutory compliance. This feeds into the client’s legal due diligence and allows for the financial deal to be altered, depending on the level of risk identified. Once the client legally commits to the property, the role changes from fact finder to proactive, interested observer. The monitor becomes the client’s eyes and ears on the job, keeping them updated on progress with detailed monthly reports and, when required, authorising each and every project invoice to maintain financial control. On completion of the building programme, the monitor ensures the development is correctly snagged and all defects made good. A full report is prepared giving the client all the information required to occupy, hold or sell the completed project. In the past 12 months CKD Galbraith has acted as project monitor for Waitrose Helensburgh, Holiday Inn Express in Middlesbrough, Crowne Plaza in Newcastle and a distribution warehouse in Armagh. Pam Over is based in Edinburgh and leads CKD Galbraith’s commercial team. pam.over@ckdgalbraith.co.uk 0131 240 6965
The week starts on an extraordinary high note – literally – with a cost benefit analysis of window cleaners and a hawk handler at a multi-storey waterside property in Glasgow. The flying hawk keeps aggressive gulls at bay while abseilers clean the windows. It’s quite a sight and very effective. After client and tenant meetings on site about renewing air conditioning units, it’s back to Edinburgh to address the necessary evil of never-ending admin. An emergency call early on Tuesday means a trip to Dundee to deal with a flooded office tenant. With my day re-scheduled en route (what would I do without Bluetooth in the car?), and the repairs underway, I return to Edinburgh to prepare a performance analysis report for a client’s bank, arrange contractor quotes for landscaping, decoration, security and recycling before an evening CPD event at a firm of solicitors. Wednesday is spent at Dunblane industrial estate for site inspection and tenant meetings. It’s so important we understand tenant operations to help get the best from their occupation. We’ve been working with a tenant with a growing business and today cut a deal that allows it to relocate from two units to four. Thursday involves a strategy meeting with our asset management, building surveying and agency teams about current projects in managed portfolios. There’s a constant interaction not just across the commercial team but across all areas within the firm. This sharing of local and national intelligence allows us to provide a ‘one stop shop’ service to our clients and makes my job all the more interesting and satisfying. Friday arrives with me on a train to York for a property inspection and tenant meeting plus a chance to admire York Minster as I walk past. Travel time is catch-up time, but the best part is getting out there and working with people all over the country.
Colin Black is based in Edinburgh and specialises in commercial property management. colin.black@ckdgalbraith.co.uk 0131 240 6971
www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 | Page 7
incE ThE PuBLicATion of the Land Reform (Scotland) Bill on June 23, much has been written on some of its more controversial points, such as the proposal that sporting estates be subject to non-domestic rates and suggestions that the Bill constitutes a land grab.
Six months on: assessing the commercial impact of LBTT
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Harry Stott and David Clarke review the effect of Scotland’s new Land and Buildings Transactional Tax on commercial property investors.
The extract from the introduction of the Land Reform (Scotland) Bill June 2015 (see panel) sets out the key points that emerged through lengthy consultation and were presented to Scottish Ministers.
nDER ThE Revenue Scotland and Tax Powers Bill, the new Land and Buildings Transaction Tax (LBTT) came into effect in Scotland on April 1, replacing the previous Stamp Duty Land Tax (SDLT) regime, which still applies in England and Wales.
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The new tax has received much publicity about its effect on residential property, but what impact does it have on commercial property sales? Like the residential system, commercial LBTT is a progressive tax levied against the sale price. The first £150,000 is tax exempt, the next £200,000 is taxed at 3% and anything over £350,000 is taxed at 4.5%. On closer scrutiny, the new system of LBTT is actually more beneficial to buyers up to a purchase price in the region of £2 million. However, even at this level, the increase in tax payable is far kinder than that of a residential property at the same price. At CKD Galbraith we are in contact with buyers on a daily basis and, while LBTT is a consideration when buying property, it has not changed the way they have gone about purchasing property or led to lower offers being received. Even at the higher end of commercial property transactions, the additional amount payable is unlikely to be enough to dissuade a purchaser from completing a deal. For instance, under the old SDLT system the 4% tax payable on a purchase of a £4 million property would be £160,000, whereas under LBTT the tax payable (4.5%) would be £170,250 – a difference of £10,250. Investors still appraise property yields against the overall purchase cost of an asset including LBTT, which may mean that, as a result of the different tax regimes on either side of the border, the net purchase price payable for similarly yielding assets differs once purchasers costs have been deducted, with more of a pricing implication for a vendor than a purchaser. In terms of commercial property and non-residential property, such as development land, a far greater consideration for purHarry Stott is a commercial chasers is the availand development specialist in ability of funding, our Perth and their occupational Edinburgh offices. costs and the returns on their investment as David Clarke provides opposed to the commercial investment, agency amount of transaction and portfolio management tax payable. In genservices. eral terms it is posiharry.stott@ckdgalbraith.co.uk tive news for commer- 01738 465 065 cial property and david.clarke@ckdgalbraith.co.uk business as usual. 01786 434 630
There has been a specific focus on the rural context, but, if enacted, the Bill would have implications for all land use, including urban, semi-urban and development land throughout Scotland.
For private landowners, the Bill’s significance lies in an extension of the Community Right to Buy to include virtually all land – urban and rural – and for the introduction of the scheme where there is no willing seller. The Bill also proposes to create a new Community Right to Buy with its own register – the Register of Community Interests in Abandoned or Neglected Land. This new Right to Buy will have many similar features to the existing Community Right to Buy. There has to be a community body, which needs to be a company registered by guarantee, and existing community bodies would need to incorporate additional provisions in to their Articles of Association. The body has to demonstrate adequate community support as well as showing that an appropriate number of the defined community has a connection with the land. It will be substantially at the discretion of Ministers that the purchase of land is in the public interest as well as furthering the achievement of sustainable development in relation to the land.
ONE ASPECT OF THIS NEW RIGHT TO BUY WHICH IS LIKELY TO BE OF CONCERN TO LANDOWNERS IS THAT THERE IS NO REQUIREMENT FOR THE SELLER TO BE WILLING TO SELL.
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One aspect of this new Right to Buy which is likely to be of concern to landowners is that there is no requirement for the seller to be willing to sell. Indeed, in order to apply to the Ministers to exercise the Right to Buy, the community body must have already tried and failed to buy the land. Subject to very few limitations, the Bill does not indicate what land will be eligible to be acquired from an unwilling seller. Rather the Bill states that “land is eligible for the purpose of this part if in the opinion of the Ministers it is wholly or mainly abandoned or neglected.” The Bill goes on to restrict matters, which appear to be entirely at the Ministerial discretion. Until the Bill is passed and the Ministers outline what the criteria are, we are uncertain as to what will be incorporated into statutory instruments. The question, which will remain unanswered until the Bill is
Page 8 | Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial
Land Reform – an urban context Richard Higgins unravels the implications of the Land Reform (Scotland) Bill on urban and development land.
passed, is: What type of land is likely to be viewed as wholly or mainly abandoned or neglected? We are still feeling the impacts of the last recession and a landowner may have many reasons for leaving land in a condition that appears to be either abandoned or neglected. For instance, ongoing planning, funding or market reasons why the land is not being brought forward for immediate beneficial or alternative use, or the owner may have a significant future use in mind.
The practical process for communities to exercise the Right to Buy will be similar to the current planning appeal process with opportunity for representation and consultation. To counter any danger that the Bill will contravene elements of the European Human Rights Convention, landowners will receive market value and will be supplied with the right to appeal both the valuation of the property and Scottish Ministers’ decision on the final outcome. There will also be a right for landowners
introduction from the Land Reform (Scotland) Bill june 2015 An Act of the Scottish Parliament to make provision for a land rights and responsibilities statement; to establish the Scottish Land Commission, provide for its functions and the functions of the Land Commissioners and the Tenant Farming Commissioner; to make provision about access to, and provision of, information about owners and controllers of land; to make provision about engaging communities in decisions relating to land; to enable certain persons to buy land to further sustainable development; to make provision for non-domestic rates to be levied on shootings and deer forests; to make provision about the change of use of common good land; to make provision about the management of deer on land; to make provision about ac-
cess rights to land; to amend the law on agricultural holdings to provide for a new form of agricultural tenancy, to remove the requirement to register before tenants of certain holdings can exercise a Right to Buy, to provide a new power of sale where a landlord is in breach of certain obligations, to provide about rent reviews, to expand the list of the persons to whom holdings can be assigned or bequeathed and to whom holdings can be transferred on intestacy and to make provision about landlords’ objections to such successor tenants, to provide for a two-year amnesty period in relation to certain improvements carried out by tenants, and to provide for notice of certain improvements proposed by landlords; and for connected purposes.
to receive compensation for any costs incurred as a result of the transfer. There is much written in the public domain about the political desire to enact land reform and some of this is negative. On the up-side, perhaps the Bill will encourage landowners and communities to engage and collaborate, enabling land to be managed to its full potential for the benefit of all. With tensions between private landowners, developers and local communities already managed through the planning process, perhaps the unexpected consequence of the Bill will be for those tensions to increase further and generate greater division between the community and the owner. There will be additional risk for complex long-term development and redevelopment projects at a time when confidence is not as strong as it might be.Will the Bill hinder rather than actually encourage long-term development sites to be brought forward for beneficial use? There is much to emerge from the process and we will follow it with keen interest.
Richard Higgins is in charge of our commercial investment and agency division. richard.higgins@ckdgalbraith.co.uk 0131 240 6966
www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 | Page 9
AjoR RoADS and transportation infrastructure projects have a long gestation for both planning and implementation. Projects such as dualling the A9, building a new Forth crossing or the Borders rail link do not happen overnight, but they may bring unforeseen benefits.
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Ring roads and other significant infrastructure routes are often considered to provide a defendable barrier to an expanding conurbation and consequently where these assets are altered or created, any land captured may find its status open to review. The new Forth crossing is an interesting example as the creation of the access road on the southern shore effectively extends the boundary of South Queensferry. Consequently, appropriate development of this infill land is being considered.
l Fire is only one of many hazards that can lead to a claim.
Are you being (correctly) insured? Martin Cassels navigates the minefield that is building insurance. F onLy WE couLD control the weather – or come to that any of the other outside influences that result in the dreaded call to your insurer to tell them that you need to make a claim.
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Building insurance is a subject that leaves most of us gnashing our teeth and growling about the cost of premiums. But ignore it at your peril. Premiums are based on risk, a large part of which is based on thecost of rebuilding. Formal assessments of rebuilding costs were previously called Fire Insurance Valuations, but as fire is only one of many hazards that can lead to a claim, they are now referred to as Reinstatement Cost Assessments (RCAs). Businesses and individuals are generally aware of buildings insurance but there is often a gap between what they believe they are insured against and how insurance companies see it. The result? Most policies contain a clause called “average”. If an insurer or its appointed loss adjuster deems that the declared rebuilding cost is less than 75% of what it should be, the
Of course, there is significant due process to be undertaken from a development plan perspective and consultation with the local community; however, it is an opportunity that has arisen for the landowner we are acting for as a direct consequence of wider infrastructure developments. l Projects like the new Forth crossing may bring unexpected benefits.
claim will be averaged (reduced) by the amount of underinsurance. The effect of this can be enormous and financially disastrous. The whole building does not need to be destroyed either; this policy can be applied to any claim of any size. Carrying out regular formal RCAs is imperative to make sure a building is insured correctly. It’s not just a case of multiplying the floor area by a rebuilding rate either. Special or unusual building features, location, fees and statutory consents all need consideration. Access roads, car parks and other parts of the “building” described in the policy must also be included. The lesson is that regular valuation pays dividends in the end, and in some cases premiums do go down as well as up. It is the old story – the devil is in the detail. And if you do have a claim, appointing a professional to negotiate for you is vital. Who better to tackle the detail than a qualified building surveyor?
Martin Cassels is in charge of CKD Galbraith’s building surveying team.
Planning gain: what is a fair amount for developers to pay? Robert Patrick explains the ins and outs of developer contributions and Section 75 agreements.
martin.cassels@ckdgalbraith.co.uk 0131 240 6992
Page 10 | Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial
opportunity knocks for big infrastructure Calum Innes looks at the benefits of major infrastructure projects and the practical issues of planning gain contributions. New infrastructure is always expensive and sometimes there is considerable variance from budget due to unforeseen or unquantifiable issues encountered in the development. The Edinburgh tram project is a well-known example. One question that arises is whether development, which is facilitated by such improvements, should contribute to the cost. Planning gain contributions are a complex subject and a source of considerable contention between developers and local authorities. Of course, it is correct that developers pay a reasonable share of public costs which are directly linked to their
unDERSTAnDing developer contributions – otherwise known as developer obligations or planning gain – has become a key component of the assessment of development land. The level of payments required by a developer to the local authority can have a significant impact on land values, and in some cases make developments unviable. The planning authority is able to require contributions from a developer in order to mitigate the impacts on infrastructure of a proposed development. For residential developments, the local authority commonly requires contributions towards education, transport infrastructure, community facilities and waste management. Developer contributions are generally secured through a legally binding Section 75 agreement, with planning consent for the development only granted once the agreement is finalised. The agreement is binding on current and future owners of the land.
development. However, it can be difficult to see a clear justification for contributions requested for planned infrastructure that may have some benefit to a proposed development, but is not directly linked. For example, CKD Galbraith is involved in clarifying the planning status and making an application for a substantial landholding in Laurencekirk. The section of the A90 trunk road in this location has been the
subject of long-term debate as improvements are sought to existing junctions to increase road safety. We are aware of planned improvements to the junctions serving Laurencekirk and the debate and negotiations with the local authority will be interesting to determine what they consider to be a reasonable scope of relevancy. Calum Innes is based in Perth and provides commercial and planning consultancy services. calum.innes@ckdgalbraith.co.uk 01738 456 075
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THE NEW FORTH CROSSING IS AN INTERESTING EXAMPLE AS THE CREATION OF THE ACCESS ROAD ON THE SOUTHERN SHORE EFFECTIVELY EXTENDS THE BOUNDARY OF SOUTH QUEENSFERRY.
Large house builders consider developer contributions as ‘abnormal’ costs and will deduct them from the land value, sometimes significantly reducing the landowner’s receipt. So it is essential to be fully aware of the likely contribution amount and to ensure that local authority requests are reasonable and justified. In an effort to provide added clarity on developer contributions, planning authorities usually produce supplementary planning guidance, detailing how contribution levels are calculated. The contributions required for specific allocated sites are sometimes included within planning guidance, such as Edinburgh City Council’s recent literature, but it is not unusual for a developer or house builder to challenge them. The ability of a developer or house builder to negotiate these payments down was increased in 2011 with the introduction of a right of appeal against Section 75 agreements. This allows appli-
cants to appeal to the Scottish Government if they feel the terms of an agreement are unreasonable or unjustified. When considering if contributions are justified or reasonable, Scottish Government guidance is key. Of particular importance is the assertion that contributions should not be required for improvements not directly related to the development and payments should not be required to resolve existing deficiencies in infrastructure provision. Instead, contributions should only be required for purposes directly related to the proposed development and must be reasonable and proportional to the size of the proposal.
Robert Patrick is a chartered planner in CKD Galbraith’s Perth office. robert.patrick@ckdgalbraith.co.uk 01738 456 078
www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 | Page 11
ouR ExPERTiSE l Property management l Asset management
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l Facilities management in addition to our specialist services, we manage in excess of ÂŁ450 million of commercial property across the uK. We deal with around 750 tenants in more than 120 properties from single units to large multi-let environments such as shopping centres.
gET in Touch We operate from offices across Scotland including Edinburgh, Aberdeen, Perth, Stirling, inverness, Elgin, cupar, Ayr, castle Douglas, Kelso and galashiels.
Property management Kash Bhatti 0131 240 6970 kash.bhatti@ckdgalbraith.co.uk colin Black 0131 240 6971 colin.black@ckdgalbraith.co.uk jill gayford 0131 240 6987 jill.gayford@ckdgalbraith.co.uk Pamela gray 0131 240 6963 pamela.gray@ckdgalbraith.co.uk Pam over 0131 240 6965 pam.over@ckdgalbraith.co.uk
Asset management David clarke 01786 434 630 david.clarke@ckdgalbraith.co.uk Pamela gray 0131 240 6963 pamela.gray@ckdgalbraith.co.uk
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Richard higgins 0131 240 6966 richard.higgins@ckdgalbraith.co.uk Pam over 0131 240 6965 pam.over@ckdgalbraith.co.uk
Planning calum innes 01738 456 075 calum.innes@ckdgalbraith.co.uk Andrew jarvie 01786 434 638 andrew.jarvie@ckdgalbraith.co.uk Robert Patrick 01738 456 078 robert.patrick@ckdgalbraith.co.uk harry Stott 01738 456 065 harry.stott@ckdgalbraith.co.uk Project development & co-ordination calum innes 01738 456 075 calum.innes@ckdgalbraith.co.uk Pam over 0131 240 6965 pam.over@ckdgalbraith.co.uk
Professional & valuation Pamela gray 0131 240 6963 pamela.gray@ckdgalbraith.co.uk Richard higgins 0131 240 6966 richard.higgins@ckdgalbraith.co.uk calum innes 01738 456 075 calum.innes@ckdgalbraith.co.uk harry Stott 01738 456 065 harry.stott@ckdgalbraith.co.uk Mark Thom 0131 240 6997 mark.thom@ckdgalbraith.co.uk
Agency (investment, office, retail & industrial) David clarke 01786 434 630 david.clarke@ckdgalbraith.co.uk Katie gibson 0131 240 6981 katie.gibson@ckdgalbraith.co.uk Richard higgins 0131 240 6966 richard.higgins@ckdgalbraith.co.uk harry Stott 01738 456 065 harry.stott@ckdgalbraith.co.uk
Building surveying Martin cassels 0131 240 6992 martin.cassels@ckdgalbraith.co.uk Peter Scott Aiton 0131 240 6967 petersa@ckdgalbraith.co.uk james Taylor 01786 434 610 james.taylor@ckdgalbraith.co.uk craig Weir 0131 240 2285 craig.weir@ckdgalbraith.co.uk
Facilities management Kash Bhatti 0131 240 6970 kash.bhatti@ckdgalbraith.co.uk
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