Property Journal January-February 2020

January/February 2020

22 Residential Debunking the myth of party wall surveyors’ special status

38 Commercial Making the switch to digital working less daunting

52 Personal property How is the art market faring in an uncertain world?

rics.org/journals

Property

Fairer finance 24

Understanding how Shariah-compliant lending works

THE PROPERTY MANAGER FOR THE NEW ™ ECONOMY Everyone’s talking about flexible officing. But we’re not just talkers, we’re doers. We’ve been generating cash from underutilised buildings for our Clients for over 25 years.

Whether it’s an empty floor or a whole building, whatever type or age, wherever in the UK, it’s time your vacant space started to make you money from the flexible officing revolution.

Our Clients have some of the smartest minds in the property industry. Join them and prosper from our unique property management service.

Citibase. The Property Manager for the New Economy™

citibase.com ceo@citibase.co.uk  0121 667 1296

Property

Contents

The Property Journal is the journal of the RICS Commercial Property, Dispute Resolution, Facilities Management, Machinery & Business Assets, Management Consultancy, Personal Property, Residential Property and Valuation Professional Groups Editors: Claudia Conway (Interdisciplinary, Commercial property) T: +44 (0)20 7695 1605 E: claudiaconway@rics.org Jan Ambrose (Residential property, Personal property) T: +44 (0)20 7695 1554 E: jambrose@rics.org Assistant editor: Brian Ward T: +44(0)20 7334 3765 E: bward@rics.org

5

50

How can increasing demand for build-to-rent housing be met?

Two recent cases show how difficult taking legal action against approved inspectors is

6

62

Rent demand Advisory groups Commercial property: John Baguley (RICS), Paul Bagust (RICS), Sarah Cranke (Faithful+Gould), Nicola Dixon-Brown (CBRE), Martin Francis (BNP Paribas), Vivien King (Hollis), Nigel Sellars (RICS), Paul Tonkin (Hogan Lovells) Residential property: Mike Basquill (RICS), Paul Cutbill (Countrywide), Julian Davies (Earl Kendrick), Graham Ellis (RICS), Chris Rispin (BlueBox Partners), Philip Santo (Philip Santo & Co)

Published by: The Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T: + 44 (0)24 7686 8555 W: rics.org ISSN 2053-0935 (print) ISSN 2053-5732 (online)

Editorial & production manager: Toni Gill Sub-editor: Matthew Griffiths Advertising: Jonny King T: +44 (0)20 7101 2777 E: jonny@wearesunday.com Design & production: We Are Sunday Printer: Geoff Neal Group

Briefing 11

Pay it safe Who is liable for the cost of cladding replacement and fire safety measures?

Zoning out When local government intervenes to protect public buildings, how far can their value be diminished before owners should be recompensed?

17

Commercial

Surveyors appointed as expert witnesses must pay heed to the rules of evidence

12

True to your word

27

Ready to charge Those likely to be affected by the construction industry reverse charge should prepare for its belated introduction in October 36

Energy exemplars While every 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 right, 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 v.3.0 for public sector information: nationalarchives.gov.uk/doc/ open-government-licence/version/3/

Inspection immunity

A Welsh programme shows that buildings designed and constructed using existing supply chains alone can meet their own energy demand 40

On the upside Developing extra storeys in the airspace above an existing property requires careful legal preparation 48

Local colour

Repurposing retail Could conversions of retail units under permitted development rights help to sustain the high street?

14

The smart set Recent research explores what the commercial real-estate sector thinks about the use of smart contracts 18

Risk recognition Property portfolio managers need to understand, manage and control a range of risks 24

Do no harm Islamic financing of property in the west should be structured to comply with Shariah requirements

A new open platform is designed to collect, visualise and disseminate data on London’s building stock rics.org/journals 3

Property

Contents

32

Let’s go round again

Residential

42

Wet or dry?

Researchers in Sydney are exploring how the principles of the circular economy can be applied to office strip-outs

What do the differences between absolute and relative humidity mean for dampness in our homes?

34

59

A pioneering project has been collecting evidence to show whether a biophilic office can improve health and well-being

It is ultimately members’ responsibility to maintain RICS’ high standards, as a recent disciplinary case demonstrates

Better nature?

Responsibility and compliance

8 38

Tech for success Apps can bring the switch to digital methods of working within reach for all organisations 46

Bringing rent to heel A surveyor’s investigation of the local retail market enabled a rent reduction for one small business

In the light of day How are infringements of the right to light determined and measured?

20

New standards in retrofit A recently published BSI standard aims to ensure significant improvements in UK home retrofits

60

22

Working by the rules

How was planning permission obtained for the development of an extensive basement garage at a listed property?

Revised party wall guidance stresses that surveyors are regulated to the same standard as other professionals

Personal property

Onwards and downwards

28

Mistaken identity 54

Changing behaviour not climate Changing the way we work is at least as important as technology to achieving energy efficiency 56

Uncertainty principles When does uncertainty about a valuation become material?

4 Journal January/February 2020

Why has one mortgage lender decided that chartered surveyors cannot be trusted to carry out structural surveys?

30

Beat the heat As average temperatures rise in the UK, the risks of overheating must be identified and mitigated

52

The state of the arts It is not only the uncertainty of Brexit that has affected the arts market over the past three years but a range of globally significant factors

Property

Comment

Economics

‘Build-to-rent offers investors the benefits of portfolio diversification with the potential for a long-term income stream’ Jeffrey Matsu Senior economist, RICS

There is increased demand from millennials for build-to-rent (BTR) housing, as they are renting for longer than their parents’ generation, delaying marriages or putting off starting a family, and placing a premium on shorter commutes near urban centres.

Higher-density, vertical accommodation seeks to address such space scarcity by providing communal areas, energy-efficient designs and convenient amenities. As local authorities struggle to meet ambitious government housing targets, BTR also gives an opportunity to produce large-scale developments at pace while offering tenants a professionally managed letting scheme.

According to the British Property Federation, the number of BTR units either completed or planned across the UK represents only two per cent of the total number of homes in the private lettings market, and 51 per cent of these are in London. Research by Knight Frank suggests that while the capital has attracted 65 per cent of investments, a growing divergence in yields is raising investor interest in other large cities. By 2022, total investment in the sector is expected to exceed £70bn.

Pension funds, asset managers and housing associations have been attracted to the longer income stream security of BTR and are currently the main sources of finance. Although the market comprises many small domestic players, Molior’s July 2018 BTR bulletin shows that 67 per cent of completed units in London are managed by the top 20 companies (bit.ly/molior18).

Given that the BTR model is more established in markets such as the USA and Australia, overseas investors bring a greater acceptance of risk and institutional knowledge, which over time can encourage more active domestic participation. There is a general acknowledgement that it may take another ten to 15 years for the sector to mature in the UK, which is comparable to the length of time it took multi-family and student housing accommodation to become established in the USA and UK respectively.

Viability remains a concern, however, as does whether housing can be provided at scale. For instance, land supply is a major barrier to new construction, particularly in high-demand areas that could sustain rental developments. Developers will only allocate

land for rental property when it yields the highest expected residual land value, and in many cases buy-to-let or owner-occupier markets will generate higher capital values for properties because these include expectations for future gains.

Government policy will be crucial to ensure that market conditions support the establishment of the sector in the UK and its sustainability in the long run. Homes must be supplied in areas of high demand that are linked to good infrastructure such as mass transit, high-speed broadband, schools and hospitals.

Policy can leverage the flexibility of BTR by encouraging a mix of rent levels, lease durations and community designs that cater to families as well as mobile professionals.

Local authorities could fast-track building permission for developers that meet these specifications. Similarly, to enable the fairer acquisition of land intended for BTR, the public sector could offer sites at below market value, on the condition that the operator maintains the property as a rental scheme for a pre-defined period.

Meanwhile, there is an urgency for all providers to re-prioritise the tenant experience, given recent attention on permitted development rights. The growth of the private rented sector has been coupled with higher rates of reported tenant dissatisfaction; but a professionally managed scheme such as BTR could counter this by offering longer and more flexible tenancies, no need for deposits, more predictable changes to rent, high-quality integrated services, a wide variety of amenities and reliable maintenance.

While it is not a panacea for the housing crisis, BTR can meet the needs of different groups of people, including investors. By attracting skilled labour to growing cities, the sector can support labour mobility, thus enhancing the productivity that will in turn improve UK cities’ global competitiveness.

Jeffrey Matsu is a senior economist at RICS with a focus on market insights jmatsu@rics.org Related competencies include: Investment management (including fund and portfolio management) rics.org/journals 5

Property

Briefing Professional statement set to clarify home survey process

RICS issues public guidance on fire safety RICS has published a fire safety guide for landlords and tenants to highlight their responsibilities in keeping properties safe, regardless of the type of home.

Written by chartered building surveyors and a multidisciplinary advisory group working in fire safety design and regulation, the guide aims to help make homes as safe as possible by promoting understanding of the risks and encouraging management of fire safety measures.

By offering clear and comprehensible advice, it intends to spread awareness of good practice. rics.org/firesafety 6 Journal January/February 2020

The RICS Home survey standard professional statement has been published, with the aim of ensuring that surveyors can help buyers and sellers to understand the importance and benefits of commissioning a survey before making a property transaction.

Process and language have been simplified and survey offerings standardised so consumers can be properly informed and get the level they need. The standard becomes effective as of June 2020.

RICS global property standards director Paul Bagust said: ‘We’ve worked with consumers, cross-industry stakeholders and practitioners to improve the homebuying and selling process for all. The complete overhaul of home surveys with our new standard will bring vital clarity to the process, so RICS professionals can work effectively to meet the changing needs of the market.’ rics.org/homesurveys

Take part in the Survey of the Profession The next RICS Survey of the Profession takes place in January, and we encourage you all to complete it and share your views.

Your feedback gives you the opportunity to improve our engagement with members and for you to detail your own personal experience.

RICS’ international member base is surveyed twice a year, providing up-to-date understanding of our performance as a professional organisation. Results help to shape our future direction and ensure we understand how well we are trusted and the extent of our influence.

RICS outlines policy focus The RICS Government Relations team has announced its three policy priorities for 2019–20, namely housing supply, saving the high street, and climate change. These will aid the organisation in using its expertise to inform and advise decision-makers in national and regional government administrations on these issues. rics.org/gov-policy

Conference set to look at energy opportunity February’s inaugural Energy Development Conference, organised by Built Environment Networking, will bring together more than 200 leaders from the property, development, infrastructure, construction and energy sectors to maximise opportunities for economic growth, outlining how a sustainable approach to development and regeneration is crucial.

With the impacts of climate change and Brexit to consider, the UK’s wider growth strategy is more important than ever. The event will provide a chance to speak to industry representatives and learn about key challenges and opportunities. bit.ly/EnergyDev20

Standards Awards to recognise social impact and sustainability The new RICS Social Impact Awards assess the human, social and environmental impact of development and infrastructure projects in the commercial, education, healthcare, heritage, infrastructure, land and rural, leisure, residential and student accommodation sectors, along with the innovation and collaboration that has gone into them.

Projects will be assessed in 12 regions across the UK, and all category winners will then go head to head in the grand final next October for the chance to win the national accolade in their respective category, as well as the overall Outstanding Contribution to Society Award for best UK project. A Lifetime Achiever Award will also recognise an individual whose work has had a great social benefit. Entries can be submitted via the RICS website until 31 January.

The launch of the new awards programme follows the announcement of RICS’ Value the Planet campaign, which aims to encourage the built environment professions to take action on climate change and adopt the UN’s Sustainable Development Goals. rics.org/awards rics.org/valuetheplanet

Recently published Comparable evidence in real estate valuation global guidance note, 1st edition rics.org/real-estate-valuation International Construction Measurement Standards, 2nd edition rics.org/icms International Property Measurement Standards: Retail Buildings rics.org/ipms Valuation of development property guidance note, 1st edition rics.org/dev-property Forthcoming Conduct and competence professional statement International Fire Safety Standards Planned preventative maintenance guidance note Public sector asset management guidance note rics.org/standards All RICS and international standards are subject to consultation, open to RICS members. rics.org/iconsult rics.org/journals 7

Residential property

Rights of light

In the light of day The second article in the series on rights of light explains how infringements are determined and measured

Angela Gregson

8 Journal January/February 2020

A claim for infringement of a right to light can only be made if the interference is an actionable one. Whether or not the interference is enough to be actionable is determined by how much light remains after the defendant’s actions, and whether it is adequate for the claimant’s purposes.

This test was set by the House of Lords in Colls v Home & Colonial Stores Limited [1904] AC 179 (isurv.com/CollsvHCS1904).

In that case, Lord Davey stated that ‘the owner or occupier of the dominant tenement is entitled to the uninterrupted access through [their] ancient windows of a quantity of light, the measure of which is what is required for the ordinary purposes or inhabitancy or business of the tenement according to the ordinary notions of [human]kind’.

Lord Lindley put it a slightly different way: ‘generally speaking, an owner of ancient light is entitled to sufficient light according to the ordinary notions of [human]kind for the comfort or use and enjoyment of [their] house as a dwelling house or for the beneficial use and occupation of the house if it is a warehouse, a shop or other place of business.’

A development can take away some of the light to the neighbouring property so long as there is enough left. The use to which a room is put and the claimant’s ability to continue using it for that purpose is thus of critical importance to any claim. If the property in question is residential and the light is lost to work surfaces in a kitchen, this would be considered far more serious than the loss of light to a corridor or store room. But how is the loss measured?

It is important to understand what is irrelevant when pursuing the measurement of light for the purposes of a claim. The BRE guidance on the level of reduction in daylight and sunlight that is acceptable in planning terms is of no relevance: it is entirely possible – in fact commonplace – for a development to sail through the planning process on the basis that the BRE requirements are met but still then actionably interfere with a right to light and therefore leave open the possibility of a claim for an infringement.

Artificial light is not taken into account when considering whether a room is well

A rights of light claim continues to be determined by the amount of light that would be emitted from a candle lit – the suggestion that artificial light should be considered was roundly rejected

by Justice Peter Smith in Midtown v City of London Real Property Co Ltd [2005] EWHC 83 (Ch) (isurv.com/MidvCLRP2005). This is particularly relevant to office blocks, which are routinely lit by artificial means.

Perhaps surprisingly, deciding what is satisfactory for the purposes of a rights of light claim continues to be determined by the amount of light that would be emitted from a candle. Although there is more than one way of measuring loss of light, the only sure method that has received judicial approval is the Waldram method developed following the work of Percy Waldram in the 1920s and 1930s (isurv.com/Waldmeth).

According to the Waldram method, the amount of light considered to be sufficient is the equivalent of one lumen per square foot at tabletop height. So, if a point in a room can receive 0.2 per cent of the total illumination received from the sky, it is considered adequately lit.

The well-known 50/50 rule emerged from the Waldram method. This is used by surveyors and provides that, if half the light in a room is adequate in accordance with the method, then there is no actionable interference and therefore no claim.

However, surveyors must be very careful not to apply this rule rigidly. In Ough v King [1967] 1WLR 1537 (isurv.com/OvK1967), the Master of the Rolls Lord Denning stated: ‘I would not myself be prepared to regard the 50/50 rule of Mr Waldram as a universal rule. In some cases, a higher standard may be reasonably required.’

In Ough, the amount of the room that was well lit after the obstruction was only reduced from 64.05 per cent to 51.27 per cent, but the court nonetheless found that there was an actionable interference; there was still a claim, although this was above

the 50 per cent threshold. In Deakins v Hookings (1994) 1EGLR 190, the court held that the 50/50 rule was not a rigid test and a higher standard may be needed in some cases (isurv.com/DvH1994). Accordingly, it must be regarded as a rule of thumb and not a rule of law.

The Waldram method does not take into account modern standards and expectations. Levels of light that he deemed adequate in the 1920s and 1930s may not be considered sufficient today. This is particularly true in the residential sphere.

It must also be noted that the method does not allow for externally or internally reflected light or seasonal variations.

There are other methods by which loss of light can be measured, such as the radiance test and climate-based daylight modelling.

The former is a method of software analysis that uses ray tracing to demonstrate levels of light, while the latter looks at meteorological data based on the precise position of a building and can consider reflected light. Such modern methods of scientific analysis will be able to produce more accurate methods of assessing whether a proposed development will really cause a nuisance. However, to date, they are completely untested in the courts.

One day, no doubt, the question of whether the Waldram method should continue to be used to measure losses of light will come to litigation. If and when it does, it could lead to significant changes in the way losses of light are measured, and what exactly constitutes an actionable interference with a right to light.

Angela Gregson is a partner with Child and Child angelagregson@childandchild.co.uk Relevant competencies include: Legal/regulatory compliance rics.org/journals 9

Thinking of selling your land?

We have the key to unlocking your client’s maximum potential

Rosconn Strategic Land Limited Rosconn House, 1 Grove Road, Stratford upon Avon, Warwickshire CV37 6PE T: 01789 294520 E: enquiries@rosconngroup.com

www.rosconngroup.com

Trusted Transparent Innovative

Property

Comment

Fire safety liability

‘If you take steps to carry out works without good reason, you run the risk of leaseholders challenging associated costs’ Faiza Ahmad Estates and Management

Q: I own some assets with cladding that may be considered unsafe. Has case law made it clear who is liable to pay for replacement and fire safety measures?

A: This depends on the detailed construction of the lease; but if the property contains residential flats on long leases, the cost will typically be borne by the leaseholders through the service charge.

However, leaseholders benefit from statutory protections and have the right to apply to the First-Tier Tribunal (Property Chamber) to challenge their liability for such charges under section 27A of the Landlord and Tenant Act 1985, as well as determining whether the costs are reasonable under section 19.

The landlord, or whichever party is responsible for the works, must also ensure they comply with the statutory consultation process, as per section 20, or seek dispensation under section 20ZA from the tribunal where the costs per flat exceed £250. Failure to do so will result in the party with responsibility being required to pay any costs exceeding £250 per flat.

On the question of reasonableness, if you receive a report from a fire safety engineer recommending that works be carried out on safety grounds or an enforcement notice under the Regulatory Reform (Fire Safety) Order 2005 requiring you to institute a 24-hour waking watch, or the insurer refuses to provide cover until the works are carried out, then it is likely that the costs will be reasonably incurred. But if you take steps to carry out works without good reason, you run the risk of leaseholders challenging any associated costs.

Leases specify a variety of maintenance obligations, and you must consider them against the scope of work to ensure leaseholders are required to pay. Works required may include removing and replacing dangerous cladding or other materials; implementing a 24-hour waking watch; remediating compartmentation issues; rectifying fire detection systems; replacing deficient fire doors; and fixing automatic opening vent systems.

As landlord you may not be contractually responsible for carrying out these works because this responsibility may fall to other

parties, such as a management company named in the lease, which may be run by the residents; a freeholder; a head lessee; or a company that has exercised its statutory right to acquire the right to manage.

Many tribunal decisions offer guidance on how responsibility for the costs of fire safety and replacing dangerous cladding is likely to be considered, and the probable approach of a tribunal in determining an application for dispensation from consulting leaseholders under section 20ZA of the 1985 Act. These decisions include: ••Firstport Property Services Limited v Various Leaseholders of Citiscape, Croydon CR0 1TH LON/00AH/LDC/2017/0130 (20 December 2017) ••Ground Rent Estates 5 Limited v Various Leaseholders of Nova House, 1 Buckingham Gardens, Slough SL1 1AY CAM/00MD/LSC/2018/0050 (28 November 2018) ••RG Securities (No.2) Limited v Various Leaseholders of St Francis Tower, 23 Franciscan Way, Ipswich IP1 1NB CAM/42UD/LDC/2018/0015 (20 December 2018) ••Glenageary Estates LLP v Various Leaseholders of Babbage Point, 20 Norman Road, London SE10 9FA LON/00AL/LDC/2019/0019 (18 March 2019).

In addition to case law, before carrying out works you must consider the following.

••Are costs covered by the government’s aluminium composite material (ACM) cladding fund?

••Are there any warranties or insurance?

••Is there potential for a claim against the developer under the Defective Premises Act 1972 or in negligence?

••Is the original developer prepared to carry out the remediation works without passing the costs on to leaseholders?

Given the problem stems from a systemic failure of the Building Regulations, it is regrettable that the government has not responded to leaseholders’ calls to expand the ACM fund to include other cladding and material types. Unless it does so the problem – and litigation – will persist.

Faiza Ahmad is director of legal at Estates & Management Ltd f.ahmad@e-m.uk.com rics.org/journals 11

Commercial property

High streets

Word on the street The traditional model of the British high street seems no longer sustainable. Could conversion of retail units under permitted development rights be part of the solution?

John Dean

The October 2019 collapse of Thomas Cook is a recent example of what some have termed a retail apocalypse. The last few years bear testament to the enormous challenges facing the sector, which have resulted in the substantial diminution and in some cases the demise of many household names.

Woolworths and House of Fraser have largely been confined to the history books; Debenhams, Arcadia and Monsoon have all fallen prey to insolvency processes. In July 2019, William Hill announced that it was closing down 700 betting shops and Ladbrokes Coral, the UK’s largest bookmaker, is expected to shut around 1,000 outlets. Public houses are disappearing from towns and appearing en masse in the auction room and high-street banks, with the notable exception of Metro, are closing their doors to the public.

Even retailers with a healthier balance sheet are feeling the pinch: 12 Journal January/February 2020

Marks & Spencer is anticipating closing 100 stores and Boots plans to shut 200 of its smaller pharmacies. Busy streets even in affluent areas now resemble ghost towns. Is it high noon for the high street?

The rise of more convenient internet shopping is undoubtedly a significant factor in this malaise. Internet retailers also have fewer resource requirements and do not have to pay rents and business rates on premises in expensive locations.

Out-of-town shopping centres such as Westfield in London, Bluewater in Kent and the Intu MetroCentre in Gateshead pose another threat. Their rise in popularity, particularly among younger generations, might be attributed to the way they combine retail with leisure, entertainment, a place to eat, drink, socialise, have a facial or even to work. With free wi-fi and the increase in availability and reliability of mobile data, extras once considered

optional or extravagant are now often taken as a given. The popular click-and-collect technology pioneered by Walmart shows that the internet and traditional retail need not be mutually exclusive.

Likewise, it is no coincidence that there has been a significant increase in the number of coffee shops, which have managed to thrive in the high street and beyond, unlike other types of outlet.

We go to coffee shops to meet, work, relax and surf the internet, with coffee drinking itself often being only a secondary purpose.

The indicators appear therefore to suggest that to succeed on the high street may be a result of using space effectively for community purposes, embracing technology for work, pleasure and day-to-day transactions, and ensuring this is achieved in convivial surroundings that encourage people to leave their homes.

The question, then, is how to achieve this. Is the current planning regime sufficiently flexible to enable retail spaces to be adapted for multipurpose community activity without undue difficulty?

The primary legislation for planning is the Town and Country Planning Act 1990. Section 57(1) requires planning permission to be obtained to carry out any development on land. Development is defined in section 55(1) as including ‘the making of any material change in the use of any buildings or other land’, with materiality being a question of fact and degree in each case. The different classes of use are defined in the Town and Country Planning (Use Classes) Order 1987 (as amended).

Certain changes of use are deemed to be acceptable without requiring specific planning permission and these are listed in Part 3 of Schedule 2 of the Town and Country Planning (General Permitted Development) (England) Order 2015. These permitted development rights are useful to developers in redeveloping retail space into alternative uses attractive to the 21st-century customer, albeit only to a limited extent and subject to qualifications and exceptions. For example, permitted development rights are usually excluded in conservation areas following the implementation of a direction under article 4 (1) of the 2015 Order.

The relaxation in planning legislation following government consultation in 2012 – which in many places enables a conversion from class A1 retail under the 1987 Order to C3, residential dwelling – has been widely publicised. The ability of investor–owners to obtain higher yields from residential properties has been alluring, but perhaps more widely seen in the context of a transfer from B1(a) office use. Although the high street has not experienced so much residential development, some schemes are now appearing; but whether they will be successful remains to be seen given the residential market’s current difficulties.

Developments that are likely to succeed on the high street, and beyond, include communal spaces, health and fitness facilities, and areas where people can meet, break bread and drink together; in other words, these will be residential schemes that include some commercial, retail or leisure element. Such mixed-use sites, however, fall outside the limited scope of current permitted development rights and will almost invariably require planning permission for the works required, if not for change of use.

Developers need to work with landowners to ensure that covenants and planning conditions are sufficiently flexible.

The popular click-and-collect technology pioneered by Walmart shows that the internet and traditional retail need not be mutually exclusive

In Dunnett Investments Ltd v Secretary of State for Communities and Local Government and another [2016] EWHC 534 (Admin), the High Court held that a planning condition that land should be used for class B1 use ‘and for no other purpose whatsoever, without express planning consent from the local planning authority first being obtained’ meant exactly that, and that deemed planning permission under a General Permitted Development Order did not suffice. At present permitted development rights apply, subject to limitations and exceptions, to the conversion of class A1 retail into: ••class A3, restaurants and cafes ••class A2, financial and professional services ••class D2, assembly and leisure ••offices in class B1(a).

Conspicuous by their absence are any permitted rights to change from A1 retail to class A4 drinking establishments or A5 hot food takeaways or class D1, which in its subsections includes schools, day centres, art galleries, places of worship and health centres and clinics. The fundamental purpose of these uses is to bring people together in one way or another, and they can be combined quite effectively under one roof or a parade; the Intu MetroCentre for example is one of the few shopping centres in Europe to have its own resident full-time chaplain. Reform that extends permitted development to include some of these uses would be a welcome solution to high street woes.

Such community-focused uses are to be encouraged, not least because the clear evidence is that they reflect what the public wants. Planning legislation should support and not hinder implementation, and while central and local government will wish to retain a degree of control over zoning and redevelopment, they should not be blind to the difficulties facing the high street. They should look to streamline planning processes and perhaps consider extending permitted development rights further to promote the regeneration of the high street and local communities.

John Dean is head of real estate at McCarthy Denning jdean@mccarthydenning.com Related competencies include: Planning and development management rics.org/journals 13

Commercial property

Smart contracts

The smart set Recent research has explored what commercial real-estate professionals think about the use of smart contracts in the sector

Khilen Shah

A smart contract is a computer code that can automatically execute and enforce the terms and conditions of a legal agreement (bit.ly/SmartconIP).

Thanks to the decentralised character of the blockchain on which they depend, such contracts can bypass expensive intermediaries such as financial institutions and legal professionals. These benefits mean that, although the technology is in its infancy, smart contracts are already being used to conduct commercial property transactions such as buying, selling, leasing and financing.

Given this potential, commercial agent and surveyor SavoyStewart asked 544 professionals in the sector to identify what they think are the biggest benefits of using smart contacts, as well as what they feel are the 14 Journal January/February 2020

main barriers to wider use in future. These findings are summarised in Tables 1 and 2 respectively.

Our research found that 71 per cent of the surveyed professionals consider increased speed as the biggest advantage of using smart contracts. Since these contracts run on software they don’t require documents to be processed manually, thus freeing up time and resources for companies.

Transactions in commercial real estate typically involve not just the buyer and seller but also lender, appraiser, insurer, auditor and surveyor, though a smart contract can take over some of these other functions.

As a consequence, 66 per cent of the experts surveyed believe that this will make the exchange between the buyer and seller more efficient. Similarly, as there are

fewer intermediaries to deal with in smart contracts, 63 per cent of professionals state that buyer and seller will each save considerable expenditure on fees, hence making transactions more cost-effective.

Since records on blockchain are unalterable and documents cannot be forged, opportunistic commercial property scams become almost impossible, and 59 per cent of respondents rate smart contracts as highly secure. Contracts are also paper-free, so 40 per cent appreciate the positive impact this could have on the environment. Furthermore, smart contracts require all of a transaction’s terms and conditions to be recorded in explicit detail; with that, 45 per cent identify clearer communication between parties as a vital benefit.

As Table 2 shows, 74 per cent of experts cite a lack of understanding or knowledge about smart contracts as the primary reason why commercial real estate may not use them on a greater scale in the future. This could be addressed to some extent by senior figures in commercial real-estate firms arranging for an employee or external expert to run workshops on blockchain and the fundamentals of using smart contracts in transactions. The onus will be on firms to provide adequate time and training for staff to familiarise themselves with all the details as well as the intricacies of smart contracts. Those firms that do could realise the power of smart contracts and enable their employees to provide a better service to their clients.

Meanwhile, 69 per cent of respondents feel that, until the government clearly stipulates how it intends to regulate and tax smart contract transactions, their use will remain limited. Furthermore, 58 per cent think that data privacy compliance might be a challenging issue: because details stored on a smart contract remain there forever, there is a perception that it may breach certain data privacy regulations. This could create a significant dilemma if one party wants to withdraw particular information from a contract and legislation such as the General Data Protection Regulation grants them the right to do so. More than half of the professionals surveyed – 51 per cent – also suggest that the lack of best-practice standards could have a negative impact on the wider use of smart contracts.

Overall, this research indicates definite interest in smart contracts, but barriers relating to knowledge and compliance must be overcome before the potential benefits can be brought to the real-estate market.

Khilen Shah is a commercial property researcher at SavoyStewart khilen@journalistic.org info@savoystewart.co.uk Related competencies include: Legal/regulatory compliance

Table 1. Perceived benefits of using smart contracts

Benefit identified

Response rate

Increased speed

71%

More efficient

66%

Cost-effective

63%

Highly secure

59%

Better back-up, as all transactions automatically duplicated

54%

Greater accuracy

48%

Clearer communication

45%

Paper-free

40%

Table 2. Perceived barriers to use of smart contracts

Barrier identified

Response rate

Lack of understanding/knowledge

74%

Uncertainty about government approach to regulation and taxation

69%

Complexity of integrating contracts into business processes and practice

62%

Data privacy compliance issues

58%

Lack of best-practice standards

51% SOURCE: SAVOYSTEWART

rics.org/journals 15

s g re e m e n t

nt A

ge

me

s rk

na

Creating Car Pa

Ca

rP

a rk

s

Tr a n s p a re n t A N

n

g

L ea s i n g a n d M

a an

gi

PR

M

a

Combining flexible car parking solutions with a property management perspective 25 years’ operational experience Rental, management fee or income share Providing yield enhancement Future proofing car parks for the digital age Contact Neil Edwards MRICS neil.edwards@green-parking.co.uk Telephone: 01372 462 156 www.green-parking.co.uk

Property

Comment

Legal

‘It is your professional opinion on the line, and you who may be accused of breaching the rules of evidence’ Vivien King Hollis

Any chartered surveyor appointed as an expert witness will know that, in giving their opinion, their duty is not to the appointing party but to the court.

The expert witness is not there to present a case for and on behalf of their client, but in the heat of the moment they may be tempted to slant an opinion towards the view they know the client wishes to hear, or to include evidence that they have not verified personally.

Always resist that temptation. It is your professional opinion on the line, and you who may be accused of breaching the rules of evidence – the punishment for which can be a prison sentence.

If you are in any doubt about this then take a look at Civil Procedure Rule 32.14 (bit.ly/CPR32-14). An expert witness’s report is supported by a statement of truth, and if this is given in support of a statement that is false – whether knowingly or recklessly given – and without the expert’s honest belief in its truth, that expert is in contempt of court and can await jail.

This threat became a reality in the recently reported case Liverpool Victoria

Insurance Co. Ltd v Zafar [2019] EWCA Civ 392. In this case a solicitor, Mr Khan, who frequently advised potential claimants regarding personal injury actions, instructed a Dr Zafar to examine one client, Mr Iqbal, who had been involved in a motor accident.

Iqbal had suffered neck injuries, and Khan, for and on behalf of Iqbal, asked Zafar to prepare a report as an expert witness in Iqbal’s proceedings against the driver of the other car. The proceedings were defended by that driver’s insurers. Zafar produced a report saying he had seen Iqbal, who he said had indeed suffered injuries but was now fully recovered.

However, Iqbal complained to Khan that he was, in fact, still suffering. Khan reported the situation to Zafar who, without a further examination of Iqbal, produced a second report that made reference to the client’s ongoing neck pains.

Both reports contained a statement of truth in accordance with the Civil Procedure Rules, and were disclosable under those rules. Seeing both reports, the insurers for the defendant driver issued proceedings against Zafar and Khan.

The judge at first instance found ‘those who make false claims should expect to go to prison. Solicitors and expert witnesses who act dishonestly in the evidence they give to the court, whether in support of such claims or otherwise, must expect a similar outcome.’

He told the defendants: ‘You must understand that the proper functioning of the court system depended on your honesty. Your conduct in this case amounts to a fundamental betrayal of the trust placed in you by the court.’

Blaming the solicitor for ‘the whole sorry affair’, the judge gave a sentence of 15 months’ imprisonment. He suspended a sentence of two years against Zafar, but in so doing recognised that there was no judicial guidance available regarding suspended sentences for contempt of court.

The insurers appealed Zafar’s sentence.

Giving guidance on such circumstances, the Court of Appeal said a judge should consider ‘the culpability of the contemnor and the harm caused, intended or likely to be caused by the contempt of court’. Their Lordships thought that, having considered the seriousness of the offence, a fine may be a sufficient penalty.

However, they added: ‘We say at once, however, that the deliberate or reckless making of a false statement in a document verified by a statement of truth will usually be so inherently serious that nothing other than an order for committal to prison will be sufficient.’ If, having considered all the facts of a case, the judge concludes that a prison sentence is applicable, the sentence cannot normally be suspended.

Expert witnesses and instructing solicitors should beware. Prison is in prospect for those who knowingly or recklessly present a report that does not contain the truth, the whole truth and nothing but the truth.

Vivien King is a consultant to Hollis vivien.king@hollisglobal.com Related competencies include: Ethics, Rules of Conduct and professionalism, Legal/regulatory compliance rics.org/journals 17

Commercial property

Asset management

Risk recognition How can portfolio managers best understand, manage and control the risks their properties face?

Richard Bond

18 Journal January/February 2020

particular in safety-critical sectors such as rail, aviation, and oil and gas, to help inform decisions on which risks are tolerable, and which are not and need controlling.

The task of managing the risks that might affect a large property portfolio is also likely to be helped by developing and maintaining a portfolio-wide register. However, keeping track of and implementing measures to control the diverse hazards and threats will probably be challenging, even at the best of times, thanks to the various factors in play.

For instance, properties may be situated in a sensitive urban location, such as next to a busy transport hub. Or there may be a variety of building types in the portfolio, such as offices, retail and food and beverage outlets, which are vulnerable to different

Creating a risk register means thinking about the broad context and taking into account the many factors that may affect the safety and security of an asset and its occupants

hazards and threats. Some properties may have dedicated management on site while others won’t. The portfolio may even include iconic buildings, or high-profile tenants that could attract threats such as terrorism or criminality due to their business operations or corporate behaviour.

Developing and deploying a risk register would provide property portfolio managers with a comprehensive framework to identify, assess and track risks, and make informed, auditable decisions about which should be controlled and which accepted.

A property portfolio risk register can:

IMAGE Š WAAG

Businesses manage diverse property portfolios in complex urban environments.

But cities are regularly exposed to various hazards and threats that may damage properties, harm building occupants, and cause disruption or reputational damage to the property owner and operator. A natural hazard such as flooding may damage the building fabric, while an unexpected but disruptive event such as a sit-in protest of the kind Extinction Rebellion staged in London in 2019 may prevent tenants from accessing their workplace. By systematically identifying, assessing and tracking hazards and threats to properties, portfolio managers can help control the risks.

Risk registers are a well-established tool for identifying, managing and treating risks. They are widely used by business, in

••be used to track and monitor risks and control measures that evolve over time, if the register is regularly updated ••provide a framework on which to base strategic and operational decisions about the management of the portfolio in response to emerging hazards and threats ••help evaluate the effectiveness and suitability of an existing control measure such as flood protection kits in buildings, which may be at risk due to budgetary constraints, or support the case for a new measure being implemented ••inform a security and operational strategy, and a business continuity and crisis management plan ••inform dedicated registers for any buildings in the portfolio that require one ••demonstrate the business’s proactive approach to risk management, which can then be presented to key stakeholders.

To be of value, the risk register needs to be comprehensive and tailored for the portfolio in question. This requires a systematic and structured approach to identifying any threats and hazards to the properties included, and the risks posed by those threats and hazards.

Once the business need and objectives of the risk register have been established, the next step should be to identify credible threats and hazards. This identification process could include the following steps: ••consultation with stakeholders who are familiar with the external threat or hazard context, and understand the internal threats and hazards that have previously affected the portfolio in question ••drawing insight from historical data and information such as official public registers, including the National Risk Register of Civil Emergencies (bit.ly/RiskReg2017); for property portfolios in London, the London

Risk Register is also a valuable reference point (bit.ly/LonResilience) ••drawing insight from historical data and public threat or hazard information such as the Control of Major Accident Hazards database (bit.ly/Comah) or local crime patterns, available from the police ••a review of internal security and health and safety incident logs ••if feasible, a site walkover to identify threats or hazards that may materialise from the locale – for instance, is the portfolio located next to a night-time economy area or major transport hub that may expose buildings and their occupants to criminality or nuisance behaviour?

After the credible hazards and threats have been identified, the next task is to develop a structure for the risk register that will enable risks to be assessed. Such a structure must allow for a qualitative or quantitative assessment, or both, of the probability and consequences of the given threat or hazard and enable the risks to be ordered by priority of tolerance. A competent person reviewing the available relevant information could reach a qualitative judgement on this by themselves, or collective assessment may be involved, such as a round-table exercise with appropriate stakeholders.

To make consistent judgements on probabilities and consequences requires a set of clear definitions on what constitutes, for example, a likely hazard or a severe consequence, as well as an agreed line between acceptable and unacceptable risks. Additionally, it may help the business to distinguish between physical consequences for property and people from those that affect the managing agent, such as operational disruption or reputational damage. The value of this approach is that

By systematically identifying, assessing and tracking hazards and threats to properties, portfolio managers can help control the risks

it would help inform and guide risk appetite decision-making.

The risk register must also record existing control measures that could reduce either the probability or the impact of a threat or hazard. These measures could include security guards, CCTV, operational and maintenance procedures, business continuity planning and crisis management response, and tabletop exercises based on a crisis scenario to test the organisation’s policies, plans and procedures. Finally, it is vital that the risk register is managed and allows regular updates, as the risks are likely to evolve over time.

The register should be managed by a nominated senior person in the business, one who is well placed to ensure that it is kept up to date, that control measures are implemented and monitored, and that reports to key decision-makers are made by those responsible for doing so.

The number and type of individuals involved in creating the risk register could be very broad: the mix is likely to vary depending on the type of organisation, but it may include managers of facilities and workplace, health and safety, and security. However, clear delegation of roles, responsibilities and accountabilities – from managing and updating the risk register to implementing, evaluating and monitoring control measures – is key to ensure that risk management is embedded in the day-to-day operation and management of the property portfolio. This will provide the evidence and traceability for senior business leaders who are charged with making decisions on risk acceptability.

Proactively identifying and managing risks to a property portfolio effectively is likely to ensure the risks are controlled – but not necessarily eliminated – both to the portfolio and its managing agent.

Therefore, the business benefit of effective property portfolio risk management is ultimately a more resilient business.

Richard Bond is senior consultant, resilience, security and risk at Arup richard.bond@arup.com Related competencies include: Asset management, Risk management rics.org/journals 19

Residential property

Retrofits

New standards in retrofit Retrofitting of UK homes to improve energy efficiency is blighted by poorly planned and executed projects, so a new BSI standard is seeking to ensure significant improvement

Prof. John Edwards

Climate change and its devastating effects have led to a greater emphasis on energy efficiency in the built environment. Ensuring homes are energy-efficient plays a significant part in this. Making existing homes more energy-efficient is important, but there are many examples of poorly designed and implemented retrofit work that has had unintended consequences, from encouraging mould and condensation to increased fire risk. Some retrofit work has actually made buildings less sustainable and, in some cases, less energy-efficient, generating more carbon than has been saved. A more informed and professional approach is therefore necessary.

In June 2019 the British Standards Institution (BSI) published PAS 2035: 2019 Retrofitting Dwellings for Improved Energy Efficiency – Specification and Guidance for homes of all types and ages.

This is a response to Each Home Counts, an independent review of consumer advice, protection, standards and enforcement for UK home energy efficiency and renewable energy measures published in December 2016, which contains 27 recommendations.

These include establishing a quality mark for domestic retrofit, supported by an industry code of conduct, a consumer charter, and a framework of technical standards for retrofit; the first of these has since been established in the form of the government-endorsed TrustMark quality scheme.

PAS 2035 requires a proper assessment of a building, and a considered proposal and specification of works

20 Journal January/February 2020

PAS 2035 is the overarching document in the retrofit standards framework, with which users of the TrustMark scheme will be required to comply when carrying out work on dwellings. All other standards referred to in PAS 2035 are part of the framework, and users of the TrustMark scheme must also comply with those as appropriate. It is expected that PAS 2035 will be applied to retrofit projects outside the quality assurance framework as well, where public finance is involved. PAS 2035 is a requirement under the Energy Company Obligation (ECO).

PAS 2035 sets out a requirement for the proper assessment of dwellings and design and implementation of retrofits, and relates to PAS 2030: 2019 Specification for the Installation of Energy Efficiency Measures (EEM), in existing dwellings and insulation in residential park homes also published in June 2019, which is the specification for selecting materials, components and methods of installation.

One key aspect of PAS 2035 is that it requires a whole-house approach. Not everything in a home has to be addressed, but the planned retrofit must take account of the house in its entirety, reducing the risk of inadvertently installing measures that have a negative impact on others and on the building generally. The whole-house approach is principally risk-based; projects are categorised in one of three groups as determined by a risk matrix.

Retrofit roles PAS 2035 is unusual in that it splits the fulfilment of the specification’s requirements by particular roles (see Table 1).

Individuals in these positions must undertake training, possess qualifications and be members of professional institutions according to their role and the type of building being retrofitted.

The key role is the retrofit coordinator, often described as a project manager with expertise in retrofitting buildings, who is responsible for overseeing the activities of the retrofit adviser, retrofit assessor, retrofit designer, retrofit evaluator and retrofit installer. This is a broad role, with tasks ranging from working out the technical risks to advising on listed building consent. The varied tasks mean the coordinator is well placed to undertake other roles

as necessary. They are required to obtain a level 5 professional diploma in domestic retrofit coordination and risk management, training for which is available from the Retrofit Academy.

The retrofit assessor will either be a qualified retrofit coordinator or a qualified domestic energy assessor, and must also hold a Construction Industry Training Board level 3 award in the energy efficiency and retrofit of traditional buildings, assuming they are working on such a property and that the property has special protection. This is an established qualification in retrofit independently accredited by the Scottish Qualifications Authority, with training from the Environment Study Centre.

The role of the retrofit designer is more complex. In cases of the lowest risk, where a single retrofit measure is being installed, a manufacturer-approved designer can fulfil the role; for other low-risk projects, a retrofit coordinator or a qualified architectural technologist is required. For higher risks, professionally qualified designers who are members of a professional institution, such as RICS, are necessary. Where the highest risk category is concerned and the building is traditionally built, the designer will also need to be a member of a building conservation competency scheme such as the RICS Building Conservation Accreditation Scheme.

Table 1. The roles and responsibilities required to enact PAS 2035 Role

Responsibilities

Retrofit adviser

Qualified to provide retrofit advice to clients and householders at the outset and during a project

Retrofit assessor

Qualified to carry out a retrofit assessment of buildings, the constraints and related issues

Retrofit coordinator

Qualified as a specialist retrofit project manager, taking overall responsibility for: ••overseeing the assessment of dwellings ••the identification, specification and evaluation of energy-efficiency measures for installation at a given dwelling as a single project ••subsequent monitoring and evaluation

Retrofit designer

Qualified to prepare a retrofit design in accordance with PAS 2035

Retrofit evaluator

Qualified to monitor and evaluate the effectiveness of a retrofit project and provide feedback to the client or the project team

Retrofit installer

A person or organisation undertaking the physical placement of energy-efficiency measures in an existing building, in accordance with PAS 2030

Pros and cons On the whole, PAS 2035 should help significantly improve the way UK homes are retrofitted by requiring a proper assessment of a building, and a considered proposal and specification of what works should be carried out. However, with more than 50 individuals in the PAS 2035 steering group, it is no surprise that some are not fully satisfied with the end product.

Some view PAS 2035 as a wasted opportunity, thinking that it could take a more holistic approach to the energy efficiency of homes. They believe it focuses solely on retrofitting measures and neglects to address the positive impact that appropriate maintenance, repair and improvement of existing, core building fabric can have, although the value of maintenance and repair is mentioned in the side notes.

It has some very specific technical requirements in relation to ventilation and the calculation of energy loss, for example, but many of these are optional, which may seem as though it offers professionals a way of avoiding compliance. In reality, these requirements mean that those involved in projects can make measured judgements. In the case of traditional buildings this is a huge advantage, as a risk-based approach is often the only feasible way forward.

There is also debate about whether PAS 2035’s acknowledgement that different building types, particularly traditional buildings, require different skill sets is a positive thing. This debate may show the UK construction industry does not understand the differences between buildings of different ages. The retrofit coordinator role and training provision have also received a mixed response.

The retrofitting of buildings needs to be improved, as is seen from examples such as the Grenfell Tower tragedy, and the failure of an external insulation contract in Preston that has resulted in 300 homes remaining uninhabited. PAS 2035 aims to set detailed requirements for building pathology, thermal modelling and calculations, ventilation, interactions between energy-efficiency measures, testing, commissioning, monitoring and evaluation, and obliges individuals holding particular roles to have specific qualifications and membership where relevant.

As with any standard or specification, time will tell how effective PAS 2035 is; however, a review has already been scheduled for 2021 to ensure that it achieves its goal of improving the energy efficiency of UK homes with better retrofitting practices.

Prof. John Edwards FRICS is a director of Edwards Hart Consultants and the Environment Study Centre, professor of practice at the University of Wales Trinity St David, and a member of the BSI PAS 2030 and PAS 2035 steering groups and the BSI Retrofit Standards Task Group john@edwardshart.co.uk Related competencies include: Housing maintenance, repair and improvements, Sustainability Further information: The Retrofit Academy offers retrofit coordinator training (retrofitacademy.org). The Environment Study Centre (environmentstudycentre.org) provides advice and events on retrofit and qualifications in retrofitting traditional buildings. rics.org/journals 21

Residential property

Party walls

Working by the rules The impact of RICS’ ethics on party wall practice is clearly demonstrated in the latest RICS guidance note Andrew Thompson and Michael Cooper

Every practitioner is subject to an element of professional custom – ‘this is the way we’ve always done it’, which could evolve into bad practice. Readers of RICS’ Party wall legislation and procedure guidance note, seventh edition, which came into effect on 1 December, might see the regulatory sections given increased prominence and regard this as a new imposition (rics.org/partywall). In reality, party wall surveyors are regulated to the same standard as every RICS member.

Bad practice can have a powerful negative impact if left unchallenged. It can unwittingly be followed by inexperienced practitioners, while others may seek to exploit a myth that they have special status to commercial advantage.

This is exemplified by reading RICS disciplinary cases. The 2018–19 RICS Appeal and Disciplinary Hearing against Mr Philip Antino resulted in expulsion due to gross misconduct (rics.org/uk/aph0840777).

The complaint that led to these proceedings was directly linked to Antino’s practice, with the appeal hearing considering the right of RICS to regulate members operating under the Party Wall etc. Act 1996.

22 Journal January/February 2019

Professional bodies’ clear authority to control party wall practitioners who are members of a regulatory scheme was confirmed in Woodman-Smith v Architects Registration Board [2014] EWHC 3639 (Admin). The error here centred on the need to issue formal terms of business to owners at the commencement of an instruction.

All the basic legal requirements of the government’s Provision of Services Regulations 2009 still apply and fully bind a party wall practitioner in an identical manner to every other UK trading business.

Although party wall practitioners operate under a specific statutory code for the administration of the legislation, they have not been exempted from the general expectations of these regulations.

The following are some points of professional practice to remember to avoid any wrongdoing or RICS Regulatory issues.

••Security of expenses: the custom is to identify parties as an ‘owner’ rather than ‘client’. This does not remove any protection enjoyed by that party as a client under RICS Regulation. Should an RICS member hold a financial deposit under section 12(1) of the

1996 Act, this is regulated and protected in accordance with the obligation for client account money. Section 12(1) funds should never be deposited into a member’s private bank account; they should be ringfenced and separate with all necessary safeguards, as per RICS client account requirements.

••Appointments: the guidance note focuses on the statutory specifics of the party wall appointment. This does not remove wider business obligations; terms of business should be available to appointing parties.

••Aggressive or heated meetings: neighbour disputes can become highly emotive. Practitioners should be professionally trained to defuse potentially aggressive meetings. RICS members should be conscious that they could be voice- or video-recorded in any meeting without their knowledge or consent. A member exposed to an unexpected confrontation may wish to record fully the context of the meeting immediately, in the anticipation that words, gestures or meaning could be used against them by a vindictive party.

An RICS member is at times required to be clear and professionally robust, stating for instance: ‘The works you are undertaking contravene my client’s rights of ownership and if you do not cease, they will take necessary legal action.’ You should never get involved in physical threats or abuse. The case transcript for Antino gives examples of inappropriate behaviour.

Crucially, all members should consider whether they are conflicted from taking an appointment at the outset and any such perceived situation is best avoided.

Michael Cooper FRICS is director, head of neighbourly matters, project & building consultancy at Colliers International michael.r.cooper@colliers.com Andrew Thompson FRICS is senior lecturer in building surveying, Department of Built Environment at Anglia Ruskin University andrew.thompson@anglia.ac.uk Related competencies include: Building surveying Further information: rics.org/uk/pwcourse rics.org/uk/pwupdate

Pyramus & Thisbe Club Promoting Excellence in Party Wall Practice Since 1974

Our specialist subject is?

Party wall matters and your professional responsibilities Register as a member and benefit from our experience partywalls.org.uk

Register as a member to find out more about your professional responsibilities:

partywalls.org.uk

Do you know the value of placemaking?

This will soon be on everyone’s agenda in real estate. Get up to speed at the StreetDots website.

• Follow StreetDots on LinkedIn and get daily insights, news and trends regarding placemaking and site activation.

• The world’s first placemaking booking platform • StreetDots breathes life in to new and existing developments

• Working with every sector in real estate

www.streetdots.co.uk RICS-Ad.indd 1

05/08/2019 07:05

rics.org/journals 23

Commercial property

Finance

Do no harm With Islamic financing of real estate spreading beyond Muslim-majority countries, how can such financing be structured to comply with Shariah requirements?

Sharifah Bakar Ali

Halal is a concept that is not confined to the food or drinks that Muslims consume.

Its principles govern the Islamic way of living more broadly – including the way investments are made and finances managed. As the wealth of Muslims around the world grows and those in investment become increasingly observant, the demand for Shariah-compliant assets is on the rise, along with the need for Shariah-compliant financing to acquire these.

Shariah itself is the code of conduct that guides the Islamic faith and life, as prescribed in the Quran. It promotes maslaha, or a balanced way of living based on the concept of fairness, discouraging excess or injustice. Key Shariah principles 24 Journal January/February 2020

in Islamic finance therefore include the prohibition of riba, or interest; avoidance of gharar, or uncertainties; abhorrence of debt; and abstention from haram, or unlawful activities, in investments or business.

Riba is highly discouraged in Islam because it is seen as creating social injustice. In a riba-based transaction, money is loaned for an intended venture, and the lender is guaranteed a fixed repayment no matter the outcome. Should the venture fail, the lender typically has the right to foreclose assets or sue the borrower, who thus bears all the risks. The borrower is penalised even if they worked diligently for the venture, and this could be seen as an injustice.

Most conventional real-estate financing schemes, like other types of lending, charge interest at either fixed or floating rates, with the first charge – that is, the security for the loan – created on the assets financed. The amount charged constitutes riba, guaranteeing principal and interest to lenders, which is thus haram and disallowed in Islamic finance. Wealth can be increased through trade but not through merely lending money, so Islam encourages trade or investment with equal sharing of risks and returns between parties.

Types of Shariah-compliant contract include profit-sharing models such as musharakah; or mudharabah, where the lender provides funds to an entrepreneur on a joint-venture basis and the entrepreneur themselves either contributes further equity or effort. Returns and losses are then shared according to predefined ratios, in proportion to capital or effort contributed. For acquisitions in real estate, the arrangement typically used is ijarah, that is lease financing, or murabahah arrangements, as explained below. Ijarah entails a lender acquiring a property and then leasing it to a borrower who will make rental payments.

The next principle is gharar, which literally means uncertainty. It arises in transactions with outcomes that are not clearly defined or determined due to a lack of substance in their formation. Speculative activities such as trading in derivatives, short-term holding of equities or short selling of contracts without material business activities backing them or agreed risk-sharing are therefore prohibited. Along these lines, derivatives products such as those structured from mortgage financing instruments that arguably led to the global financial crisis in 2008 would not have complied with Shariah, because they lacked actual assets backing them.

Islam views the matter of debt very seriously for the primary reason that it may give rise to riba: it makes borrowers vulnerable, and if they fail to pay their obligations they can fall into financial distress. The only types of debt allowed in Islam are qard hassanah and murabahah. In a qard hassanah loan, the borrower repays only the principal amount according to a

Practitioners acknowledge that the religion does not exist in isolation

mutually agreed schedule, and money is thus given on a benevolent basis. Under murabahah, the owner of funds acquires an asset at a spot price – the current price quoted in the marketplace – and resells the same to the party that requires it at cost plus a mark-up on a deferred payment basis. While qard hassanah loans are more appropriate for parties that already trust each other, it may not be feasible for commercial real-estate transactions, so most such financing is arranged along the principles of murabahah.

Shariah-compliant investors must also refrain from haram activities including those that involve the sale of pork, alcohol, tobacco, weapons, pornography or gambling services, or those that earn income from riba-based activities. Therefore, a commercial building that is occupied by conventional financial institutions or businesses that deal in any of the above will not be a Shariah-compliant asset.

The above principles differentiate Islamic finance from conventional finance. While Shariah shapes the terms of Islamic lending, practitioners also acknowledge that the religion does not exist in isolation. If rigidly enforced, rules may limit the assets suitable for Islamic investors, so some flexibility is allowed to promote maslahah, or balance.

Businesses that must rely on conventional loans, for example, should not overleverage themselves. Such loans should not exceed a certain threshold of a company’s total assets, usually 33 per cent. As a result of Shariah interest in the US market, the Dow Jones created a benchmark that calculates this threshold from the ratio of total debt to total assets, with murabahah facilities excluded from

the total amount of debt. Buildings that receive rental income from tenants undertaking disallowed activities can still be purchased by Islamic investors, provided such activities do not exceed five per cent of the total income of the building.

Real-estate assets are a popular class for Islamic investors because they can easily follow the principles of Shariah-compliant finance. They are tangible assets, producing income that can be shared to enable joint venture arrangements, deferred payment contracts or murabahah schemes. Some of the iconic Shariah-compliant commercial buildings in London include the Shard, the Battersea Power Station development and the Chelsea Barracks. Others include the 10 Queen Street Place office and Unilever House in Surrey, both owned by Malaysian pilgrim fund Lembaga Tabung Haji.

Structure for compliant transactions In a typical Shariah-compliant commercial real-estate transaction (see Figure 1), the first step is identifying a suitable building.

The primary requirement for such assets is that most of their income must be derived from halal or permissible sources. Investors keen on that asset then agree to acquire it using Shariah-compliant financing, equity investment, or a combination of these.

The investors pool their equity contribution and subscribe to shares in a special purpose vehicle set up as a holding company. Some of these may be also be issued as management shares for promoters who will manage the acquisition. The holding company is created to formalise the equity arrangement among the investors, and profits and losses will be shared in proportion to the equity contributed. rics.org/journals 25

Next, a property company is established as a subsidiary to acquire the building, and is provided with funds by the holding company in the form of equity injection, shareholder advance, or some combination of these. The property company is then able to take a Shariah-compliant loan from an Islamic lender to raise the remaining amount required to meet the acquisition price, which is usually a murabahah facility.

In this part of the transaction, the property company will instruct the Islamic lender to purchase commodities at a spot price corresponding to the loan amount. Such commodities are purchased from platforms that form a marketplace consisting of traders and buyers. The lender then agrees to sell the commodities to the property company at cost plus a mark-up, with repayment made on a deferred basis.

The property company then sells back the commodities at spot price, making the deferred payments using rent collected from the building. The Islamic lender will place a charge on the building, meaning that they have the ability to repossess the building; the commodities do not form part of the security as they are only traded to allow the purchase of the asset. The balance of the rent collected after repayments of the murabahah facility will then be split between the investors in proportion to their equity contribution, with losses split in a similar way to ensure fairness.

One may consider that the mark-up on the murabahah loan is akin to interest in a conventional loan, and practitioners continue to argue over this contentious point. Granted, the payments or the way the amount is calculated may resemble riba arrangements. However, practitioners urge proponents to look beyond the mark-up, because in the murabahah facility the lender extends its involvement to participate in the acquisition process through the commodity purchase. The transfer of the ownership from lender to property company lends more substance to the relationship between the two parties.

Critics may also ask whether the capital markets where the asset is located lack Islamic finance lenders; Islamic loans, after all, are hard to source in the west. In such cases, investors’ equity is wrapped 26 Journal January/February 2020

Figure 1. Structure of a Shariah-compliant real-estate transaction

Shariah-compliant investors

Equity shares

Promoters*

Management shares

Dividends

Holding company

Equity or shareholder’s advance

Dividends or loan repayment

Property company Financing Rental collection

Murabahah arrangement

Islamic lender

Activities of tenants?

* The promoter is the party that raises the financing and in some instances is also retained as investment manager for the transaction.

around the holding company as a murabahah arrangement given by a finance company set up among investors, and the property company then acquires the conventional financing to complete the purchase.

Practitioners usually don’t look beyond the holding company to ensure Shariah compliance but the Shariah pronouncement issued may insist that the leverage does not exceed 33 per cent of the asset value.

As recently as two decades ago, capital market players were sceptical about the prospects or promise of Islamic finance beyond Muslim-majority countries.

Conventional market players merely

read about Islamic finance as a matter of interest, not as a practice to be developed in western markets. The pursuit of quality assets has, however, encouraged Islamic investment in the west, and practitioners have become more optimistic about its ability to complement conventional financial products and instruments.

Sharifah Bakar Ali is director, Bespoke Globiz – Consulting and Advisory sharifah@bespokegb.com Related competencies include: Property funding and finance

Property

Comment

Tax

‘Suppliers and customers likely to be affected by the charge should ensure they are prepared well in advance of next October’ Robert J. Walker PricewaterhouseCoopers

Those involved in construction may have been relieved to hear of the delay in introducing the construction industry reverse charge (CIRC), which had been due to take effect from 1 October 2019, but has now been pushed back a year.

The stated aim of the CIRC is to combat perceived high levels of fraud in the industry by making customers account to HMRC for any VAT due on specified services rather than have suppliers do so, as now. This is intended to mirror the Construction Industry Scheme (CIS), in which customers deduct tax from payments to suppliers and pay HMRC those amounts.

The CIRC will need to be applied when: ••both parties are registered for UK VAT ••the recipient is registered for CIS ••the service is liable to VAT at the reduced or standard rate ••the service is defined as construction operations for the purposes of CIS, which includes construction as well as alteration, repair, extension, painting and decorating, demolition, civil engineering and certain installations such as lighting systems ••it is not being supplied to an end user.

The exclusion for end users is important because it means that the reverse charge need not be applied when the supply is to – for example – a property owner or a main contractor that sells or leases a newly constructed building.

Businesses that supply specified services to connected parties in a corporate group structure or to those with a common interest in land will not be subject to the charge, and neither will supplies between landlords and tenants. In those circumstances, the normal VAT accounting rules will apply, and the supplier will continue to account for it.

However, where a supply does fall under the conditions referred to above, on or after 1 October 2020, the customer will have to account for VAT under the CIRC on its VAT return, rather than paying this to its supplier. The customer will be able to reclaim the VAT as input tax on the same return – so this should have no negative cash flow implications for the customer – subject to the normal input tax rules.

The supplier is still required to issue a valid VAT invoice, but must also include

a statement clearly identifying it as subject to the CIRC. VAT will need to be calculated on the gross amount payable for the services, so that any deductions under the CIS should not be made from the taxable amount for the purposes of calculating the reverse charge.

If they had not already made preparations for the intended start date of 1 October 2019, suppliers and customers who are likely to be affected should ensure they do so well in advance of next October.

Suppliers of specified services will need to take steps to ensure that they gather information, such as VAT registration numbers, evidence in respect of CIS and confirmation of end user status, at an early stage to ensure that contracts reflect each party’s requirements in respect of who accounts for VAT. Suppliers may need to factor in the change to any cash-flow projections, given that affected payments received will no longer include the VAT element. Previously, this would not have been payable to HMRC until a later date, meaning that suppliers could lose a cash-flow advantage of up to 90 days. Alternatively, the change may mean that suppliers will be in a repayment position, because all or most of their supplies will fall under the reverse charge.

In this case they could consider changing to monthly returns to support their cash flow.

Suppliers will also need to ensure that their systems are adequately configured to record amounts receivable as net of VAT, which will need to be accounted for by their customers under the CIRC. Conversely, customers’ accounts payable teams will need to understand that only net amounts are paid to suppliers of specified services.

While it is expected that HMRC will take a light touch with supplies made under the CIRC scheme for an initial period of six months, it is strongly recommended that suppliers and customers are prepared for this significant change.

Robert Walker is partner and real-estate tax UK network leader at PricewaterhouseCoopers LLP robert.j.walker@uk.pwc.com Related competencies include: Capital allowances, Taxation rics.org/journals 27

Mistaken identity Why has one mortgage lender decided that chartered surveyors are no longer to be trusted to carry out structural surveys?

Craig Ross

Nobody likes paying for the same service twice, do they? Let’s imagine that you are looking for a new home, and you have found a really nice place in a great location. The family is super-excited.

You approach a lender for a mortgage and complete the application, and all is looking positive. Before the lender can make you an offer, however, it must have the property valued – standard practice to protect itself.

While undertaking the valuation survey some small cracks are noticed in the house, and the valuer’s report recommends that a structural survey is undertaken. The lender now informs you that arranging and paying for this survey is down to you as the customer, and so you approach a chartered surveyor to carry out the task. Your surveyor then visits the property and provides a nice, professional-looking building survey report, which is handed to the lender. Job done, right?

Wrong. The lender writes back to you informing you that this is the wrong report and does not provide them with the 28 Journal January/February 2020

information it requires. You are then directed to have the same structural survey carried out by an engineer, and end up having to pay for the same thing twice over.

This would be highly frustrating – and, unfortunately, the scenario is one that many prospective homebuyers have actually faced of late. In fact, due to a multitude of customer complaints, the lender in question no longer accepts such reports from chartered building surveyors. The issue was reported to me by one such surveyor at the start of 2019, and I set out to investigate.

Something has gone terribly wrong; but what?

Terminology confusion My first impression was that this problem is a result of confusion caused by the term ‘structural survey’. The more seasoned among us may remember when ‘condition surveys’ were typically called ‘structural surveys’, as I sometimes still find they are, especially when working overseas. You may also recall the fine 1980s journal

Residential property

Surveys

We must constantly reflect on our skills and ask ourselves whether we are sufficiently competent to take on a particular task

Structural Survey, now the International Journal of Building Pathology and Adaptation, a publication which discussed condition surveys and building defects.

Interrogation of the client’s brief often reveals that what in fact is required is a condition survey, but they do sometimes mean that they want a report on a specific structural defect. These cases require a good understanding of both the problem – probably gleaned on a site visit – and exactly what is expected of the report, so you can gauge whether it is within your capabilities or whether further specialist advice is required from a structural engineer.

However, as I discovered after making further enquiries, some general practice surveyors who were not appropriately experienced have in this instance been asked to provide the structural survey or structural report, as identified in the valuation. They have then gone on to accept the instruction but provided a HomeBuyer Report or a building survey, either making no comment on the structural stability of the property at all or advising that they could not conclude whether the cracking was a problem based on one inspection – this despite the wording in the valuation specifically requiring a report on potential structural issues identified.

This has resulted in so many unhappy clients that it caused the particular lender to suddenly remove chartered building surveyors from those it considers qualified to carry out structural surveys, and instead instruct chartered engineers. Given that the lender has subsequently avoided the problem completely, it is unlikely to rescind its decision.

Not a comfortable read, is it? I am a chartered building surveyor myself, and frankly found this information embarrassing: this is a qualification I share and was proud to attain. On analysis of the problem and some reflection, we can reduce this issue to three fundamental factors: client care, competence, and ethics.

At the most basic level of client care – which is the name of a mandatory competency for all chartered surveyors, starting from the APC process and continuing throughout our careers – RICS guidance clearly stipulates the need to ‘collect data, analyse and define the needs of clients’.

That has unfortunately not happened in any of these cases, with the surveyors making assumptions that have cost their clients time and money. This is unacceptable. We must always

talk to our clients to establish the reasons for their requests, avoid the temptation to assume we know what is required, and do our due diligence to make sure that our objectives correspond with the clients’ requirements.

Second is the issue of competence. Following the Grenfell Tower fire two years ago, RICS has been heavily involved in the industry response group, significantly in this case including the competence steering group. We have been working with fellow professionals to understand how any shortcomings in competence have manifested themselves, what levels of competence the various roles should have, and how we will now manage the competence of the construction and property professionals.

Competence is thus rightly at the forefront of our minds: what has happened here is a prime example of surveyors acting beyond their skill set and taking on a type of report that they are not competent to complete. After the Grenfell Tower fire, we must constantly reflect on our skills and ask ourselves whether we are competent to take on a particular task.

Last and most important is the issue of ethics, which is the bedrock of our professionalism. We must always act with proper regard for the technical standards expected of us, and only provide services for which we are competent and qualified. We must also act with integrity and be accountable for our actions. Paying due heed to our principles will promote trust in our profession, something that has been called into question in this case. Having strict ethical standards is one of the characteristics that defines us as professionals, and we cannot let this slip.

To summarise, there is work to be done to address this situation.

Since this issue came to light, I have received further queries from chartered building surveyors wondering why their structural defect reports are no longer being accepted by the lender in question and asking what RICS is doing about this. I reply that we must first appreciate that we cannot force the lender to change its mind, and need once again to gain its trust as a profession. We will continue in our endeavours to do so, but we are on the back foot.

The second step, communicating and drawing awareness to the issue to help contain it, is work in progress, although this is partly addressed by what you are reading. The third step is the new Home survey standard professional statement (rics.org/homesurveys): this contains some mandatory requirements on understanding competence, on clients’ needs and on making sure the report satisfies them. These points have been deliberately isolated and clarified to allow RICS Regulation to take action against surveyors who do not pay sufficient heed to these fundamental factors.

As a final point, bearing in mind that moving into a new property can be one of the most stressful events in someone’s life, surveyors should act with due consideration of the public interest and ensure that we are part of the solution rather than part of the problem.

Craig Ross MRICS is RICS associate director of the built environment cross@rics.org Related competencies include: Client care, Ethics, Rules of Conduct and professionalism rics.org/journals 29

Residential property

Overheating

Beat the heat As the UK’s average temperature rises, different homes will cope with this in different ways.

How can we identify and mitigate the risks?

Susie Diamond

Overheating in homes has been a hot topic – pun intended – for some years now in the UK. The effects of climate change are increasingly apparent, with warmer average temperatures and more frequent heatwaves.

We need our homes to remain habitable, both now and as our summers get warmer.

There is strong evidence that some types of architecture fare better than others in hot weather – older homes with higher ceilings or windows on at least two sides generally cope more effectively than compact modern apartments – and our fondness for floor-to-ceiling windows speaks to our lack of understanding about the original greenhouse effect. Most worrying are examples of homes that overheat for significant periods of the year even when external temperatures are not especially warm. So, what can designers do to understand the risk of overheating?

In 2017, the Chartered Institution of Building Services Engineers published TM59, Design methodology for the assessment of overheating risk in homes, which establishes a protocol for assessing such risks using dynamic thermal modelling software (bit.ly/CIBSETM59).

I was one of the authors of TM59, and it’s been gladdening to see how well received the methodology has been. It has been adopted by the Greater London Authority and been introduced as a requirement in the draft London Plan, becoming the standard approach in London assessments. As not all homes face an equal risk of overheating, we should be aware of the most significant factors, as follows.

30 Journal January/February 2020

••Location: homes in London, the south of England and in city centres are more likely to overheat due to warmer weather and the urban heat island effect.

••Glazing areas: the more sun-exposed glazing, the higher a home’s solar heat gain.

••Limited window openings: if windows either do not open very wide or it is noisy or unpleasant when they are open, then the cooling effect of natural ventilation is lost.

••Single aspect: if windows only open facing one direction then there is less opportunity for cross-ventilation and for a pleasant breeze passing through the home.

Dynamic thermal modelling is used to simulate the internal temperatures under test conditions and thus assess whether threshold conditions of discomfort will be reached. Once we recognise the risks, it is usually apparent what design changes might help reduce them.

The most effective measures for reducing overheating risk in new homes include using dual-aspect design, modest glazing areas – 20–35 per cent of facade area is usually ideal – external shading where glazing areas are greater, and additional opening windows or those that open wider.

Ceiling fans can be helpful in creating a pleasant breeze, especially where window opening is more limited. Use of increased thermal mass in the building fabric can be beneficial, provided that the ventilation is carefully designed to purge the mass effectively, as it can otherwise increase night-time temperatures.

In 2019, the Good Homes Alliance (GHA) launched a tool to help gauge the

overheating risk for new housing schemes, which I developed with Julie Godefroy of Julie Godefroy Sustainability and Nicola O’Connor of Mandarin Research. The tool is intended for use by designers or local authorities at the pre-planning design stage, and comprises a one-page scoresheet with 14 simple questions, split between factors that increase or decrease the risk of overheating (bit.ly/GHAoverheat).

There are also supporting guidance notes detailing how each question relates to overheating, as well as help with scoring, advice on appropriate mitigation options and suggestions for further reading. The scores are totted up and advice given based on whether the result represents a low, medium or high risk.

The greatest challenge tends to be with schemes in very noisy locations, and evaluating when a location is too noisy to open windows is a challenge.

The Association of Noise Consultants is working on this with the Acoustics Ventilation and Overheating Residential Design Guide, due to be published soon.

This will help acousticians, architects and engineers to collaborate more effectively in resolving the tension between windows opened for cooling and closed against noise.

There is no reason that new homes in the UK should be vulnerable to overheating chronically – we still have a relatively temperate climate, and the design skills to ensure this is not a major problem.

Susie Diamond is a partner at Inkling LLP susie@inklingllp.com @inklingllp

www.ardentlc.co.uk

LIFT CONDITION SURVEYS Are you budgeting for the New Year?

Our independent lift survey reports will look at the current condition of your lift equipment and highlight: - operational issues - predicted lifespan - safety recommendations All with associated budget costing.

£100 0FF

Contact us and use the code to make some savings! info@ardentlc.co.uk

ALL LIFT CONDITION SURVEYS BOOKED IN JANUARY 2020

CODE: RICSJAN20

Transforming the industry One apprentice at a time

B BUILT E ENVIRONMENT A TALENT CHAMPION Get in touch: 0118 467 2315 businessdevelopment@ucem.ac.uk

rics.org/journals 31

Commercial property

Circular economy

Let’s go round again Office strip-outs can be a notoriously wasteful process – so researchers in Sydney are investigating recycling rates and exploring how the principles of the circular economy can be applied Lorna Hennessy and Prof. Sara Wilkinson

The circular economy, based on a cycle similar to those identified in nature, is defined by the Ellen MacArthur Foundation as ‘an industrial economy that is restorative or regenerative by intention and design’ (bit.ly/CircEcoEMF). It follows these three key principles: ••designing out waste and pollution ••keeping products and materials in use ••regenerating natural systems.

However, in the words of the UN Environment Programme, society’s current economic paradigm is a linear one of ‘take, make, dispose’, a pattern that becomes increasingly unsustainable. How can the principles of the circular economy be applied? In commercial property, it can seem easier to generate waste than not.

As a case study, the city of Sydney has more than 5,000,000m2 of office space and this is typically refurbished every seven years, the average lease duration for premium offices. Traditionally, such leased space includes air conditioning, suspended ceilings, light fittings, carpeting and painted walls. Meeting rooms, partitions, furniture, fixtures, fittings and finishes are then added, and this often requires supplementary packaged cooling units.

Tenant additions remain until the lease expires or the space is refurbished. At termination, tenants remove all the changes they have made in an office strip-out.

However, packaged units have an effective lifespan of 15–25 years, meaning that ductwork is usually scrapped long before it is worn out, while furniture can last at least 32 Journal January/February 2020

twice the length of an average lease. This poses a problem for the circular economy.

Each year, 400,000m² of commercial space in Sydney’s central business district is typically refurbished, with 25,000 tonnes of materials stripped out. Of this, 79 per cent ends up in landfill, meaning the Australian construction industry recycling rate of 64 per cent is missed by some margin. In a commercial market characterised by low vacancy and high rental values, the relative frequency of strip-outs creates substantial unnecessary waste. Compounding this is the limited opportunity for recycling during strip-outs and their tight time frames, resulting in poor separation of waste and recycling streams.

The Circular Economy Model Office Guide (bit.ly/CEofficeguide) outlines five steps for minimising strip-out waste: ••cataloguing and analysing the existing materials ••designing for re-use and recycling ••building for re-use and recycling ••soft fit-outs and furniture optimised for re-use and recycling ••review and evaluation.

However, the guide’s focus is on how furniture, walls and ceiling materials can be re-used, and how coordination between incoming and outgoing tenants is key to achieving this. It does not cover any remaining waste such as window blinds, or equipment in staff kitchens.

Sydney’s Better Buildings Partnership (BBP) has therefore prepared a ten-step best practice guide for dealing with strip-out

waste (bit.ly/BBPstripout) and is aiming to divert 80 per cent of waste from landfill in Sydney office strip-outs (see Table 1).

Making good ‘Make good’ is the term used in Australia to describe ‘the process where the tenant is required to hand back the premises in a particular condition established by the lease’ (rics.org/makegoodguide), and is similar to the procedure for dilapidations in the UK. Typically, it involves the tenant demolishing partitions, removing furniture and services, and reinstating all original fittings, fixtures and finishes.

Landlords are in a better position, environmentally and strategically speaking, to take ownership of the make-good process as they tend to have large property portfolios and experience in strip-outs.

Therefore, they often agree financial settlements with tenants: effectively paying the landlord to make good in this way enables tenants to use the building until the final day of the lease, leaving all furniture and services when they go.

Tenants can then focus on their new office, and not have to risk the make-good not being completed on time or to correct standards. Owners meanwhile appreciate settlement because it gives them the option to upgrade fixtures and fittings.

In 2011, the Sydney BBP was established by building owners, managers and influencers including Lendlease, Investa, the Property Council of Australia, CBRE, the University of Technology Sydney (UTS) and JLL to improve performance and sustainability. In 2016, a green leasing standard was introduced, and to date 50 per cent of offices in the city’s central business district have integrated this into leases.

Given the length of leases and the recent introduction of this clause, the impact is not yet evident. In 2017, however, BBP strip-out projects were recovering 50–60 per cent of resources.

The RICS guide Greening Make Good Australia (bit.ly/GMGAus) attempts to reduce make-good waste, covering the triple waste stream where: ••outgoing tenants adhere to lease obligations, removing all furniture and additional services

Table 1. Ten steps for best practice in office strip-outs Step

Comment

1

Set a corporate recycling target for refurbishment

All Sydney BBP members are committed to pursuing 60% recycling rates in refurbishment projects, and aspire to achieve 80%

2

Agree on responsibility for make-good and handover date

Confirming the handover date well in advance allows the clear allocation of responsibility, which greatly increases the potential to re-use and recycle

3

Document furniture in the tenancy using BBP’s inventory template (bit.ly/InvenTemp)

Furniture inventories should be made available to the market as early as possible; generally, the longer the lead time, the more furniture can be recovered

4

Evaluate tender for strip-out contractors, with consideration given to proposed resource recovery plan and achievable recycling rate

Contractors presenting more extensive resource recovery plans or better recycling proposals should be preferred for the project

5

Tender refurbishment should work according to Sydney BBP’s model clauses

Tender documents should include corporate targets for recycling from refurbishment as per Sydney BBP guidelines, including the weighting given to the resource recovery plan and the expected recycling rate in the tender response assessment

6

Divert unwanted furniture using Sydney BBP’s re-use and recycling directory

BBP maintains a list of businesses, charities and education facilities in Sydney that could potentially receive unwanted furniture

7

Work should be contracted according to the resource recovery plan, and the contractor supported to plan material separation

Contractors should be held to fulfilling their resource recovery plan and present evidence of having done so

8

Validate the resource recovery report from the contractor and confirm the recycling rate

Contractors should report waste according to Sydney BBP guidelines, and, where demolition work is involved, include in this report any furniture rehomed by the outgoing tenant or building owner

9

Develop project case studies to highlight good practice and any other lessons

Case studies are essential in recording and sharing lessons from projects, and are also encouraged to recognise best practice

10

Specify which furniture and recyclable materials have been used in the new fit-out

Sydney BBP encourages its members to consider the end-of-life cost and impact of fit-outs SOURCE: BIT.LY/BBPSTRIPOUT

••owners upgrade space to improve appeal for future tenants, resulting in more waste ••incoming tenants change space, disposing of owner upgrades.

The guide’s Make Good Deed addresses this problem, helping tenants and owners reach a financial settlement that gives the latter control of the fit-out process. This approach potentially reduces costs for both parties as well as material wastage and conflict, and saves time.

In 2015, the Green Building Council of Australia also issued Green Star – Interiors, a rating tool for office fit-out. This encourages tenants to design sustainable fit-outs, awarding them up to 19 points for material selection. If they achieve this, they

have 25 per cent of the points for a six-star fit-out, ranking as world leaders, or up to 32 per cent of points for a five-star fit-out, demonstrating Australian excellence. Points are awarded according to how much re-used or recycled material is in a product, or for selection of products with stewardship programmes. Only 19 Green Star ratings were awarded in Sydney during 2017.

Given the ways in which the principles of the circular economy can improve the sustainability of office strip-outs, researchers at UTS wanted to learn: ••what changes can be made so strip-outs become more sustainable ••which stakeholders are best placed to make the changes

••how stakeholders can collaborate to make strip-outs more sustainable.

Major stakeholders, tenants, owners, contractors, sustainability consultants and leasing agents were interviewed, and the findings will be explored in the next article.

Lorna Hennessy is a UTS alumna and graduate engineer at Arup lorna.hennessy@arup.com Sara Wilkinson FRICS is professor of sustainable property at the School of Built Environment at UTS sara.wilkinson@uts.edu.au Related competencies include: Sustainability, Workplace strategy rics.org/journals 33

Commercial property

Sustainability

Better nature?

A pioneering project has been collecting evidence over the past year to show whether a biophilic office can improve health and well-being Flavie Lowres and Ed Suttie

It is perhaps not surprising that health and well-being is a hot topic in the built environment, with the World Health Organization predicting that stress-related illness will be the primary cause of sickness by 2020. In 2017/18 in the UK, 15.4m working days were lost due to work-related stress, depression or anxiety, representing 44 per cent of all cases of occupational ill health and 57 per cent of all sick days (bit.ly/HSEstress2018).

The Building Research Establishment (BRE) and its core partners – AkzoNobel, Ambius, Ahrend, Avison Young, Biotecture, CoeLux, Ecophon, Interface, Oliver Heath Design, Poly, and Waldmann Lighting – are one year into a research project to strengthen the evidence base for biophilic design and its positive effects on the occupants of offices (see Property Journal October/November 2018, p.31).

An office on the BRE Watford campus is the subject of this study, and the initial phase of the project has established a one-year data baseline for the existing office and its occupants, compared to a similar control office on our campus.

By collecting data over the long term, the project is able to account for seasonal differences in the quality of the indoor

environment, views from windows, and occupants’ psychological and physiological well-being. The indoor environment has been continuously monitored and the occupants meanwhile surveyed by questionnaires and cognitive tasks, with their heart rates, sleep patterns, activity and exposure to daylight being tracked by wearable technology.

There has also been physiological testing to support this work. The collection of saliva samples from office users, for instance, can give an insight into their stress levels, and data relating to the contribution of the teams to business outcomes is being gathered as well.

The control office is a vital part of the project as we move into monitoring the biophilic office subsequent to refurbishment, collecting data on its impact and other external influences – for example, business changes such as our new chief executive officer, or nationally significant events such as Brexit.

Because the control office takes these external influences into consideration, we can then allow for them in our analysis of the experimental office and identify the impacts that are directly associated with biophilic design.

By collecting data over the long term, the project can account for seasonal differences in the environment 34 Journal January/February 2020

The one-year baseline shows that: ••indoor air quality and acoustic measures are within acceptable limits, and most impacts are generated by the activities of occupants themselves, such as use of deodorants or fragrances or acquisition of new furniture ••lighting is adequate in a few areas, but generally below the level of the recommendations in British Standards.

When the occupants were asked how they feel about the building, most of them generally rated its look as poor, and would not feel happy showing the space to clients or colleagues. This attitude is probably representative of many older offices across the UK. The next phase of the study is to refurbish the office, creating three zones that each adopt a different biophilic design strategy. The first will introduce elements of biophilic design that can be included at any stage of a refurbishment, such as plants on desks, relaxed sitting areas or orienting the desks to maximise access to daylight.

The second will introduce biophilic design that, if given full consideration early in the project, can easily be incorporated in a refurbishment, such as flooring design that mimics patterns found in nature.

The third zone includes higher levels of biophilic design intervention and innovation, such as living walls on which plants grow, soundscaping systems, and biodynamic lighting that changes colour and intensity throughout the day in line with circadian rhythms.

The analysis of people and indoor environment will continue for at least a year after this refurbishment. Results will be compared to the baseline to evaluate the impact that biophilic design has had, and as one of its professional dissemination partners, RICS will help the project communicate its findings.

Flavie Lowres is associate director, BRE Strategic Advisory Services, and Ed Suttie is a director of research at BRE flavie.lowres@bregroup.com ed.suttie@bre.co.uk Related competencies include: Design and specification

Advance your career with RICS Take your career to the next level with in-depth online or face-to-face training programmes including: • Property development strategies (28th April 2020) • Real estate finance and investment (19th March 2020)

Gain CPD with these networking events • Industrial warehousing and logistics conference (28th January 2020) • Valuation 2020 conference (3rd March 2020)

Stay on top of your day job Access all RICS information, sector insight and professional support surrounding standards in one easy-to-find place through isurv.

Book online rics.org/propertyoffering or call: +44 (0)24 7686 8584

THE AERIAL SURVEY Low cost | Hi-Res images | Access All Areas | Same day service | Low Risk | No access platforms required Accurate condition reports

CALL 0800 038 9795 OR VISIT HELIDRONESURVEYS.CO.UK TO FIND OUT MORE

rics.org/journals 35

Property

Sustainability

Energy exemplars A pioneering programme is demonstrating that buildings designed and constructed from existing supply chains can satisfy their own energy demands Sharon Bishop and Justin Searle

Buildings account for about 40 per cent of the UK’s greenhouse gas emissions (bit.ly/ukgbccc). The Active Buildings programme at Swansea University’s SPECIFIC Innovation and Knowledge Centre is seeking to address this issue by constructing two buildings, the first of their kind, that consolidate multiple solar technologies into systems to generate, store and distribute both electricity and heat.

The Active Classroom, which opened in 2016, generated 50 per cent more energy than it used in its first year, and in 2018 it won both the RICS Wales Project of the Year and RICS Design through Innovation awards. Its successor, the Active Office, opened in June 2018, and in its first year of operation generated 22.6MWh of energy and consumed 26.2MWh. While the classroom is experimental, using a mix of commercially available and new technologies, the office demonstrates that such buildings can be designed using existing supply chains.

Electricity for the office comes primarily from the 22kWp curved photovoltaic (PV) roof, which comprises 93 integrated modules, and is stored in a 110kWh lithium ion phosphate batteries. There are also 40 PV–thermal tubes on the south-facing wall providing both electricity and heat for the building, with a capacity of 2.4kWp electricity and 9.6kWp heat. Construction of the entire building by the Wernick Group took only six months, while the entire process from concept to completion took only eight months. The office has no gas supply: heating is derived from a combination of these solar thermal installations, an air-source heat pump and an immersion heater. A smart controller optimises a 2,000-litre water store that can provide space and water heating for the following day.

The Active Office was occupied for most of the year since it opened but its energy consumption in that time through passive design measures alone was 71kWh/m2, about a third of that expected from a typical office. Over the first year, 18MWh of electricity was generated from the PV roof, and 1.8MWh electricity and 2.8MWh heat from the wall-mounted tubes. This was 36 Journal January/February 2020

equivalent to 60kWh/m2 a year, giving an annual net consumption of just 11kWh/m2, or five per cent of a standard office building.

Sensors and monitors enable the team to see where the energy is coming from and where it is used. While the first year has focused on optimising individual systems, the plan for the next is to maximise efficiency through an overall energy strategy. The team will examine control methodologies including management of import and export to the grid and electric vehicles, as 4.5MWh – about 20 per cent of total consumption – was used last year by three vehicle charging points. Not only does this have an impact on the building’s energy strategy, it highlights the implications that electrification of transport could have for the nation’s demand.

Monitoring also means that when a performance failure is identified, evidence can be given to the technology suppliers.

A key goal for SPECIFIC is to support the construction industry in innovative building design and the development of new skills. The Active Building Centre, established in late 2018, will help to achieve this by supporting developers in designing buildings differently, providing the evidence for regulators, policy-makers and the industry to transform building design and operation in the UK. Active Homes Neath will be the first of those projects: the development of 16 homes by social housing provider Pobl Group is being completed for occupation by the end of 2019. The homes use a combination of PV, solar thermal and battery storage and will be monitored for a year after occupation by the government’s Building for 2050 programme.

Sharon Bishop is communications manager and Justin Searle is technology director at SPECIFIC Innovation and Knowledge Centre, Swansea University s.t.bishop@swansea.ac.uk Related competencies include: Energy and renewable resources, Sustainability

Our software has over 15,000 separate data fields. If necessary, Mojo will hide 14,999 of them I

f you’re putting any sort of data into your property management software – whether lease or invoice – you really don’t want irrelevant fields cluttering your view.

Which is why you can configure Mojo apps to show just the 7 or 8 fields you do need to fill out, not the 70 or 80 you don’t.

And that, basically, is how all Mojo web apps work. Each one takes a single

property management process, and does it better than it’s ever been done before.

So with data entry, that means storing your information in draft, before you push it live. Or sending the draft for approval to someone higher up. Or being able to attach documentary evidence.

But before we start to bore you with benefits, here’s what one of our clients has recently said about Mojo: “I love it! It

takes me just moments to do something that used to take me half a day!”

And that’s the sort of typical Mojo response we’re never going to hide.

Reinventing property management, one process at a time

224-232 St John Street, London EC1V 4QR | +44 (0)20 7825 1299 | www.tracesolutions.co.uk | sales@tracesolutions.co.uk

Commercial property

Digital transformation

Tech for success Switching from manual to digital processes may sound daunting – but apps can bring it within reach for businesses of all sizes, as one case study demonstrates Richard Kennedy

Matt Fitzgerald MRICS joined Commercial Property Partners LLP (CPP) in 2015 as a partner to launch its property and asset management division. Since then, he has scaled the team up to seven people and added a specialist maintenance division, CPP FM & Projects, enabling the firm to offer an integrated property and facilities management service. Technology has played a substantial role in enabling this expansion of the business.

From the outset, Fitzgerald knew that technology would help him to expand operations. He recognised that apps had improved efficiency and organisation in his personal life and felt that, in the workplace, they could also streamline activities and increase productivity.

The rapid growth of CPP’s property and asset management team has been helped by a well-planned and effectively implemented tech stack – that is, the cloud-based apps that support the business’s daily activities.

Using these, Fitzgerald’s team reduces administration time and boosts productivity, so they can focus on providing better services for clients and tenants and continuing to scale up the business.

The catalyst for CPP’s digital transformation was implementing the 38 Journal January/February 2020

cloud-based accounting platform Xero.

Once this was being used daily, the team saw just how automation and, in some cases, artificial intelligence, could improve a property management business.

From then on, Fitzgerald sought similar technologies to replicate this automation for other manual processes. This led to implementing the property management software Re-Leased, which automates manual processes such as chasing arrears and maintenance tasks and allows for centralised data so that team members are all working with up-to-date information.

Now CPP actively trials and reviews apps, especially those from the Xero App Marketplace, to ensure that it is seen as being at the forefront of technology use, both in its internal operations and for their clients. Fitzgerald’s primary focus is for technology to make the business more efficient and provide a faster, more customer-focused service for his clients.

The apps used to help CPP achieve this growth are shown in Figure 1. Four of these apps in particular have become the backbone of CPP’s business operations – Re-Leased, Xero, Chaser and Receipt Bank.

This suite has helped Fitzgerald’s team save 35 hours a week in administration activities,

enabling them to focus on increasing the client base and expanding the range of value-adding services on offer. Each app allows them to work in the cloud, which means they can access the same up-to-date information anywhere at any time.

The four systems openly share information, reducing the need to re-enter data into multiple systems or spreadsheets.

A significant benefit of this is that it limits the possibility for human error and ensures the integrity of essential data. Adopting a diverse tech stack has played a major part in allowing the team to speed up processes or, in some instances, completely automate tasks and focus on spending more time nurturing customer relationships.

Another benefit is that cloud-based apps allow team members to work to the same quality whether they are in the office or out meeting clients. This speeds up dealing with queries, as clients no longer have to wait for their property manager to return to the office to send a document, which has enhanced efficiency enormously and improved workplace mobility.

As teams can be more flexible about their location, employees see this as an advantage of working at CPP. Certain roles in the team that had been largely office-based have

Figure 1. CPP’s tech stack

Financial/cash-flow management

now evolved, so staff members can visit properties more often and add greater value to the business through remote working.

To ensure his team embraced the technology, Fitzgerald clearly communicated his vision, and supported this with a well-planned and efficient implementation strategy. Successful digital transformation in any business needs strong strategy and communication of this kind: the property management accounts staff had never used Re-Leased or Xero before, but have easily adapted to using them and found their efficiency and productivity improved.

CPP’s early adoption of this technology has certainly helped Fitzgerald’s team stand out from their competitors, and enabled the business’s continued growth. He says: ‘Before I was using cloud-based tools,

Central integrated business apps

I would be tied to my desk in the office a lot more because I was using paper documents and electronic files stored on local databases.

This would mean that getting relevant data for tenants and clients was a much more laborious task. Having these apps means I can constantly access this data wherever I am, allowing me to deal with issues whenever they arise, and to spend more time either on site at the properties we manage or meeting clients.’

As an indicator of CPP’s success, it was a winner in the Yorkshire Property Awards in 2014, 2016 and 2018, the East Midlands Property Awards in 2018, and the Most Active Agent in Sheffield in 2018.

Fitzgerald’s advice to businesses is to ‘be careful of thinking that you are too large or too busy to implement new software.

Communication and productivity

It does take an investment of time and money, but the benefits will far outweigh this once implemented. Technology is moving so fast that if you don’t embrace it you will be playing catch-up with the early adopters. Be aware that your customers want to leverage technology faster than you do.’

His team’s success is testament to what can be achieved with strategic planning and implementing the latest technologies. The division’s growth serves as an inspiration to property professionals who aim to mirror its progress in their own settings.

Richard Kennedy is managing director, Re-Leased richard.kennedy@re-leased.com Related competencies include: Business planning rics.org/journals 39

Property

Airspace development

On the upside Airspace development offers another way to address the housing crisis – but careful preparation is vital

Sian Gibbon and Paul Olliff

Airspace development is emerging as a practical way to provide new and affordable homes. Its growing popularity is unsurprising, particularly in London, given the lack of land and demand for housing.

Using modern methods of construction, developers can build homes in factories before installing them on roofs, minimising disruption for those in the properties underneath. Government funding of £20m and the amendments to the National Planning Policy Framework proposed in February 2019 are further driving interest in airspace development.

As with all developing markets, there are legal and practical considerations before you start reaching for the sky. If you’re interested in developing upwards, the first questions to ask are who owns the building and who owns the airspace.

It is also important to establish what other rights subsist on top of the building, and whether any equipment or installations might present a challenge to, or potentially prohibit, upward development.

Telecommunication masts, air conditioning, storage units and lift 40 Journal January/February 2020

mechanisms are a few examples of rooftop installation that are subject to the legal rights and interests of third parties, and care should be taken to establish their exact nature and how they might be resolved; there is often a solution for developers, but this is beyond the scope of this article.

Initial investigations of matters such as rights of light, party walls, easements and restrictive covenants are important to ensure neighbouring owners or occupiers do not prevent or delay development.

In addition to planning and building requirements, it is essential to assess the structural strength and service capacity of the building, while considering how any rooftop installations presently in place could be relocated with minimal disruption.

Consideration also needs to be given to the existing rights of other residents and users if access through communal parts of the building or parking areas is needed.

Advice should therefore be sought at an early stage to avoid litigation and delay down the line. The occupation of the building by residential tenants raises a range of further issues, including the following.

••The right of first refusal: where the building qualifies and tenants meet the necessary criteria, a relevant disposal will trigger this statutory right. A relevant disposal is interpreted widely; it covers not only a transfer but also the grant of an option, entering into a contract, including a conditional contract, and granting a lease.

If the right of first refusal is engaged, the qualifying tenants are effectively offered the opportunity to step into the shoes of the developer or buyer through a statutory process, which commences with service of notice on the qualifying tenants. If the right of first refusal procedures are not followed, the party making the disposal will be guilty of an offence liable to a fine, and the qualifying tenants can enforce the right against the acquiring party.

••Collective enfranchisement: subject to the relevant qualification criteria, this confers a statutory right on leaseholders to acquire the building’s freehold. Unlike the right of first refusal – which is only triggered by a relevant disposal – this right can potentially be exercised at any time and can include the acquisition of a lease

of the airspace where this is necessary for management purposes, as was previously decided in LM Homes v Queen Court [2018] UKUT 367 (LC).

••Quiet enjoyment: the main issue to consider is whether the works will cause nuisance or interference to any residents.

It will only be possible to install services in areas that are already let if the tenancy permits or it has the tenants’ agreement.

••Existing service charge scheme: this is likely to have been set up with reference to the layout of the existing properties in the building, and it may not be easy to dovetail additional units with the scheme.

Depending on the service charge provisions in the existing leases, it may be necessary to set up a new scheme for the new flats.

••Service charge recovery: damage caused to the building by the development is unlikely to be recoverable through any existing service charge regime. However, careful planning of any works required at the same time as the development, together with any necessary consultation, could ensure efficiencies, minimise disturbance or even enable a portion of the development cost to be recovered.

••Party wall requirements: notices need to be served for any works to a party wall or structure at an early stage and documentation agreed in relation to the existing walls, works to be undertaken, costs and compensation payable to the owner or occupier before works commence.

The legal structuring of any necessary property arrangements can vary greatly according to who owns the building, the parties involved in the transaction and the negotiating positions. Any of the following are therefore possible options: ••option agreement ••conditional contract ••freehold sale ••sale and lease-back ••agreement for lease ••grant of a lease ••joint venture arrangement, using one or more of the above.

The legal structure has to be created on a case-by-case basis, and factors including whether or not the right of first refusal may arise will have a bearing on which option is considered most suitable.

If you’re interested in developing upwards, the first questions to ask are who owns the building and who owns the airspace An option agreement can be ‘call’, where the buyer has the right to compel a seller to sell the property, or ‘put’, where the seller has the right to compel a buyer to buy the property; however, with airspace it will be call because the developer has the option to acquire an interest in that space.

This provides flexibility for the developer, allowing it to secure an interest over the airspace for a set time period at a set price, with the ability to exercise its option to purchase the freehold, part of the freehold or be granted a lease on certain criteria. The criteria could simply be at the developer’s discretion, or there could be set criteria the developer must meet, such as a specific planning permission.

The developer is not required to exercise the option agreement – it is their call – so this is a low-cost way to secure a site, as entering into the agreement will normally be for nil value. Once the option is exercised, the owner of the property will then sell, grant a lease or grant another interest in the property to the developer at market value, and work can then commence.

An alternative is for the developer and the owner to enter into a joint venture agreement, which provides for a transfer of interest in the property to the joint venture company rather than being retained by the developer alone, with no payment being made. The agreement determines who receives what percentage of the sales proceeds after development.

A conditional contract could be similar to an option agreement; however, being subject to set criteria rather than at the discretion of the developer, the conditions will be compulsory rather than optional. These conditions will usually revolve around gaining planning permission, the approval

of the owner’s board, or satisfactory results from investigations such as surveys, searches, or intrusive analysis of the building and ground. Once the conditions are satisfied the property will be sold or let, or a joint venture established, as happens after an option agreement is exercised.

If the preferred structure is to grant a lease – whether an overriding lease, a lease of the reversion or a lease of the airspace alone – rather than the sale of freehold or a joint venture arrangement, this lease will need to provide for enough alteration and development rights to enable the developer or joint venture company to build the additional units while providing the owner with sufficient protection to ensure that its opinion is considered and the residual value in the property will not be adversely affected. Leasehold development rights should take into account ancillary rights such as scaffolding, parking spaces and access to retained land. The owner will also be likely to want an indemnity clause in case anything goes wrong.

As is evident, the development of airspace can be a complex and challenging option. However, many legal and practical issues can be overcome, or even avoided, if they are identified and addressed from the outset of a project.

Sian Gibbon is head of property litigation and Paul Olliff is the legal director in the real estate team at Ashfords LLP s.gibbons@ashfords.co.uk p.olliff@ashfords.co.uk Related competencies include: Housing strategy and provision, Legal/regulatory compliance, Planning and development management rics.org/journals 41

Residential property

Homes and health

Who are the moisture producers?

The first in a two-part series explaining the difference between absolute and relative humidity and what this means for dampness in our homes Mike Parrett

How do we quantify the level of dryness and dampness in our homes? And how is an occupancy classed as dry, moist or wet?

I have previously discussed the effects of design, construction and retrofits, and their impact on raised moisture levels in habitable spaces. However, use and occupation of a dwelling is often the most crucial aspect of determining whether we live in a dry, warm home with adequate ventilation, or a wet, cold one with poor ventilation that contains harmful mould.

BS 5250: 2002 Code of practice for control of condensation in buildings is the main guidance to help classify a home as dry, moist or wet, and how to measure these conditions (bit.ly/BS52502011). Table 1 42 Journal January/February 2020

defines the moisture content of air; for example, a sole occupancy is wet if the internal air moisture content hits 9kg/m3.

Sections 325 and 326 of the Housing Act 1985 set out two important standards. The former, the room standard, is contravened when the number of people sleeping in a dwelling is too great and two people of opposite sexes who are not living together as husband and wife must sleep in the same room. The standard does not count children under the age of ten, but states that a room is available as sleeping accommodation if it is normally used in the locality either as a bedroom or a living room.

Section 326, the space standard, is contravened when more than the permitted

number of people sleep in a dwelling, having regard to the number and floor area of the rooms available as sleeping accommodation. The standard does not count a child under the age of one, while a child aged between two and nine is counted as half a unit. Children aged ten or more and adults are counted as one unit.

It also states that a room is available as sleeping accommodation if it is of a type normally used in the locality either as a living room or a bedroom. Rooms of less than 4.65m2 are not considered.

The permitted number of persons in a dwelling is the lower of: ••the number specified in Table 2, in relation to the number of rooms available as sleeping accommodation ••the aggregate for all such rooms of the numbers specified in the second column of Table 3 in relation to each room of the floor area specified in the first column.

If these criteria are not met it can lead to overcrowding, and an increased risk of condensation when occupiers produce higher amounts of moisture, especially in smaller rooms. An underoccupied property, where unused rooms are rarely heated and moisture migrates into the cooler rooms, is also at risk.

Typically, a moist or wet home would be underheated, inadequately ventilated and possibly house younger children; it could also be statutorily overcrowded. The occupiers could well be on low incomes and, due to its poor thermal performance, the dwelling could be difficult to heat. This may place the occupiers in fuel poverty, which occurs when they spend more than ten per cent of their disposable income on heating the home.

Other moisture risks include: ••the internal kitchen door is rarely closed, and pans are uncovered during cooking ••any excess moisture – condensate – around windows is rarely wiped away ••poorly vented tumble dryers are used ••damp or wet laundry is usually dried over radiators, especially in bedrooms and during the cooler months ••internal spaces are cluttered with furnishings and possessions, trapping water-vapour-laden air against cooler external wall surfaces.

Table 1. Daily moisture generation rates for households

Daily moisture generation rates (kg) Number of persons in household Dry occupancy1

Moist occupancy 2

Wet occupancy3

1

3.5

6

9

2

4

8

11

3

4

9

12

4

5

10

14

1 There is proper use of ventilation and heating, including in buildings unoccupied during the day, and the number of occupiers is appropriate to the size. It results in an internal pressure of up to 0.3kPa more than the internal vapour pressure.

2 Internal humidities will be above normal and ventilation is likely to be poor. Occupants will possibly be a family with children. Water vapour excess is between 0.3kPa and 0.6kPa. 3 Ventilation is hardly ever used and there is a high level of moisture generation. Occupants are probably a family with young children. Water vapour pressure excess is greater than 0.6kPa. In each of the three examples, the water vapour pressure is increasing above normal and therefore the dwelling is getting wetter as the excess of water vapour pressure increases.

SOURCE: BS 5250: 2002 TABLE B.3

Table 2. Permissible number of occupants

Table 3. Ratio of floor area of room to number of people

Number of rooms

Number of people

Floor area of room

Number of people

1

2

10.2m2 or more

2

2

3

8.3–10.2m2

1.5

3

5

6.5–8.3m2

1

4

7.5

4.6–6.5m2

0.5

5 or more

2 for each room SOURCE FOR TABLES 2 & 3: HOUSING ACT 1985

rics.org/journals 43

Use and occupation of a dwelling is often the most crucial aspect of determining whether we live in a dry, warm home with adequate ventilation Table 4. Typical moisture generation rates for household activities Activity

Moisture generation rate

Sleeping

40g/h per person

Active

55g/h per person

Electric

2kg/day

Gas

3kg/day

People

Cooking

Dishwashing

400g/day

Bathing/washing

200g/day per person

Laundry

500g/day

Drying clothes indoors (e.g. in unventilated tumble dryer)

1.5kg/day per person

SOURCE: BASED ON BS 5250: 2002 TABLE B.1

Table 5. Saturation levels of 1m3 of air at different temperatures Air temperature (°C)

Water vapour in the air (kg/m 3)

Vapour pressure (mb)

25

20

32

20

15

23

15

11

17

44 Journal January/February 2020

These factors result in mould forming on walls, windows and ceilings. Mould growth indicates that internal humidity relative to internal temperature exceeds 70 per cent relative humidity, and there is too much water vapour in the internal air.

Table 4 provides the typical moisture output from normal daily household activities. We can see from Table 1 that the moisture from even a sole occupant can quickly add up to 9kg/m3 to classify a building as a wet occupancy.

Table 5 explains the saturation levels of 1m3 of air at different temperatures, together with the indicative vapour pressure. At 25°C, 1m3 of air can hold around 20g of water vapour with a vapour pressure of 32mb. But if the temperature drops by 10°C, which could happen in a home overnight, then the amount of water vapour held in the same 1m3 of air almost halves, as does its vapour pressure.

As air cools, any excess vapour-laden air forms a condensate as the moisture in the air changes from a gas into liquid at the dew point – the temperature at which air becomes saturated with water vapour.

The warmer the air, the more moisture it can hold, and so it expands, meaning it effectively migrates from a wet room into the other habitable, colder spaces. This usually occurs during the winter, when water collects on bedroom windowsills – often because vapour-laden air has not escaped from the poorly ventilated buildings and stays in the dwelling to condense on surfaces below the dew point.

In the next issue, we will look at how to measure these internal conditions, consider a case study of a flat with significant mould, and ask what this means for surveyors.

Mike Parrett is a building pathologist, chartered building surveyor and founder of Michael Parrett Associates. He is an eminent fellow of RICS and the lead author on the Damp section of isurv info@michaelparrett.co.uk Related competencies include: Housing maintenance, repairs and improvements, Housing management and policy Further information: isurv.com/info/1155/damp

Specialised Call Handling Solutions for the Property Management Industry

24

7

365

Adiuvo are the only specialised call handling service for the Property Management Industry to approximately 540,000 properties throughout the UK where our services include Out of Hours Emergency maintenance call handling, Full 24/7 maintenance desks, Lone Worker Check-In, Reception & Overflow services.

OUT OF HOURS: We take all incoming calls and under agreed procedures triage to determine whether any reported issue is deemed an emergency under our clients’ responsibility whilst protecting the asset they manage from material damage and staff, residents and visitors from any Health & safety issues.

Due to the nature of the service we offer almost every call we take comes with the belief that their call is an emergency and in order to collate information, instruct correctly and at times advise that an issue is not going to be actioned or is even their responsibility, customer service skills are at the forefront of every call.

DAYTIME CALL HANDLING: Our services include outsourced switchboards, dedicated maintenance desks and overflow call answering, integrated either into the clients’ services or in combination with our out of hours call handling to provide true 24 hour coverage.

“

The Adiuvo service has been nothing short of outstanding. The level of interaction, knowledge shown and general ability to get things right first time has been a refreshing experience for all of the team. Well done on getting so much right and we look forward to a long relationship Group CEO, Nationwide Property Management Company

Suite 114, 22 Notting Hill Gate, London W11 3JE  0203 370 9332  info@adiuvo.org.uk

www.adiuvo.org.uk

”

Commercial property

Rent reviews

Bringing rent to heel Thorough investigation of the local retail market by a chartered surveyor enabled a rent reduction for a small business in one recent case Jonathan Shuttleworth

With tenants already suffering from business rate increases and rising occupational costs, a rent review – as required by many commercial leases – can be a difficult prospect for many shop owners, because the market rents sought by landlords are often fixed for a five-year term. If a tenant does want to contest a rent rise, though, it is absolutely crucial they are represented by a chartered surveyor, as a recent case proves.

The Little Shoe Shop at 71 York Street in Marylebone, London, opened in 1966, trading as Small and Tall Shoes for many years, then later as Sally Small, before adopting its present name when my client acquired the business in May 2005. The ownership of the parade where it is located changed hands relatively recently and the new owner was looking to achieve market rents on its shops. The Little Shoe Shop had a rent review at 25 December 2017, where a fairly modest passing rent was set.

But the new landlord had served a rent notice quoting a rate more than double the existing one – not uncommon within a five-year review pattern, particularly in a high-value area such as Marylebone. Critically, the adjacent shop at 73 York Street had been let in January 2017, less than 12 months before the review date of 71, at a rate that could be argued to support the level of increase sought for the shoe shop. This was a significant comparable for the rent review, being a virtually identical unit in terms of configuration and let on similar terms.

My client felt the proposed rent was too high, knowing the street well, and having failed to convince his landlord of this he decided to get help and was referred to me as an expert witness 46 Journal January/February 2020

for arbitration. While landlords will invariably take the upper range of rents available when serving a rent review notice, the quoting rate should be supportable and in this case it was. My investigations led me to discuss this with the other landlords on York Street, some of whom had owned their properties for several decades and had historically agreed lease terms and rents directly with their tenants. On balance, those rents were modest in comparison to the recent open-market letting figures.

Such open-market lettings carry most weight when a case comes to arbitration – and more so if the parties involved are professionally represented, as was the case for the key letting at 73. This point was made to my client. My investigations led me to the only other comparable transaction on York Street where the parties were professionally represented, an open-market letting at 92 York Street that involved the surrender of a lease and simultaneous grant of a new one to a new tenant under the

If a tenant does want to contest a rent rise, it is absolutely crucial they are represented by a chartered surveyor

IMAGE © JONATHAN SHUTTLEWORTH

The Little Shoe Shop, Marylebone

Landlord and Tenant Act 1954. A premium was also paid to the outgoing tenant, and this transaction occurred six months before the December 2017 rent review took place.

However, the agent’s analysis for the transaction was showing a rate of £1,055/m2 of the area in terms of zone A (ITZA), which takes into account the impact of the frontage of the shop rather than just its area – even higher than at the letting of 73 York Street mentioned previously. At this point it did not look good for my client, because the only two open-market transactions where professionals had been appointed were showing net effective rents of £915/m2 and £1,055/m2 ITZA respectively, which would have supported more than doubling my client’s rent.

Both landlord and tenant made attempts to settle, and indeed compromised by serving their respective without-prejudice Calderbank letters making offers to settle. However, the parties involved were ultimately unable to agree a rent through discussion, and the matter was referred by us to an arbitrator via RICS. Six months later, the arbitrator awarded a new rent significantly lower than the two key lettings mentioned above, equating to £775/m2 ITZA for the subject rent review.

Achievement at arbitration This lower rate was achieved by four main means: ••corroborating our case ••checking the figures ••speaking to landlords and tenants ••employing a chartered surveyor.

At arbitration, you need to be able to corroborate what you are saying, particularly when it comes to rents. In this case, a couple of rent reviews and some new leases had been agreed directly between owners and tenants on the street. Unsurprisingly there was no agreed analysis of these transactions – but this presented an opportunity for a surveyor.

I therefore inspected and measured the units in question and put together a pro-forma confirmation of rental evidence, with the owner verifying my workings and analysis. The landlord also happened to be a fellow of RICS and was very interested to see the arbitration unfold. Certainly, a rent review or new lease agreed directly can be corroborated by showing detailed floor areas and a specific analysis in a pro-forma confirmation.

If rental evidence is not corroborated, an arbitrator will not give it much weight, if any. In this scenario, where there was no agreed analysis, it was therefore valuable to verify the facts. Floor plans from the lease should be used if possible and marked up clearly with dimensions, so these can be referred to in any submissions.

Another crucial factor in our success was that I independently measured the key transaction at 92 York Street by way of a check.

I had noticed that the analysis circulated had floor areas that were identical to those provided in the rateable value for the shop, which should never be relied on at arbitration. When I inspected the property, I discovered there was a whole retail area at the rear that had not been analysed.

Critically for the rent review at the shoe shop, the arbitrator agreed my floor areas for this transaction, and that the stepped rent equated to £775/m2 ITZA. Furthermore, this transaction was seen to reflect the market rent between the upper level at number 73 and the reviews and new leases that had been agreed directly between landlord and tenant in nearby premises in the run-up to the most recent rent review.

As an expert, you need to consider all of the information available and understand points on both sides. We spoke with every landlord and tenant we could and the full picture then emerged. Some tenants had been in occupation for 30 years, others had come and gone very quickly. There is an immense amount of information that can be discerned in this way, and it helps build a thorough case. One thing that struck me here was that there was a genuine concern not just from the tenants but also some of the landlords about high rents, which run the risk of making the tenant mix on this destination parade unsustainable.

Above all else it is absolutely critical for tenants to seek full representation from a chartered surveyor with specialist knowledge in this field: ‘market rent’ is a highly subjective term and not set in stone. There are many factors that can potentially affect value, so tenants should not go it alone. Chartered surveyors should promote themselves as being well placed to protect their clients’ best interest in these cases.

Jonathan Shuttleworth is director of professional services at Brecker Grossmith jonathan@breckergrossmith.co.uk Related competencies include: Landlord and tenant, Valuation rics.org/journals 47

Property

Land use

Local colour The UK lags behind when it comes to making available the open-source data critical to the sustainable use of buildings, but a new software platform aims to crowdsource and share expertise on London’s stock Polly Hudson

What type of buildings make up our cities?

What size and shape are they? How old are they and how are they used? How are they built? How energy-efficient are they?

How long are they likely to last? Are some building types likely to be more resilient or vulnerable than others, and if so why?

Answering questions such as these is increasingly important in the development of strategies to maximise cities’ efficiency and sustainability, and measure and monitor their long-term performance. At the same time, there is now an opportunity to exploit advances in computing to model potential planning and energy scenarios much more accurately. However, in the UK, the statistical data sets that are necessary to build such models and deal with basic questions on the stock continue to be highly fragmented, and in many cases restricted, unverified and incomplete.

Building stock is the principal physical component of cities, with the value of land intrinsically linked to the quality of the built environment. It is also where the greatest potential for energy reduction lies, with buildings and the construction 48 Journal January/February 2020

sector responsible for 36 per cent of global energy consumption and nearly 40 per cent of carbon dioxide emissions, according to the International Energy Agency.

Since the 1990s, the energy agenda has prompted a shift in the European construction industry from focusing on new buildings to building re-use, leading to an urgent demand for granular data on older buildings and urban stock as a whole.

It has also shown how little is currently known by urban scientists about these slow-moving systems and their operation, and highlighted the need for investment in relevant analysis and data.

Outside the UK, governments are increasingly releasing comprehensive, open-source building attribute data for cities. The Dutch agency Kadaster, for example, publishes building attribute data including age and function. Any user can link this to detailed building geometry data to produce high-quality, colour-coded building attribute maps for any Dutch city or town. In the USA, many cities have also published open-source property tax data sets and building footprints since 2013.

However, despite growing pressure, the release of comprehensive open data on the UK’s building stock has been painfully slow.

Although the Treasury has now announced plans to open up Ordnance Survey’s MasterMap footprint data, the country’s most comprehensive building attribute database, the property tax database run by the Valuation Office Agency remains heavily restricted. Unless something is done soon, the UK will fall behind those countries releasing open building attribute data in many areas of urban research.

The Bartlett Centre for Advanced Spatial Analysis (CASA) at University College London has therefore partnered with Ordnance Survey, the Greater London Authority and Historic England to develop an open-data platform called Colouring London. This is designed to collect, collate, visualise and disseminate statistical attribute data on every building in the city and, by 2021, to become the first port of call for open data on London’s building stock. The platform code is also open and available to any city to use.

Key to the success of the project will be the ability of CASA’s online system to support high-quality data flows, both as uploads to the database and downloads from it for use in multiple applications.

To do this, the platform not only needs to source, secure and visualise large-scale, fragmented data sets, but also to tap into the vast body of specialist knowledge held by the so-called crowd of residents, community-led planning groups, amenity societies, conservation bodies and built environment professionals.

As part of this process, CASA is currently working with RICS and other professional bodies on subcategories, standards and metrics, as well as ideas for additions and improvements. Subject specialists are key to the success of crowdsourcing platforms, so CASA is looking at ways to encourage and acknowledge the involvement of individuals. A network of contributors interested in extracting information on the dates of construction and demolition of buildings is also being developed.

Colouring London is collecting more than 50 types of data for each building in London, grouped into 12 core categories:

Colouring London platform here shows the age of buildings in the Bloomsbury and Fitzrovia areas of London

••location ••use ••type ••age and history ••size and shape ••construction ••team ••sustainability ••street block and environment ••community ••planning ••‘Like me?’ – that is, whether users think the building benefits the city.

Data can be uploaded in bulk, by local authorities for example, or added manually building by building. In some cases, CASA will pre-populate subcategories – for example, by extracting height information for every building using open light detection and ranging (LiDAR) data from the Environment Agency, which can then be verified by the crowd.

Each core category is accompanied by a brief explanation of why the data is needed, along with tips on sources for those wishing to help colour in the maps.

A key question for CASA is what other

subcategories should be added: should we, for example, consider a repairability rating or an embodied carbon measure?

Another of the project’s challenges is how to help users assess the data’s reliability.

For this we are working to add a range of support features, including edit histories, sources and verification tools.

When a user edits a building’s entry and adds data, the colour of the building footprint changes; for example, under the age category, a building constructed between 1980 and 2000 will be yellow, while under size and shape a building of ten to 19 storeys high is orange.

Colour is fundamental to the project, not only in terms of the visualisation of data categories but also as a way to acknowledge each contribution. The idea is to stimulate users’ curiosity to reveal, and update, the form of the city alongside other volunteers, using a simple gamification approach.

As well as collecting building attribute data, Colouring London aims to increase transparency in the planning system and to help boost building standards and support performance monitoring. The ‘Like me?’

category is designed to help London’s planning departments to collect important information on building performance that would otherwise be difficult to access, and to identify buildings that may be key local socio-economic assets in future.

Furthermore, it enables the platform to harness the predictive ability of heritage and community planning groups that, in the 1960s and 70s, foresaw the socio-economic potential of now iconic, high-value areas of London, such as Covent Garden, Shoreditch, Whitehall and Bloomsbury and sought to preserve them. In turn, this will allow the city to promote high-quality construction and design.

Polly Hudson is a doctoral researcher at CASA j.denholm@ucl.ac.uk Related competencies include: Big data, Economic development, Land use and diversification, Spatial planning policy and infrastructure Further information: To see maps, add data or contribute to discussion threads, please visit colouringlondon.org. rics.org/journals 49

Property

Comment

Legal

‘Both cases serve to reiterate the difficulties for claimants in succeeding against approved inspectors in tort’ Paul Bury Keating Chambers

Two recent cases consider the role and potential liabilities of approved inspectors in claims brought by the owners of a defective building: Zagora Management Ltd v Zurich Building Control Services Ltd [2019] EWHC 140 (TCC), and Heron’s Court v NHBC Building Control Services Ltd [2018] EWHC 3309 (TCC) and [2019] EWCA Civ 1423. To the disappointment of property owners, and perhaps the relief of insurers, these cases show the difficulties claimants face in succeeding against inspectors.

The approved inspector regime was introduced by the Building Act 1984. Before this, only local authorities could provide inspectors for the purposes of enforcement and certifying compliance with the Building Regulations; but the 1984 Act essentially permitted the privatisation of this service.

At the time the act was passed, Anns v Merton LBC [1978] A.C. 728 was good law.

Any inspector potentially owed a duty of care in respect of the economic loss caused by any defect in a building that they had not spotted in a negligent inspection and certification. However, in Murphy v Brentwood DC [1991] 1 A.C. 398, the House 50 Journal January/February 2020

of Lords overturned Anns, and decided that local authority building control inspectors did not owe any such duty. Since then, there had been almost no reported cases involving civil claims against approved inspectors except for Tesco v Wards Construction [1995] 76 BLR 94, where the claim failed.

But the proliferation of issues relating to non-compliance with the Building Regulations, in particular fire-stopping problems, has led some parties to reconsider whether there may be a valid claim against an inspector for wrongly issuing a Building Regulation certificate.

However, the claims against the approved inspector in Zagora made by freeholders and leaseholders of two blocks of flats were dismissed. This was despite the court finding that the inspector had made misrepresentations in the Building Regulations final certificates that he knew to be false – particularly regarding fire safety. The court found on causation that the claimants had not relied on the certificate in making their purchases.

Furthermore, the property owner in Heron’s Court claimed under the Defective

Premises Act 1972 section 1(1), which places obligations on those who take on work ‘for or in connection with the provision of a dwelling’. The court at first instance and on appeal held that this provision did not apply to an approved inspector, since what they are ‘contributing to is the aim of ensuring that the building is lawful’.

Both cases serve to reiterate the difficulties for claimants in succeeding against approved inspectors in tort. Some have asked why private inspectors should be treated differently to other professionals involved in construction projects, given they must be insurance-backed and they issue certificates on which purchasers will, at least in some cases, rely. The courts’ current position seems to lie in the nature and historical development of the role.

First, the role of an approved inspector or local authority pursuant to the 1984 Act and Building Regulations is seen as relating to regulatory certification, primarily aimed at health, safety and welfare of persons, rather than involvement in the ‘provision’ or construction of a building.

Second, as Mr Justice Waksman pointed out in Heron’s Court, it may make little sense to allow a claim against a private approved inspector carrying out Building Regulation inspections when a claim against a local authority performing precisely the same function would be barred.

Unless the Court of Appeal takes a different view, both cases appear to shut the door on negligence claims for economic loss and claims under the 1972 Act against an approved inspector. Unless and until section 38 of the 1984 Act is brought into force, which would give parties a direct cause of action for breach of the Building Regulations, or approved inspectors are willing to give collateral warranties to purchasers, it appears that any parties wishing to take action against an approved inspector will only be left with the difficult route of making a claim in deceit or fraudulent misrepresentation.

Paul Bury is a barrister at Keating Chambers pbury@keatingchambers.com Related competencies include: Legal/regulatory compliance

C

n

d

iti

o

n*

o

te

s

o

n

s

£ U

rg o

p

en

ed ve

p

m u

an en

v Fa

u

ri

s

es

ag

te

ti

an

ili

M

o

lio

c Fa

t

h

s

t

ge

en

ar

em

C

ag

en

an

em

M

s

A

cc

o

u

n

ts

r

A

cc

o

u

n

s

o

ts

ep

rt

s

a p t en a R Cp S/ s /S d O an s al t B em p d ei st c o t re s o P P

P F

ro ile

p it

an

d

m E

ns itio

ku

p

e Ev o

nt d

u

– st

ce

Li

t

ro

n

P

lie

s

G re

st

tr

-

s

n

4

en s

O

t

Li

m

rf

ac

cy

te

an

In

n Te

ad

ce

o

an

R

n Te

an

t

Su

p

p

lie

r

H

ea

d

P

ro

p

er

ty

ty

p

e

cy en y u nc eq ue t Fr eq Ac Fr 86 19

U

p

IA N A I N

e p ty e e as te at Le da e d c d ti e o n N sig s A

ry nd Su

ed

r

n

it

te

it

ve

n

n

o

U

ai

D

M

ld

ce r vi Se

em rt

3

ty

o

er

ep

p

0 ,1

ro

R

ag

P

it

an

ie

U

nt Re

M n

e

cy

at

E

SL

E

an

ty er p ro s P at u St i t t n n U na e c Te oi e v at w In d ie t v k ar re a St x t b r e t e N x t Ac e N 54 19

t an Te n e at d d n w e E vie yp e R pe k t t t y e a Ac r B 95 19

t en ym

– Lo

C

n Te

s Te rm

t

n cti

ro m e o

e

le

lie

ct

R

ls t ai De

en

U A

P n m rtf

ic ts

Sa

p

ta

ar y mm Su

s nit O a n cc u aly pi sis ed u

d Ad

o

N

cti

ai o o

rv n

p

n

is lys

ti

to

d Ad

A

M H P

Se e Ev

Su

o

La

te

P

t

Su

s E tie To re et Su b L

In

IA

ay

N

N

ex

t

N

d

u

te

e

La

d

e

t

u

ex

R

ev

In

t

Developed by

C

Request a demo or discover more grosvenorsystems.com 020 7089 1400

Ac

ti

Ac

Pa P an rop aly er t sis y

s

39ve Proj A 14ctive Un 7 ects 42 its na it a Un

Ho me pa P ge su or tf mm oli ar y o

Take your business to the next level with Propman, all-in-one property management and accounting software.

18ve clien tiv 6 ts 66e Estate Ac

s oto ph rt po Im

e let De it Ed Ta k

ep

ho

od

Go

nd Co

ve Sa nt r re Cu

el nc Ca

Power your portfolio with Propman

The state of the arts It is not only the uncertainty of Brexit that has affected the art market over the past three years

Nick Orringe

More than three years after the UK’s referendum on EU membership, failed negotiations and repeated postponements have left many businesses with seemingly uncertain futures. High-street retailers have seen fluctuating fortunes, although factors besides Brexit have admittedly been part of this process.

Against this less than optimistic picture, global art sales reached an estimated $67.4bn in 2018 – an increase of six per cent on 2017, according to findings published in the Art Basel and UBS global report The Art Market 2019 (bit.ly/ArtMkt2019).

Identifying trends and assessing the impact of wider economic shifts is always of interest to personal property professionals – and indeed, throughout the property profession generally. For instance, sales 52 Journal January/February 2020

of jewellery and watches in the UK have performed strongly; the link with gold price has probably contributed to this, because jewellery and precious metals are a traditional hedge against inflation and diminishing confidence in monetary investments.

Continually low interest rates for savers may also have fuelled the market, and likewise changes in taxation for buy-to-let investors.

At the same time, the value of the pound has fluctuated since the referendum, and a weak pound is bad for the jewellery trade: precious metals and gemstones are traded globally and become more expensive in real terms as the pound falls. Luxury pieces typically have a low inventory turnover – that is, stock is not sold or replaced many times

Personal property

Art market

As collectors and auction-goers will testify, the online market is becoming increasingly dominant as a platform for art trading over a given period – so this could make it more difficult to sell them as prices will have to rise.

On the other hand, more expensive jewellery prices could encourage visitors from overseas to spend more as they perceive the pieces as being of higher quality.

The weaker pound is also encouraging overseas tourists to visit the UK as sterling is cheaper for them to buy, and jewellery sales could rise if they are tempted to make purchases while they are here. Some Swiss watch brands are even altering their pricing structure, as buyers from eurozone countries are making purchases in London because the price in sterling is lower than in their homeland.

Sales across 2018 brought the global art market to its second-highest level in a decade, representing a rise of nine per cent since 2008. But why has this occurred, given the ongoing uncertainty over Brexit in the past three years?

Research on global high-net-worth collectors has shown that millennials are buying considerably more across all sectors of the art market than other generations (bit.ly/ArtMkt67bn). Millennial collectors across all regions made up just less than half of the high-end spenders, buying artworks valued at more than $1m, which underlines the purchasing power of this demographic in the global market.

While galleries and auction houses were the most commonly used channels for such purchases, art fairs were also important, especially in Asia, where Brexit has only intensified competition. Between 92 and 97 per cent of collectors from Singapore and Hong Kong purchased from fairs, compared to 68 per cent and 72 per cent in Japan and the UK respectively.

James Hammond, head of Asian art at Ewbanks Auctioneers, says: ‘There have been enormous changes across the Asian economies over the past 20 years or so. This is producing a vast new market of collectors and dealers who have looked at both the traditional collecting areas and auctions offering high-status objects that may be new or speculative.

‘For many years, demand exceeded supply, so auctions were buoyant, buyers confident, and vendors keen to

sell. As the Asian markets evolved and matured, buyers have set their sights higher. You would now expect queues of telephone bidders for the masterpieces of Chinese imperial porcelains, the large tantric sculptures of Tibet and the monumental paintings of Amrita Sher-Gil. This is a sensible case of investment and good taste, but it has left the bottom rungs of the collecting ladder depleted. That produces a limited perspective of art history and identifies great art in terms of its hammer price.

‘Younger collectors who are driven to buy Japanese prints, Chinese export porcelain, Indian devotional sculpture or Islamic metalwork are now an endangered species, causing further deterioration in these traditional markets.’

Western preferences and designs, especially in conjunction with perceived status, have dramatically altered the Asian art market, particularly for a new generation who are investing their spare salary in technology, such as the latest TV models, rather than in art. You could say that it has never been a better time to invest in the lower rungs of the Asian market.

Auction sales in the UK were meanwhile reported in The Art Market 2019 as having advanced by 15 per cent year on year to $5.3bn by the close of 2018. In the same period, auction sales in China declined by nine per cent, to $8.5bn. The Chinese market also saw one of its highest rates of unsold lots, with 57 per cent of the works offered for auction in 2018 not finding buyers.

As many collectors and auction-goers will testify, the online market is becoming increasingly dominant as a platform for art trading. Economists estimate that online sales approached $6bn in 2018, which equates to nearly one in ten of all global sales. However, at the top end of the art market, sales of artworks purchased online slumped to around four per cent.

Millennials have also moved away from other traditional collecting areas, and there has been a seemingly unstoppable surge of interest in sporting and film memorabilia, vintage watches and handbags.

Conversations with auctioneers, gallery owners and jewellers in recent months are best summed up as being concerned with planning ahead. Even the experts can’t predict what will happen in the wake of Brexit, as those who follow the media pundits can attest.

If jewellery prices do rise, some experts believe that people will continue to invest in luxury goods; others think it may cause disruption for jewellers.

The potential for future job uncertainty may cause some collectors to consider what they can afford – but others may see it as an opportunity.

Nick Orringe is managing director of Arbiter Adjusters nick@arbiteradjusters.com rics.org/journals 53

Commercial property

Energy efficiency

Behaviour change not climate change While the emphasis in energy efficiency is often on technology, behavioural change is a vital factor in the equation

Jes Rutter

The urgent need for action to meet the 2030 targets of the Intergovernmental Panel on Climate Change and the more recent recommendations from the UK’s Climate Change Committee has now been widely recognised. Reducing energy consumption and associated carbon emissions is one of the leading ways that organisations can contribute to this objective.

While attention currently focuses on equipment and technology because they can lead to significant energy savings, there is hard commercial evidence to show that changing behaviours to embed and maintain a good energy culture can easily make savings equal to or in excess of traditional engineered improvements (bit.ly/ESTAbeh).

These opportunities to change behaviour are largely ignored, but could prove to be a significant part of the solution.

Behavioural change means saving energy by transforming practices to reduce or avoid consumption. This includes obvious measures such as turning off devices from 54 Journal January/February 2020

lights to air conditioning, setting conditions at the right level or time, and identifying simple low-cost energy improvement projects both for organisations as a whole and the individuals they comprise. But good energy behaviour goes far beyond this: it is about senior management decision-making, standards, policies, plans and, importantly, optimising the technology used.

Many organisations believe that they are already behaving responsibly by investing in a building management system (BMS), for example; but it would be wrong to assume that such a system is managing energy efficiently after being installed, and most are in fact wasting vast amounts.

Continual monitoring and review of the BMS is required – including control strategy, settings, schedules, weather compensation, sensor accuracy, the accuracy of user interfaces, system useability and day-to-day operation and maintenance – to ensure its ongoing overall efficiency.

A health check and system optimisation

review can often identify the potential for substantial energy savings.

Both at commissioning and on an ongoing basis, technology needs to be optimised in terms of four key factors: wastage, efficiency, levels and time (WELT).

These are not matters addressed effectively through technology alone. Organisations that optimise WELT will not only save significant energy but in turn improve individuals’ energy efficiency behaviours in their homes and communities, as well as enabling other productivity improvements throughout those organisations.

We know that training can be an extremely effective way of engaging personnel to reduce energy use and costs in an organisation. When the culture, structure and processes of an organisation also change, engagement in, awareness of and commitment to savings achieved through training is reinforced and maintained.

A programme to embed a good energy culture may include the following steps:

••developing a best-practice energy policy ••engaging senior directors to ensure buy-in at the top level ••resultant communication and project plan ••reviewing and modifying energy management systems and procedures ••identifying training needs, including training the trainers to embed significant knowledge in house where possible ••including energy awareness as part of induction training ••creating a structure of energy roles and responsibilities among staff ••running a tailored energy training and behaviour change programme ••supporting recruitment of personnel with dedicated energy roles ••developing an energy action plan ••tracking the implementation of projects ••mentoring staff with energy-related roles to run the projects ••developing and implementing an energy communications programme.

Better behaved Evidence from case studies of programmes in parts of organisations suggests that behavioural change can enable around 50 per cent of total potential energy savings; the other 50 per cent comes from technology, but typically represents 99 per cent of the resource input and policy attention from organisations and government. So a shift is required, and soon, to ensure that the savings available from behavioural change are realised.

At one global power systems manufacturer, for instance, a behavioural change programme significantly reduced energy consumption quickly after implementation. A longer-term evaluation demonstrated that additional savings of nine per cent had resulted from raising employee awareness as part of the programme. The reduction in energy consumption was measured using the International Performance Measurement and Verification Protocol (IPMVP), a globally recognised methodology.

Good behaviour is now embedded in the organisation, and consumption continued to fall in the year after the programme was implemented. The nine per cent savings from behavioural projects were the same

Changing behaviours to embed a good energy culture can make savings equal to or in excess of engineered improvements as those from a new factory LED lighting scheme that the company had installed.

However, the internal and external costs of the behavioural savings were £30,000, with a payback time of just three months, compared to the £480,000 spent on the lighting, which took almost four years to pay back.

This is a rare example of the success of such a programme all the same. One of the main barriers to the widespread adoption of holistic behavioural change programmes is the paucity of such case studies to encourage decision-makers to take action. It is for just this reason that the Energy Services Technology Association (ESTA) has launched the Energy Conscious Organisation (bit.ly/ESTABchWg).

The objective is to promote behavioural change as a significant contributor to energy savings and to make it an integral part of all organisations’ energy strategies.

ESTA’s vision is that embedding such energy consciousness could get the UK at least halfway towards its clean growth target for energy efficiency by 2025.

The target could easily be exceeded by organisations adopting codes of practice to take a more structured approach. Until now, even the best case studies only covered at most 25 per cent of the potential areas of behavioural change, whereas all elements could be joined into one cohesive initiative.

The potential is significant because this opportunity remains largely untapped.

Evidence also shows that payback from behavioural change projects starts quickly and builds as they continue, and that they require relatively little investment, even including the cost of internal resources. The only major issue is that, unlike technical projects, they do not reduce energy use

overnight. Instead, behavioural change typically takes 12–18 months to be fully adopted, at which point savings become measurable. It also needs ongoing resource investment to maintain and improve energy-saving opportunities and outcomes.

The Energy Conscious Organisation’s target is to provide 100 proven case studies for medium to large energy consumers using IPMVP methodologies by June 2022, which it conservatively estimates will save £12.5m per year on an investment of £9.5m. The potential savings from more widespread implementation could therefore be significant.

Other financial benefits not defined here include reductions in the need for infrastructure – resulting in lower capital costs and embedded energy use – and the subsequent optimisation of consumption for individuals in their homes and other communities as described above.

While the Energy Conscious Organisation is pushing to raise awareness and provide a model for embedding and maintaining a good energy culture there is no reason to wait, and every advantage in acting now.

ESTA’s Independent Energy Consultants Group (bit.ly/ESTA-IECg) includes a number of organisations qualified and experienced in running behavioural change programmes that can be consulted on the right approach for your organisation. What more could you be doing now to slow climate change?

Jes Rutter is managing director, JRP Solutions and chair of ESTA’s Independent Energy Consultants Group jes.rutter@jrpsolutions.com Related competencies include: Sustainability, Workspace strategy rics.org/journals 55

Commercial property

Valuation

Uncertainty principles When does uncertainty about a valuation become material?

John Baguley

RICS members practising in the UK will be aware of the recent Financial Conduct Authority consultation on illiquid assets and open-ended funds. Material uncertainty featured heavily in the consultation, not least due to the proposed way in which declaring material uncertainty could trigger particular events.

But how is material uncertainty defined?

Members involved in valuation are well versed in analysing market conditions. Real-estate markets are imperfect and are generally characterised by a lack of comprehensive information. Therefore, while the theory of real-estate valuation can be explained, there is no substitute for the valuer’s detailed, in-depth experience and market knowledge. Indeed, the skill of the valuer lies in interpreting the market even where evidence is limited, and that skill is why valuer services are needed.

Providing some general market commentary is a standard feature of many valuation reports, and this might include a detailed narrative of current and future events, essentially putting valuations into context.

Markets can often be challenging, moving quickly, and evidence might be limited; but to a valuer, this is just part of normal analysis in determining what is an appropriate valuation figure.

As for any opinion, the degree of certainty will vary from case to case. But that is again an inherent 56 Journal January/February 2020

feature of the work, since most valuations will be subject to a degree of variation – that is, a possible difference in professional opinion – and this principle is well recognised by the courts. But equally, markets can be disrupted by unique, unforeseen factors such as financial, macro-economic, legal, political or even natural events.

When these happen, should they simply be regarded as factors considered as part of normal market analysis and interpretation, albeit maybe at the extremes of tolerance? Or, because of their magnitude and the fact that they are unforeseen, do such events mean there is such uncertainty around the valuation figure that it may fall significantly outside the usual tolerances?

If a market is disrupted to this extent, it might be appropriate to declare the valuation materially uncertain: that is to say, because an unforeseen or significant event or its aftermath has occurred at or about the valuation date, a significant degree of uncertainty should be a attached to the valuation figure by those relying on it. At the same time, by their very nature the factors that cause material uncertainty cannot be quantified.

Declaring material uncertainty is a way of reflecting significant, unforeseen events that coincide with the valuation date. As a result, declarations are expected

Declaring material uncertainty is a way of reflecting significant, unforeseen events that coincide with the valuation date to be infrequent and last a relatively short time, although the exact period would be dictated by market conditions, and their relevance should also be reviewed regularly. Markets are expected to normalise once the factors that triggered the material uncertainty either subside or become regarded as standard. The valuer merely then continues to use skill and judgement to analyse and interpret the market.

Valuers should be fully aware of the relevant content about this in RICS Valuation – Global Standards 2017, VPGA 10 and VPS 3 before declaring material uncertainty. These RICS professional standards mandate that reports include commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity for the

valuation’s user. The 2020 update to the Global Standards will include an additional requirement under VPS 3 section 2.2 that, where there is material uncertainty this is expressly signalled, and it would be regarded as best practice to employ the exact term.

It is also important to realise that declaring material uncertainty has other consequences and as such, in addition to reasons of transparency, the fact that the valuation is subject to material uncertainty should always be clearly stated.

Readers of a valuation report should not have to second guess whether the narrative is market commentary or the valuer is declaring and expressly drawing attention to the fact that there is material uncertainty of actual or potential relevance to an intended user of a valuation.

John Baguley is tangible assets valuation director at RICS jbaguley@rics.org Related competencies include: Valuation Further information: With thanks to David Tretton and David Park for their contributions. Note that publication of this article should not be taken as a signal from RICS that there are presently events requiring valuers to declare material uncertainty. rics.org/journals 57

Time to take on a new challenge?

Become a registered valuer at SDL.

Utilise your RICS qualification

Switch to a specialism in residential surveying

Get in touch: 07881 008594 careers@sdlsurveying.co.uk www.sdlsurveying.co.uk/careers

Progress your career

SDL Surveying is an equal opportunities employer and encourages a diverse range of talent to apply.

Residential property

Regulation

Responsibility and compliance RICS strives to ensure its high standards are maintained but ultimately this is members’ responsibility Jan Ambrose

RICS is the global professional body promoting and enforcing the highest international standards throughout the built environment. It guards its professional reputation fiercely, and ensures its high standards are maintained by RICS-regulated firms and individual members through a system of independently led regulation.

Sometimes, investigations lead to a disciplinary panel hearing. A recent case involved a professional who had been a chartered surveyor for more than 40 years and was a registered valuer, and who had run their firm for more than 25 years in partnership with a non-member. The firm provided Red Book valuations, other than for the purposes of commercial property or secured lending.

Charlie Jackson, on behalf of RICS, conducted a regulatory review visit in 2017, which considered issues of three valuations pertaining to capital gains tax, inheritance tax and disposal. Jackson also reviewed the firm’s templates for terms of engagement and reports, its insurance position, and complaints handling procedure documentation. She reported that the firm demonstrated ‘critical non-compliance with the fundamental requirements of RICS valuations’, which presented a significant risk that they may not be fit for purpose.

The ensuing disciplinary panel hearing, chaired by Sally Ruthen, a solicitor,

comprised an RICS representative, a surveyor, a lay member and a legal assessor.

They considered several charges against the surveyor in question, all of which concerned behaviour contrary to the Rules of Conduct for Members (rics.org/conduct). The panel’s approach was that where there was an allegation of failure, RICS had to prove: ••that the surveyor in question, the firm or both had a duty to do something ••if that duty had not been undertaken, whether there was any evidence of a good reason for neglecting it.

The panel examined documentary evidence and heard evidence from the surveyor. Charges against both the individual and their firm included not adhering to their professional obligations, and not adequately supervising or documenting their supervision of valuations by their business partner.

Regarding the surveyor’s own valuations, the panel considered whether their professional work had been carried out to the required standards, and their failure to cooperate adequately with RICS following requests for information and documents.

At the hearing’s outset, the surveyor admitted charges relating to the absence of documentation and evidence on file.

Several other charges were found proved; these concerned lack of documentation, failure to carry out professional work to

the standards required, failure to provide appropriate letters of engagement, and failure to cooperate adequately with RICS’ requests for information.

The surveyor described the rules as terribly pedantic and very onerous, and repeatedly criticised others and RICS process. However, the panel decided it was the surveyor’s responsibility to ensure that they were aware of and complied with the RICS Rules of Conduct. In mitigation, the panel identified that the surveyor had engaged with the oral proceedings and admitted some of the allegations at the outset, was of good character, and had no previous disciplinary history.

Accordingly, the panel decided on a formal reprimand for the surveyor for some of their failures. This would send a clear message to the profession and maintain public trust. It also imposed conditions that the surveyor and firm refrain from Red Book valuations; if this condition is not met, both face expulsion from RICS. In accordance with the publication policy, the panel’s decision was published on the RICS website and in Modus.

Jan Ambrose is editor of the residential section of Property Journal jambrose@rics.org Related competencies include: Legal/regulatory compliance rics.org/journals 59

Residential property

Basement extensions

Onwards and downwards How was planning permission obtained for an extensive basement garage at a listed property when many householders struggle to find space to park cars?

Duncan Moors

Many car owners living in UK city centres will agree that having a garage or at least an off-road parking space is an unattainable aspiration. A study for the Evening Standard’s Homes & Property newsletter in March found that the average cost of a parking space in London is £219,000, with those in Lambeth, Islington and Camden selling for more than £500,000 (bit.ly/219kcarp); at the time, the average UK house price was £230,776.

Although London property prices are colossal, the capital is not alone in commanding such high values, with parking spaces in Bath and Edinburgh also fetching eye-watering amounts.

60 Journal January/February 2020

The government’s guidance for car parking provision in paragraph 105 of the National Planning Policy Framework (bit.ly/NPPFsustrans) demands more sustainable travel modes, while the existing and emerging London Plans (bit.ly/LdnPlan) both seek to set upper limits on parking provision, to influence transport choices and address important issues such as congestion and air quality. Where parking is to be provided, the London Plan requires adequate provision to be made for disabled drivers and at least 20 per cent of spaces to be fitted with active and passive charging points, to encourage the uptake of electric vehicle use.

Many London boroughs impose restrictions on the occupants of developments who apply for permits to park in controlled parking zones.

Although the legality of such restrictions has been challenged in the courts on several occasions, there is an express statutory power for boroughs to do so in section 16 of the Greater London Council (General Powers) Act 1974 (bit.ly/GLCAct74s16). This restriction is often requested by residents if a planning authority is considering granting permission for new development that could increase demand for parking space.

Contrast that with the planning permission for parking secured by Ron

Some boroughs have sought to remove uncertainty about what is allowed to be built by introducing article 4 directions

Dennis, the former head of the McLaren F1 team, on his land in Upper Culham, Berkshire. In January 2018, he was granted permission by Wokingham Borough Council ‘for the erection of a dwelling house’. An unremarkable description for a house that is anything but unremarkable.

Leaving aside the issues of design and volume of the proposed house, it was the basement that caught the attention of the press when permission was granted. Dennis told the Daily Mail at the time that ‘it’s a subterranean facility for my daily cars and two or three of my sports cars’. The plans approved by the council showed a basement with mezzanine level that would have been the envy of most Bond villains. It would have spaces for 20 cars, a gym, pool, games room, cinema, wine cellar and hair and beauty room to name a few of its features.

Dennis’s application appears to have been a smooth process, with the head of development management and regulatory services at Wokingham Borough Council recommending approval. The minutes of the council’s planning committee and the Wargrave Parish Council meeting in November 2017 do not indicate many objections to the proposal.

As ever, the location of a proposed development, its context and its impact on the amenity of neighbouring residents are key factors in determining the suitability of an application. Dennis’s land sits in the 25ha of the grade II listed park and garden known as the Park Place estate.

The principle of residential development had already been established by the grant of earlier permissions, which were not implemented, and were granted pursuant to a masterplan for the estate that would

remove unsympathetic buildings and restore the parkland.

Regarding the impact of the proposed basement on neighbours, the committee report states that ‘the distance of the proposed dwelling from its nearest neighbour is so great that no issues arise despite the large scale of the dwelling’.

This is a very different situation to that of most property owners seeking planning permission for basement developments.

These can often be the most contentious element of either new residential developments or extensions.

In December 2017, the Department for Communities and Local Government, now the Ministry for Housing, Communities and Local Government, published its summary of responses to a call for evidence regarding basement developments and the planning system. Although the response was disappointing in quantitative terms, the issues raised highlighted the planning concerns that such developments entail.

These included visual and structural impacts on the proposed property and neighbours, such as ground stability, flooding and drainage, trees, biodiversity, the loss of large volumes of soil, noise, vibration, dust, vehicle movements and storage of materials. Then there are impacts on highways, road access, parking and servicing, the protection of heritage assets, loss of green infrastructure and reduction in potential for mature planting. These are the same material planning considerations that must be considered when above-ground developments are designed.

Local planning authorities, particularly those in London, are addressing the rise in basement development applications

by including specific policies in their local plans or introducing supplementary planning guidance. Some boroughs have restricted the size to which basements can be built, while others have sought to remove uncertainty about what is allowed to be built under permitted development rights by introducing article 4 directions (bit.ly/Art4dirs).

Many of the impacts on neighbours can be addressed by imposing planning conditions, for example, limiting the hours of construction, requiring management plans for deliveries, construction vehicle parking and siting of heavy machinery.

Local planning authorities also require construction method statements that set out the engineering details of the proposal.

However, there is very often a disconnect between the powers that a local planning authority can exercise and measures that the neighbours feel should be imposed.

One of the themes in the government’s summary of responses was that neighbours were not consulted before the application was submitted. Where they had been consulted, their concerns were considered during the assessment of the application and a party wall agreement put in place.

Good advice for anyone considering a basement – or indeed any other development – is to engage with those who would be affected, or who consider they might be affected, before the application is submitted. An applicant may not be able to persuade neighbours that their concerns will not materialise, but their positive engagement will be viewed favourably by those deciding on the application.

Neighbours may suggest minor changes, and at least the applicant will be aware of the scale and nature of objections before submission. Pre-application discussions with the local planning authority are also recommended. These simple measures are key to making the application process run as smoothly as possible.

Duncan Moors is legal director in the real estate team at Ashfords d.moors@ashfords.co.uk Related competencies include: Planning and development management rics.org/journals 61

Property

Planning

Zoning out When local government intervenes to protect public buildings, how far can their value be diminished before owners are entitled to recompense?

Dr Norman Miller

In 2014, residents of the city of Berkeley, California, lobbied to keep their downtown post office operating, despite the fact that its use as a sorting centre had long ago ended and only a small fraction of the building was needed for customer service (bit.ly/poclosed).

On 9 September, the city passed an ordinance enacting a zoning overlay for the post office as well as a few adjoining buildings that restricted the entire property, some 5,400m2 on 0.5ha, to primarily civic or non-profit uses.

With this zoning overlay in place, the United States Postal Service (USPS) was then unable to sell the building for anything close to its fair market value. Despite testimony from appraisal experts on both sides of the case that the building’s value was diminished by several million dollars, the court allowed the city ordinance to stand. This is not a unique case. Many cities are resisting the closure of post offices that are no longer financially viable, particularly larger-scale facilities (bit.ly/richusps). These closures parallel the painful process for city tax bases of losing many retail tenants to online shopping.

The process of re-designating areas in a way that restricts certain kinds of development is called downzoning, the egregious results of which should be of concern to any business or individual who owns property in commercially desirable areas. If the market is not allowed to evolve then other public uses could be restricted in the same way, including schools and libraries.

The US Constitution’s Fifth Amendment contains the so-called Takings Clause, which states that private property cannot be taken for public use without just compensation. For years, courts have struggled to define clearly what represents a taking, and when and to what degree the property owner is entitled to compensation. The US Supreme Court’s decision in Penn Central Transp. Co. v. New York City 438 U.S. 104 (1978) held that no taking had occurred as a result of regulation. It also found three main factors to be analysed to determine whether a compensatable regulatory taking has occurred: ••the economic impact of the regulation on the property owner ••the extent to which the regulation has interfered with distinct investment-backed expectations of the property owner ••the character of the governmental action.

62 Journal January/February 2020

In applying the first factor, courts have been slow to award compensation unless there has been a near-total deprivation of the economic value of the property. Likewise, there are few situations where the investment-backed expectations of the claimant have prevailed over a city’s zoning power or where the character of the government action was so offensive that a court determined that it was invalid.

In the example of an non-profit-making owner or tenant, such as a charity or in this case the USPS, it can be assumed that they wish to achieve the highest possible sale price when forced to sell a property due to obsolescence. If the city restricts the property to a far less valuable use, it has arguably overreached and caused the owner to bear the cost of the downzoning unfairly.

The outcome in United States Postal Service v. City of Berkeley (3:16-cv-04815-WHA) [2016] serves as a reminder that property rights continue to be eroded by governments under the power of eminent domain and the purported goals of achieving public benefit. Clear limits are required regarding the extent to which governments can strip away a property’s economic value and ignore market forces through downzoning.

As it is possible for two or three independent appraisers to reach estimates of average diminution in value in a particular situation, a more defined quantitative test to determine just compensation for a property owner may be required. It remains to be seen how future cases will play out, but it’s unlikely there will be a slowdown in litigation on these issues.

While no rule exists for what level of diminution in value is significant enough to require compensation, it is understandable that this will be more than just a minor impact. In the USPS case, the impact was about one-third of the property’s value.

That should be enough to warrant compensation for the owner.

Dr Norman G. Miller is Ernest Hahn professor of real estate finance at the University of San Diego nmiller@sandiego.edu Related Competencies include: Planning and development management, Valuation

Acoutics Correlation Tracer Gas Thermal Imaging Inspection Cameras Dye and Salt Testing Moisture Detection

For more information please contact LDS

Tel: 0333 2074450 www.leakdetectionspecialists.co.uk info@leakdetectionspecialists.co.uk