Property Journal March-April 2016

Property Journal INC OR P ORAT I N G T H E C O M M ER C I AL P R O P E RT Y J O URNA L, RESIDE N T I A L P ROP E RTY J O U R N A L A N D T HE A RTS S URV EYOR

Money laundering Are government guidelines workable?

COMMERCIAL

RESIDENTIAL

PERSONAL PROPERTY

Devolution

Empty homes

Resale rights

The crucial role of business rates in the regions

A joined-up approach bears fruit in Scotland

What impact have they had on the arts market?

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March/April 2016

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UPF R O NT CONT ENTS

RI CS P RO PERTY JOUR NAL

contents C ON TACTS

UPFRO NT

COMMERCIAL

5 Opinion

Editor: Claudia Conway T +44 (0)20 7695 1605 E claudiaconway@rics.org Advisory group: Paul Bagust (RICS), Nicholas Cheffings (Hogan Lovells), Milton McIntosh (Excello Law), Nigel Sellars (RICS), Martin Francis (BNP Paribas), Simon Hooper (Edward Symmons), Fiona Haggett (RICS), Vivien King (Malcolm Hollis)

Oil prices, the Chinese economy and UK growth prospects have made for a shaky new year, says Simon Rubinsohn

6 Update

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

As IPMS becomes mandatory, Tom Pugh looks at how it will affect professional practice

Advisory group: Peter Bolton King (RICS), Andrew Bulmer (RICS), Paul Cutbill (Countrywide), Graham Ellis (RICS), Chris Rispin (BlueBox Partners), Philip Santo (Philip Santo & Co)

10 Leading from the front

PERSONAL PROPERTY

Milton Silverman highlights the hidden impact of EU regulations on consumers’ contract rights

15 Value added

Fiona Haggett outlines how two cross-sector groups are addressing challenges in valuation

8 Getting to grips

RESIDENTIAL

12 Just think about it

RICS is taking the initiative on sustainability and risk management, explains President Martin Brühl

Editor: Claudia Conway T +44 (0)20 7695 1605 E claudiaconway@rics.org

16 Legal Q&A

Legal experts answer common queries

18 Taxing times

Owners of UK real estate who are not resident in the country are having some tax exemptions removed, warns Robert Walker

Editorial advisor: Nigel Sellars Property Journal is available on annual subscription.

All enquiries from non-RICS members for institutional or company subscriptions should be directed to: Proquest – Online Institutional Access E sales@proquest.co.uk T +44 (0)1223 215512 for online subscriptions or SWETS Print Institutional Access E info@uk.swets.com T +44 (0)1235 857500 for print subscriptions To take out a personal subscription, members and non-members should contact licensing manager Louise Weale E lweale@rics.org Published by: Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)870 333 1600 T +44 (0)24 7686 8555 W www.rics.org ISSN: ISSN 2050-0106 (Print) ISSN 1759-3395 (Online) Editorial and production manager: Toni Gill Sub-editor: Matthew Griffiths Senior designer: Karen Warren Creative director: Mark Parry Advertising: Emma Kennedy T +44 (0)20 7871 5734 E emmak@wearesunday.com Design by: Redactive Media Group

Printed by: Page Bros

Journals online Increasing numbers of members are choosing to view their journals as downloadable pdfs, instead of paper publications, by changing their member preferences on the RICS website. Regular emails inform members when the pdfs of the latest journals are available.

While helping RICS to reduce its carbon footprint, viewing the journals online provides you with the same technical information in a format that is quick and convenient to read on screen.

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CO MME RCI A L

20 Surveying business rate decentralisation

Commercial real estate’s performance will become vital to councils under the devolution agenda, say Kevin Muldoon-Smith and Paul Greenhalgh

22 Moving up

27 Healthy influence

Mitch Cook and Kerri-Emma Dobson examine the health and wellbeing agenda in the built environment and the impact it could have

28 Communication breakdown

Elina Grigoriou describes the take-up of the Ska rating assessment method by the higher education sector

Thekla Fellas and Wayne Clark look at a case that exposed flaws in the Electronic Communications Code and assess the proposed new code

23 Taking action

30 Continuity and change

Steve Polfreman looks at what happens when an owner refuses to comply with notices to improve their premises

Is it all change for the UK logistics property market, asks Jon Sleeman?

24 Plan ahead

Mat Lown reviews minimum energy efficiency standards and suggests how risks can be mitigated

26 It doesn’t add up

Too many small businesses do not get the right advice about rates relief, argues Ian Sloan

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

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UPFRONT C O N T EN TS

contents R

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RES I DE NTI AL

34 Part of the solution

46 Dealing with disaster

36 Comparing the market is not enough

48 Are you acting responsibly?

Kristen Hubert sets out approaches to the empty homes problem in Scotland

Comparable evidence and a rationale are both vital in residential property valuation, says Fiona Haggett

38 One thing leads to another

Mike Parrett considers connections between building design, failure and occupants’ lifestyle when it comes to damp

42 Help or hindrance?

Vivienne Harris reports on the Money Laundering Regulations and their impact on estate agencies

Front cover: © Istock

PE RSO NA L PRO PE RT Y

Mick Johns and Chris Stephens detail lessons learned from the fatal Shirley Towers fire in Southampton

An industry-led initiative is helping landlords carry out regular safety checks and meet legal obligations, Frank Bertie observes

50 Questions of ownership

Tim Maxwell and Becky Shaw discuss a landmark case in street art ownership and explain its implications

52 Only collect

Kimberley Ahmet of the Artists’ Collecting Society reflects on 10 years of the Artist’s Resale Right

44 Going Dutch

International investors have become increasingly involved in the Dutch residential market, writes Thijs de Graaf

Property Journal is the journal of the Arts & Antiques, Commercial Property, Dispute Resolution, Facilities Management, Machinery & Business Assets, Management Consultancy, Residential Property and Valuation Professional Groups While every reasonable effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the opinions expressed in the journal, or by any person acting or refraining to act as a result of the material included in the journal. All rights in the journal, including full copyright or publishing rights, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v1.0 for public sector information: www.nationalarchives.gov.uk/doc/open-government-licence

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UPF R O NT OP I NI ON

RI CS P RO PERTY JOUR NAL

OPINION Oil prices, the Chinese economy and UK growth prospects have made for a shaky new year, says Simon Rubinsohn

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A frosty start

Writing this column in the first week of 2016, it is hard not to be overwhelmed by the stream of negative news that the new year has prompted. To take one prominent example, the renewed slide in the Chinese equity market quickly brought into play the newly minted circuit breakers and triggered further discussion about the health of its national economy.

The official line may be that it is continuing to grow by around 7% but there is increasing scepticism about the quality of the data and a suspicion that the figures are likely to fall during the course of this year.

A close second was the drop in the oil price to its lowest level in 12 years.

For quite some while the declining cost of crude was widely viewed as a net benefit for the global economy.

However, this mindset has understandably shifted with the growing concerns about what this dramatic turnaround – from $115 per barrel to less than $35 at the

time of writing – is telling us.

Oversupply is clearly part of the problem, but that is ultimately a reflection of a material shift in demand.

UK prospects Chancellor George Osborne was quick to draw on these increasingly forceful headwinds in his first speech of 2016, suggesting that there is absolutely no room for complacency about the UK’s economic prospects. And while the Office for Budget Responsibility (OBR), whose numbers inform the Treasury, won’t formally revisit the 2.4% growth projection for this year until the Budget, a number of independent forecasters have been faster off the mark in scaling back their expectations. Alongside this, the British Chamber of Commerce significantly chose to again draw attention to the unbalanced performance of the economy

The UK will in all probability still be one of the better performing economies in the world this year

in its latest report, highlighting the need to focus on both infrastructure and skills.

It is hard to disagree with this. Indeed, RICS has been very public in emphasising just how critical it is to address these long-standing issues. Although the government has been vocal in both areas, I continue to doubt whether its increasing reliance on private finance to deliver investment will generate the uplift that is clearly required in the infrastructure programme. It is worth bearing in mind that, despite the windfall the OBR provided to the Chancellor in November, net public sector capital spending set out in the Autumn Statement is actually forecast to remain broadly unchanged, in monetary terms, over the course of the next few years. Put another way, as a share of GDP this important measure of investment will slip from an estimated 2% in the last financial year to just 1.4% in 2018/19.

Interest rates I hope that this is not all sounding too downbeat; there are, after all, still many positives. Let’s remember that the UK will in all probability still be one of the better performing economies in the world this year, and that employment remains a particularly bright light amid the more gloomy mood. In addition, businesses should derive some comfort from the likelihood of a further delay for a first hike in base rates, as the Bank of England frets over the impact of recent

developments on its profile for inflation.

I am sure many of you would be keen to remind me that I have been talking about rising interest rates for a couple of years and until recently, my suspicion was that an initial move was likely by the middle of this year. It is worth bearing in mind that in the past, the actions of the US Federal Reserve – which raised rates back in December – have been a good guide to subsequent policy shifts from the Bank’s Monetary Policy Committee (MPC).

However, with the inflation rate still close to zero, it is becoming ever more difficult to envisage when the headline measure will increase in such a way as to threaten the 2% target. Against this backdrop, it would hardly be surprising if the MPC were to sit on its collective hands for yet another year. b

Simon Rubinsohn is Chief Economist at RICS and regularly provides comments for national newspapers including the Financial Times, the Guardian and the Telegraph srubinsohn@rics.org

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UPFRONT U P DAT E

UPDATE HBF responds to homes announcement Home Builders Federation (HBF) Executive Chairman Stewart Baseley responded to the government’s announcement on housebuilding at the start of this year. “Housebuilding has been increasing at the steepest rates for decades, with additional supply reaching 171,000 last year. But we welcome the fact that the government is clearly prioritising housing supply rates, particularly streamlining the process of building homes on public sector land.

“If we are to address the chronic shortage of homes that has developed over decades, strong government leadership is essential. Allowing smaller builders to access publicly owned sites is a welcome move that must be part of a wider set of measures to assist SME builders.

“Increasing the amount of developable land with planning permission is essential if we are to boost output further. Bringing forward public land more quickly has long been a priority for successive governments, so concrete measures to achieve this are welcome.

“Direct commissioning will only be successful if it speeds up the release of

public-sector land and results in more housebuilding than would have happened using the more traditional methods of public-sector land disposal.

“A lower-risk model could allow both larger and smaller housebuilders to increase output, as both have an essential role to play.

“We desperately need to increase supply even further and faster than the

current rate of increase, and speeding up the delivery of public-sector sites can play an important role in achieving this ambition.

“In addition, if the government’s Starter Homes initiative can increase demand by targeting a new section of the market, this will complement the supply measures announced.” n www.hbf.co.uk

Performance gap

Have your say on international standards

A new consultation platform is now online for international standards, allowing consultations to be carried out in a safe, transparent and auditable way; the International Ethics Standards consultation is the first to be available on the site.

Stakeholders can subscribe to keep up to date and make their voices heard as international standards develop. n https://consultations.intstandards.org

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The UK Green Building Council (GBC) is launching a new research project to change the way industry designs, constructs and operates non-domestic buildings.

Examining industry approaches, tools and behaviours, the group will focus on how to maximise building performance, not just in terms of energy but also other aspects of performance that affect both the building user and the wider environment.

There is an increasing body of evidence showing that there is a gap between

the expected, designed or desired performance of the building and how it performs once completed, occupied and maintained. All too often, predictions of the whole building’s performance are either not accurately made or poorly communicated.

The research will work with UK GBC members to explore what companies are already doing to address the issue of building performance, seek out best practice, and identify gaps and barriers that need to be overcome. n www.ukgbc.org.uk

UP F R O NT UP DAT E

In brief...

Personal property group changes The new international working group for personal property, arts and antiques has held its first meeting; existing members Andrea Amadesi, Sarah Sayce, Ergina Xydous and Susan Orringe are now joined by three new members.

Claire Grindey is a decorative and fine arts consultant, specialising in silver and objects of vertu, Roeland Kollewijn is a valuer specialising in Old Masters and valuation for insurance, and Edel Steengracht works in valuation and brokerage in the Netherlands. Andrea

Amadesi has stepped into the role of Chair after Alan Fausel unfortunately had to reduce his commitments for health reasons.

Among the topics discussed at the meeting were the APC process, how RICS might collaborate with international organisations in the arts and personal property spheres, art as a business asset, and the impact of EU regulation on valuers. n For more information, see: www.rics. org/uk/tag/arts-and-antiques

Pilot to value sustainability In December, RICS hosted a pilot session in London for RenoValue, a new project funded by the Intelligent Energy Europe Programme of the European Union to create training tools for valuers that will help them assess buildings’ sustainability features. It is hoped that a more unified approach to valuing these assets will better demonstrate their worth.

RICS is one of several project partners, with pilots held so far in Belgium, Cyprus, France, Germany, Greece, Italy, the Netherlands, Poland and Sweden. n http://renovalue.eu

RICS Residential Property Conference 2016 6 July 2016, Radisson Blu Portman Hotel, London This year will see a number of changes to the residential market, with the introduction of the Housing Bill 2015/16 set to have wide ramifications for the future of affordable housing, for instance.

Our RICS Residential Property Conference 2016 comes at the perfect time.

You can attend the event to join in the conversation on how to tackle and respond to the biggest

questions that are facing the industry. b Is there such a thing as affordable housing? b Will online services alter the face of traditional high-street agencies? b London vs the regions – where are investors and occupiers heading? b Can the private rented sector fill the gap created by the shrinking supply of social housing?

The event will be a mixture of high-level

strategic debate mixed with practical technical sessions that will improve your day-to-day practice.

This conference provides the opportunity to personalise your CPD, whatever your specialism.

The workshops include valuation of properties with energy efficiency improvements, anti-money laundering, short-term leases, and tactics for business growth.

This is the must-attend event for all who want to be at the forefront of the residential sector. n www.rics.org/ resipropertyconference

Executive education International certificate in leadership for property development A five-day programme has been developed for property professionals looking to position themselves as leaders in the industry. One of the benefits of this course is its holistic nature, taking an end-to-end view of the property life cycle and combining this with successful leadership skills. n https://academy.rics.org/info/ execedu/london

Certificate in corporate real estate and facilities management This six-month course will provide you with the advanced skills needed to recognise what influences property choice, nature of tenure and acquisition and disposal of corporate real estate.

The knowledge gained will improve the efficiency and productivity of your company, staff and clients. n www.rics.org/advancedcrefm

One-day face-to-face facilities management courses RICS’ new courses cover the different factors that today’s strategic facilities manager needs to take into account, in the context of the Workplace Management Framework.

The following courses will help you build a powerful set of strategic facilities management skills:

• workplace management strategy • workplace capacity management • workplace performance management. n www.rics.org/fmtraining

Video resource RICS has produced a video promoting to consumers the advantages of using RICS agents to sell their home, which members can embed on their own websites. To see the video, please visit: n http://bit.ly/1V6ISUx

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UPFRONT STAN DAR D S

Getting to grips As IPMS becomes mandatory, Tom Pugh gives a ground-level view of how it will affect professional practice

O

n 1 January, the way we approach reporting the size of office buildings saw a step-change. As the RICS Professional Statement, derived from the recently introduced International Property Measurement Standard (‘IPMS’), became mandatory for all RICS members and firms, it is crucial that property professionals understand and apply the new methodology. But why was IPMS seen as necessary, and what is new about it?

Background Standards for reporting property sizes have been around for quite some time.

However, measurement standards vary considerably from country to country, and research by JLL comparing different measurement standards from leading property markets around the world showed a variance of up to 24% in the reported area of the same building.

Considering that property accounts for 70% of global wealth, the magnitude of the discrepancy is vast. In an increasingly globalised market, benchmarking the performance of property against a single standard is now not just desirable but absolutely necessary.

The global financial crisis of 2007–08 further highlighted the need for consistent global valuation standards and, following on from this as measurement underpins valuation, and financial reporting, the IPMS coalition has so far agreed standards for offices in an attempt to bring uniformity to the way that property is reported on a global platform. Over time, the IPMS will become a suite of documents covering all the main asset classes, with residential next, then industrial, followed by retail.

What will IPMS bring?

The chief aim of the IPMS is to enhance the consistency and transparency of measurement reporting. This will enable 8 M A R C H /A P R I L 2 0 1 6

comparability and benchmarking between different property markets and help to reduce distortion when analysing property, in turn improving confidence and stability in the global property market.

Who is it for?

IPMS should not be seen as solely the domain of the lenders and valuers – far from it. The idea of IPMS is to provide a set of measurements that can be used by all stakeholders in a property for a range of purposes, including investment, development, agreeing rent, valuations, refurbishment costing and service charges.

Will it affect valuations and rent reviews?

Although building areas will change if measuring to the new Professional Statement – invariably upwards, as the IPMS definitions are different from the existing Code of Measuring Practice – the market value of a building remains exactly as it always has been: that is, what a purchaser is willing to pay. The data that sits alongside a valuation will be consistent across property markets, which will lead to a more transparent relationship between valuation and how space translates from one market to the next.

IPMS in the UK Following the release of IPMS: Office buildings, the RICS has redrafted the Code of Measuring Practice, 6th edition (CoMP) and republished this as the Professional Statement RICS Property Measurement, first edition (the PS). In the first instance, it only applies to offices, with the existing code still used for other property asset classes. As the other

IPMS should be adopted for new leases and all new buildings

sections of the PS are published they will take over from the relevant sections of the CoMP. Unlike its predecessor which was intended as best practice, this new document is mandatory for all RICS members, because it means “we can provide assurances to clients of surveyors that they will benefit from international best practice as the norm when working with RICS professionals,” says Ken Creighton, RICS Director of Professional Standards.

When do buildings need to be measured?

Under the RICS PS, there is no immediate requirement for all existing buildings to be measured under the new standard; but buildings must be measured under IPMS “in the event of a physical change” or for “any new event requiring the use of building measurements”, such as extensions, new agreements, rent reviews, sale or purchase, or revaluations.

The current appetite for shorter leases and the buoyant market should help to push the process along.

Adopting a long-term view on when IPMS measurements are taken may well be the shrewdest approach, though, as the economies of scale can be considerable. While the short-term cost may be higher, the long-term investment is considerable. For example, the landlord of a multi-let office might be best advised to measure the building in its entirety rather than measuring each space as the individual leases expire. This ‘block’ instruction will be more

UPFRONT STA NDAR DS

Valid reasons for not using IPMS

cost-effective than individually commissioned instructions in the long term. In addition, a piecemeal approach will result in potential confusion as, while the rent on a newly let unit will be calculated using IPMS, service charges – for instance – will be CoMP-based until the remaining units’ leases expire, in 10 or more years' time. Undertaking IPMS for the whole building eliminates this risk, as service charges will be aligned with the new measurement standard.

Differences: RICS CoMP vs IPMS Reporting under RICS CoMP and IPMS is different, although not hugely so. Most obviously, naming conventions have changed. Gone are gross external area (GEA), gross internal area (GIA) and net internal area (NIA): these are replaced

by IPMS 1, IPMS 2 – Office and IPMS 3 – Office.

The differences are fully set out in the PS, but the most important are briefly summarised here: b balconies, covered galleries and rooftop terraces are now included in IPMS 1 and IPMS 2 – Office; they are also included in IPMS 3 – Offices when an occupier has exclusive use of them b in IPMS 3 – Office, columns are included while standard building facilities (e.g. corridors, toilets, lifts, stairs) are excluded b IPMS 3 – Office also introduces the concept of “limited-use areas”, such as those with restricted ceiling height that would previously have been regarded as unuseable in terms of the

area calculation; such areas can now be highlighted separately, allowing professionals to compare and translate between IPMS and superseded standards b internal measurements are now taken to the “internal dominant face” for both IPMS 2 – Office and IPMS 3 – Office – a new concept to professionals in Europe that is explained with helpful diagrams.

Common-sense approach Given the complexity and variety of buildings, it is impossible to create an all-encompassing set of guidelines for every eventuality. Inevitably, there will be situations not directly covered by IPMS or PS and, in these circumstances, IPMS or PS principles should be extrapolated using a common-sense approach. It is expected that the IPMS will evolve to resolve some of the more common issues that it does not currently cover.

Bedding-in period It is important to understand that there is no standard ratio between CoMP and IPMS. With that in mind, to aid the CoMP to IPMS transition, the RICS is developing a free online tool that converts IPMS office measurements into local CoMP standards.

It is envisaged that, for some years, there will be a period of dual reporting, in which areas will be presented in both formats while the new system becomes embedded into market practices. This will mean that clients can use existing measurements and information on a building for comparison, then build up a new set of comparables with IPMS. Image © Shutterstock

During the initial transitional period of the IPMS, RICS will be adopting a form of regulation where compliance with the PS will be assessed in response to complaints made against RICS professionals.

That said, there can be valid contractual reasons when IPMS will not be appropriate mid-lease, for instance, when the contract or lease may stipulate a particular measurement standard to follow. It is also acknowledged that current leases are based on measurement figures derived from an existing standard (CoMP or similar) and there is no requirement to review these in light of the IPMS’s release. However, IPMS should be adopted for new leases and all new buildings.

RICS has also stated that it will accept “deviation from the PS in situations where a client has stated, in writing, that they would prefer an alternative, specified standard”. It would be advisable, however, that practitioners satisfy themselves that there is a solid reason for not employing IPMS, and must advise their clients in writing of IPMS and the benefits of it.

An opportunity It may well be that measured survey instruction levels will rise as a result of IPMS – at least initially. But this is not just an opportunity for geomatics land surveyors and building surveyors, it is very much a positive way to promote greater transparency, comparability, consistency and boost confidence in the property industry as a whole. And that is no bad thing for us all. b

Tom Pugh MRICS is Area Referencing Specialist at Malcolm Hollis tom.pugh@malcolmhollis.com

For more information on IPMS, visit: www.rics.org/internationalstandards The beta online conversion tool is available at: http://ipmsconverter.rics.org

Related competencies include Measurement of land and property, Inspection, Valuation

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UPFRONT R I C S P R ES I D E N T

Leading from the front

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RICS is taking the initiative on sustainability and risk management, explains President Martin Brühl

I have benefitted enormously from RICS over the years. My outlook and career have been substantially shaped by its concepts, standards and ethos.

I wanted to bring new areas of expertise to RICS, to share what I have learned. As President, I have come through the route of practice, not governance.

My experience comes from extensive stakeholder engagement rather than RICS working groups.

I believe that this is the time for RICS to lead on the important issues, both of today and the future. We cannot hope to lead on every issue in our sector, but we can choose to offer leadership in those areas that matter most.

During my Presidential year, I am focusing on responsible property investment, and more particularly, the areas of risk management and sustainability. These topics are vitally important and require renewed emphasis

Risk management As head of global transactions for a fund manager deploying €2.5bn of investment per year, I am acutely aware of my duty to invest other people's money responsibly.

This has never been easy, but the present pressures to cut corners are great.

1 0 M A R C H /A P R I L 2 0 1 6

We are operating in a world of historically low interest rates engineered by central banks, greater demand for pension funds in the emerging economies, and a trend towards more fund investment in real estate as an alternative asset class.

My clients traditionally prefer safe investments in the core cities of their home country. But a global market requires us to look beyond core cites and spread investments across geographical regions and diverse assets. The associated risks can never be quantified with complete accuracy – and are only ever an expression of probability.

These topics, and many more, are discussed at the quarterly RICS Global Investment Risk Management Forum. I have established these meetings to bring chief risk and investment officers together. The primary aim is to share our knowledge, to help foster public and market confidence in real estate investment around the world.

RICS has a role to educate and regulate so that risk managers understand the changing nature of risk.

We are ideally placed to make a difference, as an internationally respected professional body. RICS has an opportunity to help foster public and market confidence in real estate investment.

The broader risk we face is to our profession as a whole. It could come from shifts in market practices, from the slow but sure onset of climate change, or from the broader reputational damage that could result from opaque supply chains. The

likelihood of mistakes can be lowered through professional risk management based on technical and professional standards, ethical behaviour and effective regulation.

However, I believe that the answers will not come solely from within our own ranks: specialists can provide insights on topics such as central bank policy and regulation, forecasting and alternative property investment classes. These experts can complement the rich knowledge and experience our profession offers and help us to have greater impact.

Ultimately, standards are the bedrock of our approach to risk, and we must continue to engage the profession constantly to develop and adapt them.

Sustainability Sustainability is a key theme that goes hand in hand with risk management to create responsible businesses.

It has many facets, from protecting the environment to creating a diverse and viable future for our industry, from investing ethically to acting in the public interest.

During my inauguration speech in June, I was delighted to launch a toolkit RICS developed with the UN Global Compact.

Advancing Responsible Business Practices in Land, Construction and Real Estate Use and Investment is a guide for organisations looking to take responsible decisions at every stage of the real estate life cycle. It translates the Global Compact’s 10 principles on human and labour rights, environmental Image © iStock

protection and anti-corruption into practical steps.

Our long-term relationship with the UN led RICS to COP21 in Paris in December, the annual climate change conference. We are truly leading from the front for the built environment in this arena. The Global Alliance for Buildings and Construction

UPFRONT RI CS P RESIDENT

111 million people, and is worth more than US$7tr – around 10% of global GDP. We have a clear collective responsibility to take action on climate change.

My message to participants, from an investor’s perspective, was that green buildings attract a premium. They diminish risks for investors and offer occupiers greater certainty about running costs.

COP21 was all about commitments. RICS is in a particularly strong position to make commitments and deliver on them. We already have the mechanisms in place to measure and monitor progress, including our international standards and the know-how of our vast network of RICS professionals operating in more than 145 countries.

We are committing to influence and change the way our sector does business.

Public interest

was launched at the event, a worldwide building sector network backed by the governments of France, Germany, Japan, the United Arab Emirates, Cameroon and Senegal among others. RICS is the only professional body on the list of initiating partners.

At COP21, we focused on how collective action and

commitments could support the international climate agenda. The World Bank estimates that 70% of the world’s wealth is bound up in real estate. Buildings account for 40% of global energy consumption and one third of greenhouse gas emissions.

UN statistics estimate that the building sector employs

Risk management and sustainability are strongly linked to RICS’ public interest remit. In the run-up to our 150th anniversary in 2018, we have been reconsidering what the public interest means in the present day.

RICS’ founders defined the public interest in our Royal Charter by talking of “usefulness” and public “advantage”. But these are words of their time. To the Victorians, usefulness was grounded in a prevailing moral philosophy, that of utilitarianism. It focused on maximising the utility of all individuals to achieve the greatest happiness for as many as possible.

But are the wishes of the majority always synonymous with the public advantage?

And is the public interest purely a human concept, or does it have ecological and environmental dimensions too?

We have been asking stakeholders what the public interest means to them throughout my Presidential year

and have received a range of thought-provoking responses.

There is a strong idea that public interest does include environmental dimensions.

Becoming more sustainable can work in the interests of both investors and the wider public. By investing in sustainability now, assets are more assured of value in the future. Others have noted that sites can have different types of value. Land that may have limited value on the open market, for instance a public open space, can have great value in terms of societal benefit. There needs to be a better understanding of this type of value.

Still others have commented that taking care of the public interest also represents enlightened self-interest. Complying with laws and regulations is not always enough. If we act against the public interest but in line with the law, would we be happy for such activities to be reported in the media?

Most likely we would not.

It is unlikely that codes of professional conduct or standards of ethics will be adequate to define the public interest. There also remains a question about how individual professionals can be expected to judge in practice what is in the public’s best interests, not least as they rarely – if ever – have access to all the relevant information.

Let’s continue to lead on the important issues for our sector today and in the future.

We have much to add, but also to learn, to meet our public interest commitments and deliver on our promise of professionalism. b

Martin Brühl is RICS President 2015-16 @MartinJBruehl

M A R C H /A P R I L 2 0 1 6

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RICS P ROP E RT Y JO U RN A L

UPFRONT C O N S U M ER R EGU L AT I ONS

Just think about it

E

Milton Silverman draws attention to the hidden impact of EU regulations

U directives have had a bad press in the UK over the years. They direct EU member states to implement specific, workable national legislation in accordance with generalised proposals; but sometimes these directives and the subsequent legislation have effects beyond those envisaged. This is arguably the case with Council Directive 2011/88/EU and similar directives, which aim to protect consumers in respect of contracts negotiated somewhere away from the provider’s business premises, and distance contracts negotiated by email or phone.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the regulations) came into force in June 2014 and apply to valuers, estate agents, surveyors and many others. They aim to protect vulnerable consumers from pressurised selling, for example by door-to-door salespeople, where they do not have a chance to reflect or compare prices. The actual effects are rather more wide-ranging, however.

The importance of the regulations is that sellers of goods or services to consumers, but not businesses, must provide certain information and documentation and a 14-day cooling-off period from the time of purchase, failing which consumers are entitled to their money back for more than a year afterwards.

The regulations: b apply only where businesses are selling goods or services to a consumer who is acting in an individual, personal capacity b require consumers who enter into most distance or off-premises contracts to be provided with a 14-day cooling-off period following their agreement to sign up for or purchase the goods or services b require provision of information and documentation (detailed in the regulations) that sets out rights to cancellation for the consumer before they are bound by the contract.

Failure to provide the requisite information and cancellation documentation can be a criminal offence, and there are fines and provisions for enforcement. Most importantly, if the service provider does not give such information, the client has the right to cancel an off-premises or distance contract, and reimbursement of any sums paid for one year and 14 days after the time when the cancellation period would otherwise have

Email to clients Dear (client) If, when you have read the information below, you would like me to commence work immediately (specify the work if not already clear from the context), please email me as follows: “I have read the information below, and attached Request for Immediate Commencement (the request). I now ask you to commence work immediately in accordance with the provisions of the request.�

Information for clients Cancellation provisions Where we are acting for you as an individual in your personal affairs (and not in a business capacity) the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 will apply to your engagement of our services. These require us to provide you with certain information when the contract is made.

In this regard, your attention

1 2 M A R C H /A P R I L 2 0 1 6

is drawn to the Consumer Provisions and other information below.

You have the right to cancel your engagement of our services (the Agreement) within 14 days of the date hereof. You can do so without giving any reason: your attention is drawn to the attached Notice of the Right to Cancel and the Request for Immediate Commencement of Work.

Consumer provisions Our details: b (name, address and phone number of service provider) Our contact email address is the same as that from which this email is sent b the services we intend to provide are surveyor/valuation services (as applicable) b the manner in which our fees are calculated and arrangements for payment are set out in the documents enclosed/previously supplied b the Agreement is of indeterminate

duration and it is not possible to set out the exact time by which the services will be fully performed. We shall keep you informed of progress but please contact us if you have any questions relating to the completion of our work. The conditions for termination are set out in our letter of engagement enclosed/previously supplied b we are RICS members (www.rics.org) and adhere to its code of conduct and complaint-handling service b you acknowledge that you are aware that we are prevented from starting work on your instruction until after the cancellation period without your consent (see attached Request for Immediate Commencement).

Should you have any complaint concerning our engagement (to include the advice you have been given/fees you have been charged) please contact (name).

UPFRONT CONS UM ER REGULATIO NS

Request for immediate commencement For return to Super Surveyors Co. Ltd If you require us to commence work immediately (specify the work), please email confirming such request or sign and date the form below.

Instructions to commence work immediately To Super Surveyors and Co. Ltd (address and contact details) I hereby instruct you to commence work with immediate effect.

Notice of right to cancel You, the client, have a right to cancel the agreement referred to in the accompanying email within 14 days of the date hereof (the cancellation period). You can do so without giving any reason. To exercise that right, you must inform us (name of organisation, registered, address, phone and email details) in a clear, written statement of your decision to cancel.

You may use the cancellation form below, but this is not obligatory. A dated letter or email to the above address setting out your clear decision to cancel will also suffice. To meet the deadline, your communication must be sent before the cancellation period has expired.

Effects of cancellation If you exercise your right to cancel, we will not undertake any services on your behalf and you will not incur any charges. However, if you request work to begin on your instruction during the cancellation period, and subsequently cancel the Agreement after work has started as requested but before the expiry of the cancellation period, we may charge you any fees, disbursements and applicable VAT reasonably incurred during that period.

✂

I am aware of the following: b I have the right to ask that you do not start work on my behalf until after the 14-day cancellation period; however, I wish you to commence work immediately b as I have requested work to begin on my instruction during the cancellation period, I will be liable for any fees, disbursements and applicable VAT you may charge me for work reasonably incurred during that period b in the event that the work is completed by you during the 14-day cancellation period, I will lose my right to cancel.

(Signed and dated by customer)

commenced (i.e. normally 14 days, although only if all is done properly from the beginning). A customer who has not been supplied with the relevant information will not have to pay.

In relation to service providers, there is provision to enable the customer to request that a provider commence work during the cancellation period (effectively waiving the regulations), provided that the requisite information and documentation has been properly supplied. As long as the customer has received the paperwork on their rights relating to the 14-day cooling-off period, they can waive those rights and request immediate commencement.

In 2014, the Supreme Court considered the case of Robertson v Swift [2014] UKSC50. The owner of a removal business failed to supply the relevant information to the customer.

Their Lordships ruled that the owner was not entitled to his outstanding fees and he had to repay the deposit.

It is far better and simpler to get the paperwork organised beforehand, send it to the client and, having received their signed instructions, to commence work.

The statutory information can be set out on two sides of A4; how best to integrate it into your business practice and PR will require more thought.

Suggested sample forms are shown (left and above), but please note they are drafts only, and you should take legal advice prior to using them. b

Cancellation form This is only to be returned if you do not wish us to continue to act for you in respect of your instruction before the end of the cancellation period To Super Surveyors and Co. Ltd

Milton Silverman is a senior partner at Streathers Solicitors LLP mcsilverman@streathers.co.uk

I (client name) hereby give notice that I wish to cancel the Agreement (dated ‌) for the provision of valuation/survey services (as applicable).

(Signed, dated, printed name and address of signatory)

Related competencies include Client care, Business planning

M A R C H /A P R I L 2 0 1 6

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D

r Oonagh McDonald’s report Balancing risk and reward: Recommendations for a sustainable valuation profession in the UK was published in January 2014 and made a number of recommendations to address the challenges that have emerged in the valuation sector over recent years.

RICS brought together senior representatives from all areas of the residential and commercial valuation sectors to review and respond to the report in an independently chaired group.

All delegates agreed that the long-term sustainability of the profession must be protected and that providing quality, professional valuations is vital to the UK property market. Therefore the long-term supply of valuers must be protected.

The groups considered a wide but interconnected range of challenges in providing professional valuation services, including the following: b the balance between quality, risk and reward b levels and scope of exposure b coverage and availability of professional indemnity insurance (PII) b conflicts of interest b regulation of valuers b terms and conditions of engagement and instructions.

These initial cross-sector groups have been wound up and their final reports published; these can be accessed on the RICS website. Participants agreed that dialogue to progress their work should continue, however, and new groups have been set up to do so, facilitated by RICS but chaired by industry representatives.

Operating in the valuation sector continues to be challenging. The insurance market remains frail, with one large commercial insurer recently pulling out altogether. Ongoing work must focus on identifying ways to ensure that lenders receive the quality of service they require and that valuers are better able to manage their exposure.

The work of the two different groups is summarised below.

Cross-Industry Commercial Valuation Forum (CICVF) The original cross-sector group concluded that two areas of particular concern needed to be looked at: b competence and quality assurance processes in the valuation profession b the development of contractual terms

UP F R O NT VA LUAT I ON

RI CS P RO PERTY JOUR NAL

Value added Fiona Haggett looks at the work of two cross-sector groups seeking to address challenges in valuation that apportion risk between valuers, lenders and third parties in a fair and balanced way.

The new CICVF has picked up these issues and is looking to establish how to safeguard the profession’s interests. A common goal for the new forum’s meetings was set, namely to agree a memorandum of understanding to which all stakeholders can refer as a benchmark in valuation services for loan security purposes.

Participants aim to develop common principles that will establish a basis for valuation work on secured lending, while at the same time addressing lenders’ perceived concerns about conflicts of interest, sharing information and valuer competency.

Cross-Industry Residential Valuation Forum (CIRVF) The residential cross-sector meetings drew to a close in summer 2015, with the final report published soon after.

The ongoing outputs of the new group are as follows: b developing an alternative dispute resolution offering; this has been subject to cross-sector consultation and is now being redrafted based on responses b producing a complaint-handling toolkit; currently in draft form, this should be published later in the year b agreeing a concise review protocol for lender complaints, to help them establish whether valuation is a root cause of their loss or potential loss b publishing a panel managers’ protocol Image © iStock

in the first half of 2016, with a view to setting the minimum standard for the sector b reviewing contractual terms and PII/liability; the guidance note is to be updated and expanded by a working group that began meeting early this year b fee transparency; RICS contributed to the recent project by the Council of Mortgage Lenders and Which? on fee transparency, is working with the Financial Conduct Authority to look at this issue in the mortgage market, and has produced a short video to boost consumer awareness of the difference between a survey and a valuation.

As the work of these groups continues over the long term, we hope to foster a spirit of cooperation that will benefit all parties involved in these sectors. b

Fiona Haggett FRICS is UK Valuation Director at RICS fhaggett@rics.org

CICVF Report: www.rics.org/valuationproposal The consumer video is available at www.rics.org/homesurveyresources RICS UK Valuation Conference, 9 March 2015, Solihull www.rics.org/ukvaluation

M A R C H /A P R I L 2 0 1 6

15

Legal Q&A RICS P ROP E RT Y JO U RN A L

UPFRONT L E GA L Q & A

Marking communications

Q

I am acting for the tenant of business premises in relation to a lease renewal. I need to write to the surveyor acting for the landlord setting out my client’s proposals for settlement of the lease renewal proceedings. Should I be marking my communications “without prejudice” or “subject to contract”?

> Faiza Ahmad

A

How to mark negotiations in communications is a common source of confusion and can land parties in hot water if they fail to do so appropriately.

The phrases you mention have different meanings, although they may be used together. If you mark your communication “without prejudice” (WP), the general effect is to confer privilege on the correspondence, but it will not be admissible in court, neither can it be relied on as evidence. Your communication must be made in a genuine attempt to settle the dispute to have WP protection.

Just labelling your communication WP does not in itself afford protection. Similarly, if you do not mark your communication WP, that will not necessarily preclude it from having WP protection if it is sent in a genuine attempt to settle the dispute. However, you may then find yourself having to explain to the court why, if you did in fact intend the communication to be privileged, you did not mark it WP – so always do so, because it’s better to be safe than sorry.

Bear in mind that the parties to the WP correspondence jointly own the privilege, so it can only be waived jointly. However, there are a number of occasions in which WP communication might be admissible, including: b as evidence of misrepresentation, fraud or undue influence b to explain delay b where the communication is expressed to be “without prejudice save as to costs” (WPSATC).

The final example is useful where you want the communications to remain privileged but, once the matter has been determined, you want to be able to bring them to the attention of the court on the question of costs. When considering who should be responsible for payment of the costs of the proceedings, the court will take into account matters such as the parties’ conduct.

Marking your correspondence WPSATC will allow you to bring the communications so marked to the attention of the court.

For example, you might be able to persuade the court that the landlord should be penalised on costs by showing any WPSATC 1 6 M A R C H /A P R I L 2 0 1 6

Faiza Ahmad is Partner at Hamlins LLP fahmad@hamlins. co.uk @fahmadhamlins

correspondence that could demonstrate the other party acted unreasonably during the negotiations, such that your client has incurred unnecessary costs. Faced with this prospect, the person receiving your WPSATC letter should be more inclined to cooperate and consider the terms of the offer seriously.

There are certain circumstances when a Part 36 offer is more appropriate. Note that if you are acting for a defendant in proceedings, you might want to avoid making a Part 36 offer as accepting it automatically makes the defendant responsible for the claimant’s costs (see Property Journal December 2015/January 2016, p.20). A solicitor should be instructed to draft the offer as it must be formulated in a particular way, and they can also advise on whether such an offer is appropriate.

If your opponent accepts the terms of the WP offer in open correspondence, this will create a binding contract of settlement.

As such, you should ensure that you also mark the letter “subject to contract” as you have suggested, or “subject to lease” as well, to ensure that any agreement of the terms is not binding until the parties have entered into a legally binding contract or lease.

That way, once you have agreed terms on a WPSATC and subject-to-contract basis, you can leave it to the solicitor to carry out any necessary legal investigations, and draft and agree the terms of the final legal document implementing the terms agreed appropriately.

An important point to note is that you can create a legally binding contract verbally as well as in writing, so ensure your conversations are appropriately expressed to avoid inadvertently being bound.

In general terms the following should be a useful guide. b “Without prejudice” – appropriate when negotiating in relation to an existing dispute where you want to make proposals or points without prejudice to your client’s open position in a genuine attempt to settle that dispute. b “Without prejudice save as to costs” – appropriate when you consider the terms of the offer are realistic, should be accepted or you want to put the opponent under pressure on the issue of costs (perhaps because they have been acting unreasonably), as well as in cases where you are acting for the defendant. b “Subject to contract” – appropriate where you are making WP proposals that, if accepted in open correspondence, will constitute a legally binding agreement.

It is always safest to consult a solicitor to ensure that any communications are marked properly so as to protect your client fully and put them in the best position possible until they enter into the new lease and you have finally disposed of proceedings. b

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RICS P ROP E RT Y JO U RN A L

UPFRONT TAX I N G T I M E S

TAXING TIMES

Owners of UK real estate who are not resident in the UK can no longer expect to be exempt from both capital gains and inheritance taxes, warns Robert Walker

T

he UK government has made significant changes to the taxation of residential real estate located within its borders.

This article focuses on those targeted at investors in UK residential property who are not resident in the UK – the capital gains tax (CGT) and inheritance tax (IHT) changes.

There are of course other changes to the taxation of residential property generally, such as the general Annual Tax on Enveloped Dwellings (ATED) regime, discussed below; interest relief restrictions as outlined in an earlier issue (Property Journal, November 2015, p.18); and an additional 3% stamp duty land tax.

All of these should also be considered by non-resident investors.

ATED gains The first of the changes targeted at non-residents was the ATED-related gains regime, which charges non-UK resident companies, partnerships with corporate partners and collective investment schemes (CIS) to UK CGT at 28% on their residential property gains since 6 April 2013.

The ATED gains regime was initially introduced for residential properties with values in excess of £2m at April 2013. It has since been extended to lower-value properties and, from 6 April 2016, will apply to properties with a value over £500,000 as at that date, if held then, or at acquisition if later.

The ATED gains regime does contain a number of reliefs available for companies, partnerships and CISs making property available for certain commercial uses (e.g. letting a property on a commercial basis or developing it for sale).

Since 6 April 2015, the new NRCGT rules subject certain non-UK residents (e.g. individuals, trustees and corporations) to UK CGT on gains made from the sale of UK residential property. The NRCGT regime is therefore potentially broader in application than ATED, given that it also applies to individuals and trustees.

The same “commercial use” exemptions that apply for ATED do not apply to NRCGT (e.g. for property that is let), although there are exemptions for owners of institutional housing and all property portfolios owned by widely held investors. The tax rates for NRCGT are 20% for companies and 28% for individuals and trusts.

The NRCGT rules apply to disposals of residential properties since 6 April 2015.

However, the charge is limited so that it applies to gains since 5 April 2015 only.

For example, say a property was worth £1m at the time of acquisition in 2007 and £3m at 5 April 2015. It is then sold in 2019 for £5m. The NRCGT gain is £2m.

Given the April 2015 ‘rebasing’, it is well worth non-resident owners of UK residential property obtaining an April 2015 property valuation.

“Disposals” for NRCGT purposes include the sale of freeholds and the sale or grant of residential property leaseholds and also include granting the right to acquire housing off plan.

The notification deadline for NRCGT is reasonably tight. A return must be filed within 30 days of the disposal and a return must be made for each disposal.

This deadline could prove problematic for non-resident landlords granting multiple residential leases. Each grant of a lease will constitute a notifiable disposal for NRCGT purposes.

Non-resident capital gain tax The next measure is the non-resident capital gains tax (NRCGT) regime.

There is a certain amount of overlap between the ATED and NRCGT regimes. However, where an owner is subject to the ATED regime, this will take precedence.

1 8 M A R C H /A P R I L 2 0 1 6

Image ©

Penalties will apply where returns are not submitted on time, even where there is no NRCGT liability.

IHT and residential property The final measures directed at non-UK owners of UK residential property are the proposed IHT changes. From 6 April 2017, UK residential property held by non-UK domiciled individuals through offshore companies, partnerships and other opaque vehicles, or held in an excluded property trust, will be brought within the UK IHT net. This will apply to all UK residential property, whether it is occupied or let, and of any value.

The 40% IHT charge takes effect on death, on gifts of shares in overseas companies that own UK residential property, and on the 10th anniversary of a trust holding shares in a non-resident company that owns UK residential property.

Policy The UK government’s intention in making the various changes is to address the “significant unfairness” in our property tax regime, that is, the discrepancy between UK and non-UK resident investors. It will be interesting to see whether, in doing so, it curbs the appetite of overseas investors for UK residential property. b Robert Walker is Partner at PricewaterhouseCoopers LLP and leads the UK Real Estate Tax Network robert.j.walker@uk.pwc.com

c

R IC S P ROP E RT Y JOU RN A L

C OMMERCI A L

commercial

M A R C H /A P R I L 2 0 1 6 1 9

RICS P ROP E RT Y JO U RN A L

COMMERCIAL D E VO L U TI O N AN D R AT ES

Surveying business rate decentralisation The performance of commercial real estate will become vital to local authorities under the devolution agenda, report Kevin Muldoon-Smith and Paul Greenhalgh

I

t is well know that England has historically had one of the most centralised systems of government in the world. The announcements from the Conservative administration on devolution and decentralisation signal a move away from this. Yet there has been very little debate about what these changes mean for the commercial property sector and professional surveyors. This deficit is particularly notable in relation to the full localisation of business rates. Without doubt, following business rate decentralisation, local business rates – and by extension the performance and potential growth of local commercial real estate markets – will become a central concern not only for local authority financial planning and investment, but also the wider business sector and local electorate. However, just because everything is going to be different doesn’t necessarily mean that anything will change. Let us consider why, and what this means for the commercial property profession. Reflecting on these issues now will help inform and influence the consultation 2 0 M A R C H /A P R I L 2 0 1 6

on business rate retention that has been announced for next year as well as the ongoing business rate review that has been delayed until the spring budget.

Implications The original business rate retention scheme (BRRS), introduced in 2013, gave local authorities the potential to retain 50% of business rate income and up to 50% any of growth in revenue from this stream, which is synonymous with construction of new employment (i.e. commercial and industrial) floorspace. The remainder was returned to central government and redistributed in England in a similar way to the previous formula grant method of funding. The Chancellor’s announcement at the 2015 Conservative Party conference, later confirmed in the Autumn Statement and Public Spending Review, has extended the 50% principle to 100%.

However, the reality is that local authorities are only really able to benefit from business rate retention through new additions to the statutory rating list. This is because they already receive empty property rates – notwithstanding the problem of empty property rate avoidance – on existing property, while any relative value uplift on existing property is effectively stripped out during the national revaluation exercise. This means that any location that has no space to accommodate new construction, or does not have the underlying rental values to support new development, will be at a disadvantage, leading to an uncertain future. It seems certain, however, that local authorities will now need to lean on the property profession for advice on commercial property development appraisal and will themselves (i.e. local authorities) become more assertive as a Image © iStock

C O MME RCIAL DEVOLUT I ON A ND R ATES

market actor as service delivery and its ongoing viability, will depend on the performance of commercial real estate.

Local flexibility The Chancellor has said that local authorities will now have the power to lower the rate of business rate taxation in order to attract new enterprises. This is potentially a positive development for businesses and landlords. However, it is important to note that the uniform business rate has not been abolished, despite what the Chancellor has implied. It still exists, and all that has changed is the ability for councils to lower this rate at the local level if they so wish. It is difficult to imagine most authorities, which are already facing severe budgetary pressures, agreeing to further decreases in local taxation. Presumably, only those authorities with a surplus will have sufficient budgetary tolerance to accommodate potential change.

There is also some uncertainty as to the flexibility of any reduction in the local business rate level. Will it be uniform at the local level, or will local authorities have the discretion to adjust taxation for different types of property, businesses and locations?

For instance will it be possible to remove small businesses from business rate taxation altogether to reduce the burden on the retail sector, or to vary the level of empty property rates faced by commercial landlords? The Scottish administration announced a degree of flexibility for local authorities to lower the business rate against local criteria such as the type of property, its location, occupation and activity. So far, this level of detail on the English proposals has not been released. This is a pity, because a more locally responsive business rate system would allow councils to address local property market conditions, in particular the different requirements of different types of commercial property.

Empty property rates Surprisingly, the recent announcements have largely ignored the issue of empty property rates (EPRs). Under business rate retention, the higher rate of empty property liability means that local authorities are not rewarded with any additional income from attracting new businesses into vacant premises; small businesses, for example, pay a lower rate of business rate taxation. Failure to include EPRs in the recent announcements is a missed opportunity. If the government abolished EPRs or empowered local authorities to alter the rate, this would encourage them to promote indigenous economic growth by rewarding them for creating conditions whereby vacant space is reoccupied; rather than the current situation, in which they are effectively penalised.

This would provide a welcome boost to small businesses and the managed workspace sector that supports this new economy.

However, the current situation is rather dispiriting, as empty property rates are a drag on business and there is no incentive for local authorities to improve their local business infrastructure.

This is a key policy issue on which RICS should lobby, as it gives the Treasury a clear justification for reforming EPRs.

Governance A further question is how the new mayoral local infrastructure fund (LIF) will work in practice. At first glance, this extra levy on business rates looks like classic business improvement district (BID) arrangements, under which, following a local ballot, businesses in a defined area agree to pay an extra level of rates to fund local improvements. Importantly, in a BID, a majority of businesses have to vote in favour of an uplift in property tax. In contrast, under the LIF, there is no provision for a local ballot; rather, an elected mayor need only secure the agreement of a majority of private-sector local enterprise partnership

(LEP) members. This opens up a wider debate around the democratisation of fiscal decentralisation, especially on who decides and who pays for new local infrastructure.

All change for 2020 It is worth summarising the current situation by way of conclusion.

First of all, it is important to note that there isn’t any new funding in the Chancellor’s announcement, only the potential for business rate growth – therefore in some locations, conceivably 100% of nothing! The issue of risk is particularly pertinent in relation to the rateable value appeal process, with many local authorities already finding that the cost of successful backdated appeals more than outweighs the proceeds of any growth. Without revision, the new proposals will only make this issue worse.

Consequently, local authorities and the Valuation Office Agency (VOA) will need to foster close working relationships with property advisors, planners and the investment community in order to ensure that they get these new development schemes right and that the correct mix of employment premises is retained in local areas. Most commercial property agencies already employ rating specialists, yet the traditional emphasis has been on mitigating rate liability on behalf of the landlord, particularly navigating the complex rules and regulations involved in valuation for rating purposes, submitting appeals and negotiating with the VOA. In future, the same rating specialists may also operate on behalf of the local authority only the roles will be reversed, with the emphasis firmly on rateable value growth and retention.

Finally, there is still a great deal of uncertainty as to the 2020 business rate changes and what the practical implications will be for local authorities throughout England (Scotland is moving ahead even quicker). What seems certain is that change is around the corner both in England and the devolved administrations, and that local authorities will be expected to fend for themselves through a new model of civic financialisation and entrepreneurialism. At the local level, net borrowing is sure to increase as the Office for National Statistics has reported a £2bn increase in this financial year, while central government borrowing decreases. Historically, the cost of borrowing at the local level hasn’t been an issue, as councils’ credit ratings have been closely aligned with the UK’s sovereign rating. However, the turn toward fiscal decentralisation and civic financialisation means that local authorities will from this point on be measured on their own merits with regard to lending security, which may well provoke a fragmentation of local authority credit ratings, lending criteria and rates. In the near future, those local authorities with sub-optimal commercial business rate portfolios may be viewed by the investment community as junk. C

Kevin Muldoon-Smith is Researcher and Associate Lecturer and Dr Paul Greenhalgh is Reader in Property Economics in the Department of Archtecture and Built Environment at Northumbria University kevin.muldoon-smith@northumbria.ac.uk paul.greenhalgh@northumbria.ac.uk

Related competencies include Capital taxation, Local taxation and assessment

M A R C H /A P R I L 2 0 1 6

21

RICS P ROP E RT Y JO U RN A L

CO M M E R C I A L S U STAI N AB I L I TY

Elina Grigoriou describes the take-up of the Ska rating assessment method by the higher education sector

Moving up

Strong growth and greater familiarity with sustainable practice within the interior fit-out arena has seen new sectors and countries look at adopting the Ska rating assessment method.

In higher education facilities, thousands of refurbishments are undertaken each year, large or small, often with highly specialised requirements and limited budgets. Construction windows create a constant challenge for optimal design, operational effectiveness and minimal environmental impact.

For these reasons, many university facilities teams identify Ska as a common method of communicating, encouraging and measuring sustainable practice in their fit-out projects.

Ska rating for higher education (Ska HE) was published earlier this year.

The scheme is supported by the Association of University Directors of Estates, University College London (UCL), Rider Levett Bucknall, Grigoriou Interiors, Overbury and AECOM, in addition to both the Ska Technical Committee and a wider industry research team.

Developed to assist interior fit-outs and refurbishments meet clear sustainable good practice, Ska HE evolves from the existing Ska rating methodology to reflect the specific estate requirements, which usually encompass a wide range of space uses and occupants.

Revising criteria Criteria have been drawn from current Ska rating for office and retail schemes with adaptations for lecture theatres and other teaching and learning spaces, while additional measures have been developed to deal with laboratories and other specialist spaces.

Many higher education providers are already involved

Sustainability goal UCL has adopted RICS Ska to promote good practice in sustainability across its portfolio of projects. As a result, we have delivered significant savings as well as ensuring that the university is acting responsibly. We have also supported the upskilling of UCL project staff, enabling them to get a better understanding of our sustainability goals.

Richard Jackson, Director of Sustainability, UCL

2 2 M A R C H /A P R I L 2 0 1 6

felt that the industry is ready to bring sustainable resource management even closer to the dilapidations process; both landlords and tenants should search for economical solutions that minimise materials wastage in dilapidations and new fit-outs.

Retail rating in the development of Ska HE, including UCL, the Universities of Liverpool and Manchester, City University and Goldsmiths, using existing versions of Ska rating. They praise its clarity and simplicity, seeing it as a cost-effective and flexible means of dealing with smaller-scale projects that do not warrant a full refurbishment assessment.

Both UCL and City University have sent internal staff on RICS training courses to become accredited assessors. Free use of the tool and method of self-assessment make it an attractive alternative to the significant human resources required for other schemes.

Universities currently using the system report that Ska has not added capital cost and has encouraged operational savings. It is also credited as an effective means of educating framework suppliers on university requirements.

Reducing waste A significant evolution of the scheme involves upgrades to the waste and resource management issues. Industry commitment to monitoring, managing and reducing construction waste has been a huge success, with the majority of contractors embedding stringent targets as standard practice.

Ska HE aims to include total project resource management, bringing reuse, repair and reduction strategies into the design process where it can have the biggest impact. It is

Following the addition of the HE scheme, an updated release of Ska rating for retail is scheduled for 2016. A list of Ska-compliant products can be found at www.rics.org/ska and the searchable directory at www.specifinder.com.

The number of individuals registered on the online tool has increased by a quarter year on year, and certified assessments have more than doubled annually to 402 projects in October, up from 336 in April.

Fit-outs achieving the highest Ska rating level of gold increased from 22 in 2013 to 106 by October, while the number of silver certificates has trebled and those achieving bronze has more than doubled. C

Elina Grigoriou is Design and Sustainability Director at Grigoriou Interiors, Ska rating Technical Editor and Chair of the Technical Committee elina@grigoriou.co.uk

The online system and Good Practice Measures requirements documents are free to use and accessible at www.rics.org/uk/ knowledge/ska-rating The Ska rating team also welcomes feedback on the current schemes.

Related competencies include Construction technology and environmental services

C O MMER C IA L LEGA L

RI CS P RO PERTY JOUR NAL

Taking action What happens when an owner refuses to comply with notices to improve their premises? Steve Polfreman takes up the story

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large, prominently located and imposing 1980s seven-storey former office building was causing major problems for Stevenage Borough Council. Unoccupied for seven years and plagued with significant vandalism and graffiti, it had even featured in a ‘fly on the wall’ police television programme about thieves pillaging for copper pipes and cable.

Local business owners and residents were dismayed by the condition of the premises and the poor impression it gave of the town from the adjacent East Coast Main Line railway. The council, police and fire services were also concerned about the safety of any individuals accessing the premises, with all fire precautions totally inadequate due to vandalism and the absence of electrical power.

In 2013, after children had been frequently seen playing in the building, the borough council’s Chief Executive, in his role as chair of the local community safety partnership, decided to take action. Attempts to arrange meetings with the owners and the Development Management team to move the situation forward proved fruitless because those with specific responsibility proved very hard to identify or contact.

Serving notices A number of possible courses of action were considered and ruled out including use of section 215 of the Town and Country Planning Act, emergency powers under section 78 of the Building Act and also magistrates’ court route under section 77.

In December 2013, a group of travellers occupied the site for several weeks before eventually being moved on by the police and council. At this point the decision was made to invoke the little-used section 79 of the Building Act in respect of ruinous and dilapidated buildings and neglected sites. This applied pressure to the owners to improve the appearance of the building

The building owners were fined on five counts and the property is now being sold

and trigger a number of remedies. These included compliance by the owners; works in default and counter-charging; criminal prosecution in the magistrates’ court; and the potential for an ongoing daily fine in the event of continuing non-compliance.

After confirming the ownership details at the Land Registry, five separate notices were served in February 2014 requiring specified work to be completed within 28 days. This included: b securing the perimeter of the site (the building stands in extensive grounds with 238 car parking spaces) b securing the perimeter of the building at all points of potential access b removal of all items hanging through broken windows that would not be expected in an occupied building, such as window blinds and fire hoses b replacement of all broken glass in windows and doors with clear Perspex or similar material that would replicate glass when viewed from outside the site b sweeping the site to remove all broken glass.

None of the work was undertaken within the 28 days and, given the increasing concern for people accessing the building, the council commissioned its contractor to secure the building against unauthorised access immediately after Image © Steve Polfreman

the notice expiry, with the costs of the work plus reasonable supervision time added as a legal charge on the property at the Land Registry.

Then, more travellers arrived and after the two weeks of occupation left behind 60 tonnes of domestic refuse and rubble. Petty arsonists were attracted to the site, starting several fires, while the council’s Environmental Health team was also involved, serving notices on the management company relating to infestations.

In June 2014, the council began formal proceedings in Stevenage magistrates’ court. The owners were convicted on all five counts and fined the maximum allowable of £2,500 on each charge (£12,500 in total) plus £1,000 towards the council costs.

The property is now being sold with the new owners looking to convert the premises to flats under the ‘prior notification’ planning process. C

Steve Polfreman is Building Control Manager at Stevenage Borough Council steve.polfreman@stevenage.gov.uk

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CO M M E R C I A L E N E R G Y EFFI C I EN C Y

Plan ahead Mat Lown reviews MEES and how landlords and property owners can mitigate the associated risks by having an effective strategy in place

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ast year, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (http://bit.ly/1bxnsOC) brought into force the minimum energy efficiency standard (MEES). This was introduced by the UK government to meet its obligations under the Energy Act 2011.

From 1 April 2018, a landlord will be unable to let a property with an F or G rating on its Energy Performance Certificate (EPC), known as a substandard property. The regulations not only apply to lease renewals where an EPC exists, but also to sub-lettings, covering tenants who wish to dispose of unwanted space.

From 1 April 2023, and from the same date in 2020 for domestic properties, the regulations become more onerous by applying to all property leases, where an EPC exists.

Furthermore, the government proposes to review MEES in 2020, so we may see the standard tighten.

Landlords may face significant penalties for non-compliance

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With the prospect of being unable to let a property, and the potential loss of rental income, awareness of MEES has grown among the property investment community, and this has led to an increased focus on EPCs. A landlord who has properties with predominantly C or D ratings may take the view that there is an acceptable margin of error in the rating to mitigate the potential risk of being left with unlettable properties. However, it is possible that the actual ratings are, in fact, far worse; conversely, the rating may be significantly better than the EPC suggests.

Exemptions Some F- and G-rated properties fall outside of the scope of MEES, including those that are not required to have an EPC under the Energy Performance of Buildings Regulations 2012 – for example, listed buildings. In addition, properties with a short lease – defined as less than six months – or with a long lease – greater than 99 years – are excluded.

Exemptions also arise when: b all cost-effective improvement works that have a simple payback period of seven years have been undertaken, which include replacing inefficient mechanical and electrical services installations, fabric improvements and the provision of renewable technologies b a landlord cannot obtain third-party consent for the improvement works, for example from the planning authority,

Images ©

tenant, lender, superior landlords etc. b an independent surveyor determines that the energy efficiency improvements would devalue the property by more than 5% (such as providing thermal insulation to the internal face of external walls) b the Green Deal’s golden rule applies, where the cost of the improvement works exceeds the value of the total energy savings. However, there are doubts as to whether this exemption is applicable now the Green Deal scheme has been effectively withdrawn.

Exemptions last for five years, and to qualify, a landlord must register the property on the public private rented sector (PRS) exemptions register, stating the grounds for doing so.

Non-compliance penalties In addition to finding themselves at risk of being unable to let properties, landlords may face significant penalties for non-compliance, which range from £2,000 to £150,000, according to the rateable value of property.

Penalties also apply where a landlord has registered false or misleading information on the PRS exemptions register. To encourage compliance, the worst offenders may find that their contravention is made public.

Finally, the government’s publication of energy performance data allows greater analysis and knowledge of a portfolio’s poor energy performance, which in turn could have a detrimental effect on a company’s or fund’s financial performance.

What should landlords and property owners do?

First, it is important to assess the risk, identifying any properties that currently have an E, F or G rating. This must include verifying the accuracy of the existing EPCs, as variations in assessments can lead to incorrect ratings. Close attention must be paid to the following certificates: b produced before April 2011, when the EPC calculation software was updated to reflect changes to the Building Regulations

C O MME RCIAL ENERGY EFFI C IENC Y

There are an increasing number of funders specialising in retrofitting energy efficiency measures b prepared shortly after EPCs were introduced in 2008, when methodologies and best practice were in their infancy b where there is a reliance on default settings in the calculation of the rating.

This is particularly important for landlords with domestic properties in their portfolios, because the regulations’ teeth start to bite from 1 April 2020, shortly after the EPCs prepared in 2008–09 become invalid.

Next, determine how to improve the EPC ratings, which may entail carrying out physical improvements to the property or remodelling the energy performance using accurate data. When works are necessary, assess the cost and timing of the improvements. It is also important to consider the impact of any tenants’ alterations, as such works may have a detrimental effect on the rating.

If a tenant’s fit-out is responsible, check that the lease or any licences contain suitable reinstatement provisions.

If there is a need to prioritise the evaluation process, focus on the properties that could present a considerable financial risk, especially those that generate significant rental income or where a disposal is likely in the next few years.

When evaluating improvements, consider carefully the timing of the works in the context of the investment strategy and any asset plans for the property or portfolio. In practical terms, this means carrying out the works as part of regular maintenance and refurbishments, as quite often a rating will be improved by merely undertaking cyclical or planned replacement works at little or no additional cost. Future lease events or plans to sell the property are also an important consideration when determining the timing of improvements.

If there are plans to sell an at-risk property, and no improvements are undertaken, it is conceivable that a prospective purchaser will attempt to negotiate a discount in the purchase price to cover the cost of the works and/or loss of rental income.

In this scenario, understanding the scope and cost of improvements is likely to prove invaluable to help counter any over pricing of works. Furthermore, it is quite possible that improving the rating may incur no additional cost; for example, where a tenant’s alterations are responsible for the poor EPC rating or the improvements would form part of a future refurbishment.

Tenants and leases The lease should also pay close attention to the respective rights of the landlord and tenant. It could be that cooperation with occupiers is essential because it is unlikely that the leases will include provisions for landlords to carry out energy efficiency improvement works in tenanted areas or where the recovery of costs through the service charge is likely to be contentious. It is also important that landlords maintain good relationships with their tenants and discuss proposals with them well ahead of the start of any works.

When landlords enter into new leases, or renew existing ones, they should consider the inclusion of green lease provisions or a memorandum of understanding to provide flexibility and a framework for cooperation. In addition, it is important that landlords pay closer attention to their tenants’ fit-out proposals to ensure that they do not have a detrimental effect on a property’s EPCs. When evaluating refurbishment and repair works, consider whether they will have any impact on the value of the property and what consents are needed. It could be that an F- or G-rated property is exempt, and if it is, a landlord must ensure that property is listed on the PRS exemptions register, noting that any false or misleading information could incur a penalty.

If there are any concerns about funding improvements works, there are an increasing number of funders specialising in retrofitting energy efficiency measures.

Finally, when completing due diligence, it is important to make sure that the EPC is reviewed to determine whether the property could be at risk. Where this is the case, determine the cost and timing of the improvement works. This information can be useful for prospective purchasers when re-evaluating their investment appraisals and/or negotiating a purchase price. Occupiers should also consider whether compliance with MEES might constrain any future plans to sub-let part of the space.

If a sub-standard property is sold, the new owner has only six months to comply with the regulations if they seek to let it, making this an important due diligence consideration for prospective purchasers and occupiers.

MEES should not be a cause for concern for proactive landlords who recognise the importance of energy performance and have well-established plans. For those who have yet to devise plans, it is important that you do so sooner rather than later as 1 April 2018 is fast approaching. C

Mat Lown is a chartered building surveyor and Partner and Head of Sustainability at Tuffin Ferraby Taylor mlown@tftconsultants.com @matlown

Related competencies include Sustainability

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CO M M E R C I A L OPINION

Too many small businesses do not get the right advice about rates relief, argues Ian Sloan

It doesn’t add up

E Every chartered surveying practice in the country has probably received phone calls from companies claiming to be able to reduce their rates by appealing the rateable value (RV). But I wonder how many practices have themselves however offered to assist their clients to claim small business rates relief?

The government and local authorities need to publicise this simple but cost-effective scheme correctly.

Focusing on properties with RVs less than £12,000, a 2012 report by Bankier Sloan (see +info) noted that over 95% of councils surveyed were incorrectly promoting this scheme on their websites, and as late as September 2015 only 45 out of more than 280 surveyed local authorities were promoting the complete scheme. Some were still promoting a version that had been abandoned before the coalition government came to power in May 2010.

Most chartered surveyors fail to promote the availability of the scheme when preparing sales details for small industrial units, offices and shops, and thus fail to market these premises as effectively as possible. Whatever your council’s website may say, if 2 6 M A R C H /A P R I L 2 0 1 6

the property is going to be a business’s sole premises and the RV is under £6,000, 100% relief is available. Tapered relief is than available up to RVs of £12,000, so a property with an RV of £8,000, for example, will attract rates of just under £1,300 a year.

Making the claim The importance of claiming relief comes into sharp focus when it is made clear to clients that they can reclaim rates paid as far back as April 2010 if they are eligible. Understanding that businesses need to claim the relief is essential. Councils are not able by law to give relief unless at some point an occupier has made a claim.

Businesses are still able to make a claim on the rates paid even when they may have vacated the premises some years ago.

At a time when councils are under ever more pressure to save money, it is important

to understand that claiming relief for your clients will have no effect on local government finances. The scheme is self-funding, being paid for by the 40% of companies in England that are not eligible to claim; those businesses with RVs above £18,000 pay an additional fee of around 2% on their annual rates to subsidise the hundreds of thousands of small business that should be benefiting from the scheme.

The Treasury calculates the cost of the scheme each autumn, based on 100% of companies claiming and the associated administration costs. This total cost is then spread across the larger companies by way of an additional rate in the pound.

For 2016/17 there are once again two such figures used by local authorities – 48.4p for small companies and 49.7p for the larger businesses – and it is this variation that allows the scheme to be self-funding.

Most chartered surveyors fail to promote the availability of the scheme

This approach enables the Chancellor to be seen to be supporting small businesses, at no cost to the Treasury and means it is impossible for the government to lose money.

In fact, it is estimated that it made over £300m in 2014/15 because of poor publicity by councils and a lack of information given to clients by many professional advisors, including chartered surveyors.

Simple solution If you are advising any companies operating from premises with an RV of less than £12,000, ensure they are receiving the correct rates relief. Don’t accept that the non-domestic rates demand is correct, don’t rely on your council’s online figures, and don’t rely on the advice of those who call claiming they can save money. While many of them are telling the truth, because small businesses rates relief is often readily available, you simply need to email or call your council.

Since April 2012, the need to complete an application form has been dropped.

The relief by its nature helps smaller businesses in poorer areas, where RVs are lowest; any refund is a financial gain for the local economy and a loss to nobody. As leading professionals in the field, RICS members have a duty to clients to seek this relief. C

Ian B. Sloan FRICS is Manager, Bankier Sloan reception@centre-p.co.uk

Report: www.centre-p.co.uk/ Small_Business_Rates_Relief.pdf Table: www.centre-p.co.uk/ SmallBusinessRatesRelief.pdf

Related competencies include Capital taxation, Local taxation and assessment

Image © Shutterstock

C O MMER C IA L P ROP ERT Y M A NAGEM ENT

Healthy influence Mitch Cook and Kerri-Emma Dobson examine the health and wellbeing agenda in the built environment, and the impact it could have on commercial property

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he health and wellbeing agenda has been gaining momentum across various industries in recent years. In particular, it has become very topical in the built environment. However, there are often questions about the relevance of health and wellbeing design to commercial developments.

The built environment can have a number of impacts on health and wellbeing. This means we are able to create healthy places in which people can live, work and socialise. But what are the benefits of doing so in commercial properties?

In the first instance, there are direct health benefits for building users, which often have a ripple effect, such as reducing the number of staff sick days.

The employer has a healthier and happy workforce, which ultimately leads to greater productivity.

Another example is incorporating open green space, which improves mental wellbeing as well as encouraging physical activity, while also making the space more visually appealing. Green infrastructure in particular can serve to increase biodiversity and mitigate the impacts of climate change, which in turn can reduce operational costs. These design measures can make a commercial development more appealing to potential building occupiers, ultimately increasing property value.

Measurement At its most simple level, measurement allows for identification of positive and negative health impacts, which can then be enhanced or mitigated as appropriate.

Expanding beyond this, measurement can validate the beneficial outcomes – a strong promotional tool for marketing the development and generating investment.

In recent years, a number of factors have driven the rise in health and wellbeing measurement. The Building Research Establishment BREEAM

In recent years there has been an increase of interest in HIAs, particularly in planning policy certification methodology continues to include measurements for a building’s health and wellbeing capabilities, awarding credits for both design and functionality that support health, as well as the International WELL Building Institute’s WELL Building Standard scheme, which specifically focuses on health and wellbeing influence in the built environment.

Ongoing research by the World Green Building Council (WGBC) in 2015 led to the Better Places for People campaign, which intends to raise awareness of the impact that built form has on health and wellbeing, and to encourage those who design, build and sell buildings to ensure maximum benefit for the people who occupy them.

RI CS P RO PERTY JOUR NAL

reports cover a range of topics regarding the character of an area in which a development is being built. One aspect is the impact of the development on health profile baseline, in terms of demand on primary healthcare facilities, provision of open space and play space, and the development’s ability to promote healthy places and lifestyles. The assessment will also evaluate impacts on the local economy, employment, social infrastructure, community safety and housing provision, all of which influence a community’s wider wellbeing.

Health impact assessments (HIAs) also measure health and wellbeing. They take a similar approach to socio-economic assessments, but more specifically focus on health. In recent years there has been an increase of interest in HIAs, particularly in planning policy. Frequently, we are seeing these requested, to demonstrate that health and wellbeing has been thoroughly considered in relation to the development.

It is evident that concern about health and wellbeing is growing internationally as well as in the UK. With industry leaders such as the BRE and WGBC driving the initiative, it is important for commercial development to be ready to respond accordingly. As health and wellbeing becomes more visible in policy requirements, it will become increasingly important for commercial development to demonstrate a consideration for health and wellbeing and the resulting impacts. C

Methodologies for measurement There are a number of methods for measuring the health and wellbeing impacts of a commercial development.

When undertaking a BREEAM assessment, working with your BREEAM assessor to consider health and wellbeing issues will influence the design of the building to take account of them. In BREEAM 2014, the assessment considers topics such as visual comfort, indoor air quality, thermal comfort, acoustic performance and safety and security.

The WELL Building Standard is a relatively new methodology, but dialogue in the industry suggests it is on the verge of gaining momentum in the UK. The standard’s matrix includes air, water, nourishment, light, fitness, comfort and mind.

Another method is to use socio-economic assessments. These

Mitch Cooke is Partner and Kerri-Emma Dobson is a health and wellbeing consultant at Greengage mitch.cooke@greengage-env.com kerri-emma.dobson@greengage-env.com

World Green Building Council: www.worldgbc.org BREEAM: www.breeam.com WELL Building Institute: www.wellcertified.com

Related competencies include Business planning, Sustainability

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CO M M E R C I A L L AN D LO R D A N D T EN ANT

Communication breakdown

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Thekla Fellas and Wayne Clark review a case that exposed flaws in the Electronic Communications Code and examine the proposed new code

t is agreed by both practitioners and judges who deal with the Electronic Communications Code (the code) that it is unclear and provides little or no certainty for landlords or operators. There is little case law available to assist interpretation of the code, and what there is does not provide much guidance. An unreported case at Cambridge County Court in 2015 highlighted the problems with the current code and has sparked debate in the legal press about a landlord’s ability to serve a notice under paragraph 21 of the code for removal of electronic apparatus where Part II of the Landlord and Tenant Act 1954 (the 1954 Act) applies.

Crest Nicholson v Arqiva In Crest Nicholson (Operations) Ltd v Arqiva Services Ltd and others [2015], Deputy District Judge Dack at a case management conference struck out part of the landlord’s claim which sought removal of the operator's apparatus under paragraph 21.

The issue centred on the meaning of the words in paragraph 21 “is for the time being entitled to require the removal”.

The judge held that those words required the server of the notice, at the date of service, to establish an immediate right to require removal of the apparatus. Thus, a paragraph 21 notice could not be served prior to the expiry of the contractual term.

This was the case even though the landowner

had served a section 25 notice pursuant to the 1954 Act opposing renewal on the grounds of redevelopment, and it was clear that the landlord would be able to satisfy the redevelopment ground. The decision was being appealed when the case was settled, with Arqiva and the operators vacating before the end of the contractual term and making a significant contribution to Crest’s costs. We are therefore left with a non-binding decision.

The difficulty with this decision is that if the Deputy District Judge was correct in his views, a landlord wishing to redevelop its land would never be able to serve a paragraph 21 notice in respect of a lease which has security under the 1954 Act. This is because on the Deputy District Judge’s finding the 1954 Act issues would have to be determined first. However the landlord would not be able to prove the redevelopment ground unless the landlord is able to remove the equipment.

In order to remove the equipment, the landlord would have to serve a paragraph 21 notice seeking removal of the equipment, but cannot do so until the 1954 Act issues have been resolved.

This is nonsensical. The purpose of paragraph 21 is to ensure that the person with the legal right to seek removal of the equipment from the land does not do so without having first served a notice on the operator. Its purpose is not, effectively, to extend an operator’s right to remain on the land, because those rights are dealt with under paragraphs 5 and 6 of the code.

By giving notice, the operator has an opportunity to seek to have a new agreement imposed (under paragraph 5) and, if necessary, temporary rights as well (under paragraph 6).

Under the proposed new code, operators will have almost unrestricted rights

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A more sensible interpretation therefore seems to be that the phrase “for the time being” simply describes or identifies the person who has the entitlement to seek removal, not the time at which removal is sought. The identity of the person may change, in the same way that only the person who qualifies as competent landlord can serve the section 25 notice under the 1954 Act. Thus the person having the entitlement for the time being to require removal pursuant to that Act may change depending on who is the competent landlord.

This interpretation is in fact supported by paragraph 6 which refers to “any person … that … is entitled to require the removal of that apparatus but, by virtue of paragraph 21 below, is not entitled to enforce its removal”. No mention is made of the person having to have the immediate right to require removal, which suggests it is the identity of the person that is relevant rather than the timing of removal.

New code A completely new code is currently being consulted on, although it is unlikely to be enacted before the end of 2016, at the earliest. Under the proposed new code, operators will have almost unrestricted rights, and once they are on a site will be extremely difficult to remove. Some of the Image © iStock

C O MME RCIAL LA NDLORD A ND TENANT

b Terminating a new code agreement: agreements under the new code can only be brought to an end by a landlord giving at least 18 months’ written notice on one or more of the grounds specified in the new code. If a notice has been given, the new code agreement will come to an end, unless: • the operator served a counter-notice within three months – an extension from the current 28 days; and • the operator issues proceedings within three months of service of the counter notice; a total period of six months. b Grounds for termination: the specified grounds are: substantial breaches; persistent delays in making payments; the landowner intends to redevelop all or part of the land or any neighbouring land; or the test for the imposition of agreement is not met.

key points to be aware of under the new code are as follows. b Code rights and persons to be bound: code rights are defined and include: installing and keeping apparatus, access, connecting to a power supply, and interfering with or obstructing a right of access.

The persons to be bound by any of the code rights include: occupiers granting the code right, successors to those occupiers, those deriving title from the occupier or their successor, and any other person who has agreed to be bound. This means that a superior landlord who has not agreed to be bound by the code rights will not be bound. b Assignment, upgrading and sharing of apparatus: under the new code, any new agreement cannot prevent, limit or impose conditions on an assignment to another operator (although an authorised guarantee agreement will be allowed), neither can it restrict or limit any upgrading or sharing of apparatus where such change has no more than a minimal adverse impact on the appearance of the site and no additional burden on the landowner. b Imposition of an agreement: the balancing test for the court in deciding whether to impose an agreement has changed from “no person should unreasonably be denied access to an

electronic communications network or electronic communications services” under the current code, to “the public interest in access to a choice of high-quality communication services” under the new code. b Terms of an agreement: where an agreement is imposed, it must include terms for consideration to be paid. While stated to be market value, this actually disregards whether a particular site is the only suitable site; it only takes into account the value of the site to the operator; and disregards the value to the landowner and the rights to assign, share and upgrade the apparatus.

A landowner will also be entitled to compensation, which includes the diminution in the value of the land.

However, this is defined under the new code as the same test as for the compulsory purchase of any interest in land. b Notices: where Ofcom has prescribed a form of notice this must be used, otherwise the notice will be invalid for the purposes of the new code. This is both for operators and any notices given by others. b 1954 Act: agreements will be excluded from the security provisions of the 1954 Act but will continue under the new code at the end of the contractual term.

In practice, the only real ground on which one could rely is the intention to redevelop. Under the new code, it is difficult to see what substantial breaches there could be because the operators can assign, upgrade and share without any restrictions.

Likewise for persistent delays in making payments – because rents are usually paid annually and are effectively going to be at less than the market value, it is unlikely that those amounts would not be paid. In any event, to be able to prove a persistent delay in making payments, a site provider would have to wait years to demonstrate a course of events to substantiate this ground.

In respect of the test for imposition not being fulfilled, this is going to be highly unlikely where you have more than one operator on site. It is interesting to note that “own use” is not a ground on which a site provider can seek possession; this could be difficult in rural areas. C

Thekla Fellas is head of the real estate litigation team at Fladgate LLP and Wayne Clark is a barrister at Falcon Chambers tfellas@fladgate.com

Related competencies include Landlord and tenant

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RICS P ROP E RT Y JO U RN A L

CO M M E R C I A L LO G I STI C S

Continuity and change There has been much discussion of the factors affecting the UK logistics property market, but is it really all change?

Jon Sleeman gives an overview

P Property commentators often focus on change – the ‘changing landscape’ or a new ‘game-changer’ – while ignoring what has stayed the same. But if we look back over recent years, we can see both continuity and change.

Indeed, a key challenge for participants in the UK logistics market, particularly occupiers, developers and investors, is evaluating all the changes that are going on and deciding whether, and how, they affect property and location requirements. At the

1 same time the fundamentals of building specification and location for logistics facilities have not significantly altered.

Market conditions have undoubtedly altered over the past five or so years, however.

At the start of 2010, the UK economy was just emerging from a deep recession and the logistics market was awash with empty space. Developers and landlords were prepared to drop rents or give large incentives to tenants and there was no appetite for speculative development.

Prime investment yields ranged from around 6.5% in London to 7.5% in the major regional markets, with secondary yields significantly higher. By the end of 2015 many locations had an acute shortage of stock – the national vacancy rate is just 6% – rents are rising, and speculative development is

picking up. Prime yields are close to their previous cyclical peak in 2007, although now they offer a premium over gilts, whereas back then the premium was negative (Figure 1).

E-commerce Some of the market drivers have also changed. In general, occupier demand for logistics facilities is driven by business growth and supply chain changes, with the rise of e-commerce the most obvious of these. E-commerce is transforming the UK retail market and driving significant and rapid changes in distribution networks. In the property market, this has manifested in growing demand for different types of logistics facilities including: super-sized fulfilment centres, where the stock is held and picked at item level; parcel

Figure 1 Prime distribution yields % 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

0.0

Prime London Distribution

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Prime South East Distribution

Prime Regional Distribution

5-year Gilt

Images © SEGROplc; ProLogis

sorting centres and local delivery centres; ‘dark stores’ for the fulfilment of online grocery orders; and returns-handling facilities.

Some property linked to e-commerce is quite different from the standard ‘big box’ logistics buildings, particularly the sorting and local parcel delivery centres, which are designed for rapid throughput rather than storage. These buildings are typically long and thin, with lots of doors and low site densities (Picture 1). In addition, because e-commerce requires efficient ‘last mile’ solutions, it is one of the key drivers behind the rising importance of urban logistics, which is encouraging demand for mainly urban, mid-sized box properties, as opposed to big box logistics on motorway corridors.

Other drivers Sustainability has been gradually rising up corporate agendas, and for some companies this has clearly influenced the buildings they have procured – for example, Marks & Spencer’s distribution centre (DC) at Castle Donnington or Sainsbury’s DC at Prologis Park, Pineham.

However, for most companies, sustainability is still nice rather than essential, considered first and foremost in terms of potential to save money rather than reduce carbon emissions.

C O MME RCIAL LOG ISTIC S

1 New parcel depot developed by SEGRO for Geopost at Enfield

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2 Rail-connected distribution buildings at DIRFT

Rail freight has become more important over time but has had a relatively limited impact on the logistics property market. Between 2009/10 and 2014/15, rail freight increased by 16.5%, with domestic intermodal freight, including the movement of containers from ports, up 17.8% and Channel Tunnel traffic up 35.9%, but from a much lower base (http://bit.ly/1J06YyY). As a result, there is more demand for logistics properties on rail-connected sites, such as ProLogis’s Daventry International Rail Freight Terminal development (DIRFT; Picture 2). But the overall impact has been modest.

Even now, JLL estimates that only around 10% of the total grade-A logistics stock in buildings of 9,300sqm and over is on rail-connected sites, while very few buildings have dedicated rail sidings.

Port-centric logistics, which was initially promoted in the UK by PD Ports at Teesport and the Port of Felixstowe, has not radically reshaped logistics networks, in part because many UK ports have limited potential to accommodate very large new facilities. However, the opening of the new port at London Gateway and the adjacent park, with capacity for around 859,000sqm of logistics space, has significant potential.

Finally, while automation has become more widespread in logistics properties, comparatively few warehouse operators have to date invested heavily in facilities such as automated storage and retrieval systems (ASRS) and automated sorting systems.

Specification and location Changes in the UK logistics market have not significantly altered the type of buildings that most operators require; neither have they radically changed the geography of the UK logistics property market.

With some exceptions – such as parcel hubs – new logistics buildings are very similar to those built five or six years ago in terms of their key dimensions and attributes.

The changes in building specification that have occurred over the past five or so years have been relatively gradual, including, for example, 15m eaves becoming more common, 50m yard depths becoming an absolute minimum, and potential changes in floor specification due to the increasing call for mezzanine floors.

In addition, the core logistics locations today – which attract the strongest occupier demand and have the largest clusters of development – have not significantly changed over the past five years and remain focused on the country’s strategic motorway corridors, particularly in the South East, the Midlands and the North West. Indeed, if one maps the location of large logistics properties taken up over the

past five years, or the new speculative development that has taken place over the past three, the evidence suggests that the market has seen a reaffirmation of core locations compared with a more dispersed market geography during the last boom.

A range of factors Looking forward over the next three to four years, occupier demand for logistics facilities in the UK is likely to remain healthy, due to continuing economic growth and supply chain changes, including the further growth of online retail. As a result, we anticipate further speculative development, with the level of completions in 2016 likely to be double that in 2015.

National distribution rental values are likely to increase by between 3% and 4% per annum in the four years 2016–19, according to JLL’s recent forecasts. This positive occupier market and rental growth will sustain strong investor appetite.

In terms of market drivers, e-commerce is likely to remain the key cause of change. It will contribute to the growth of urban logistics, and in London, where industrial land is rapidly diminishing due to housing demand, we could see some development of multi-storey, ramped warehousing. Sustainability will become more important, particularly now that the Minimum Energy Efficiency Standards (MEES) have been passed into law (see p.24).

These standards make it unlawful for properties with an F or G Energy Performance Certificate (EPC) to be let,

without implementing cost-effective energy efficiency improvements or fulfilling an exemption criterion. The standards come into effect in April 2018 for new leases and lease renewals or extensions that already have an EPC, and in April 2023 for all existing leases. Although modern logistics properties are unlikely to be affected, older buildings could be.

Rail freight and port-centric logistics are also likely to become more important, with port container traffic leading to rail freight growth, partly due to new port investment – for example at London Gateway and Liverpool 2.

Longer term, the development of High Speed 2 will release capacity on the West Coast Mainline, freeing additional capacity for freight.

Warehouse automation will become more significant as part of the wider move to automation and robots.

This will change the existing economic and employment benefits associated with logistics properties (http://bit.ly/1QvObfu). Over time, the wider adoption of automation could have a significant impact on the type of buildings that occupiers require and the labour they need, which could also affect their choice of location.

In the longer term, this could be the most important driver of change in the UK logistics market. C

Jon Sleeman is Director of Research at JLL Jon.sleeman@eu.jll.com

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Part of the solution Kristen Hubert looks at the question of empty homes in Scotland

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here are more than 27,000 long-term private sector empty homes in Scotland.

They have been lying vacant for more than six months; conversely, housing waiting lists are more than five times this figure. Although empty homes cannot solve the housing crisis, they surely need to be part of the housing supply solution.

But housing supply is only one driver for working on empty homes. Bringing vacant properties homes back into use can also: b contribute to regeneration efforts b help sustain rural towns and villages b increase feelings of community safety and satisfaction b bring valuable income into a community through renovation work and new local residents.

The Scottish Empty Homes Partnership was established in 2010 with funding from the Scottish government and set up its office at Shelter Scotland. Over the past five years, the organisation has expanded both its team and the scope of its work, but its focus has remained: selling the benefits of empty homes work.

The average renovation costs to bring an empty home back into use are £6,000–£25,000, compared to £100,000 or more for a new-build property. Those costs are borne by the owner, although

Although empty homes cannot solve the housing crisis, they surely need to be part of the housing supply solution 3 4 M A R C H /A P R I L 2 0 1 6

some empty homes do not need any renovation. The partnership has also pushed for funding streams and council tax powers to help local empty homes officers to be as effective as possible.

In 2015, the partnership introduced the Empty Homes Advice Service and the Empty Homes Local Projects Service.

The Empty Homes Advice Service The Empty Homes Advice Service is a national helpline. It was established to give a single point of contact so that anyone across the country can call to report their concerns about an empty home. The empty homes advisor will refer such reports to either the appropriate empty homes officer or named contact at the local authority and follow these up to check they get a response. Owners of empty homes can also contact the service for guidance on how to bring their properties back into use.

The Empty Homes Local Projects Service This service helps anyone with an idea for a multi-unit empty homes project to realise their vision. Gavin Leask, the Empty Homes Local Projects Manager, will help develop project plans, find partners and source funding.

In our experience, it has been the homeowners who have brought most vacant properties back into use with the assistance of local authorities’ empty homes officers; many of these owners just needed a bit of hand-holding and someone to challenge their assumptions.

Currently, just over half of Scotland’s local authorities have at least one member of staff dedicated to empty homes work; there were none when the organisation started out.

As empty homes officers have been recruited and trained to provide targeted advice to owners, so homes have started to come back into use. It is the job of the Scottish Empty Homes Partnership to Images ©The Scottish Empty Homes Partnership

assist the officers in their daily work by ensuring they have the training, tools and practical advice to carry out their role.

Of course, empty homes officers do not work in a vacuum and they rely on council colleagues and external partners to help them solve problems. They often call on property surveyors from both the public and private sector to help assess levels of repair and valuations, which assists the owners in making realistic choices.

Case study The Forth Valley Empty Homes Officer in Grangemouth took on two empty flats in a multi-unit block, one of which had been empty for more than 10 years.

They had caused various issues for the neighbouring units and prevented communal repairs; a resident actually had to move out of her home because of leaks coming from one of the empty units.

The empty homes officer worked with various council departments, including the building surveyors, who detailed the

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kr Empty homes after restoration: increased kerb appeal m Empty homes before being brought back into use The partnership’s aspirations

In the past financial year (2014/15), 560 empty homes, with a value of £93m, were brought back into use repairs needed in advance of issuing a works notice on one of the units.

Following further work by the empty homes officer with the owner of the two units, the flats were put on the council’s Empty Homes Matchmaker Scheme and offers have now been accepted on both.

In the past financial year (2014/15), councils reported to the partnership that they had brought 560 empty homes back into use. The combined value of these properties has been calculated as £93m.

We would ideally like to see at least one dedicated empty homes officer in each council; these officers bring in more than the cost of their salary in terms of: b debt collection b increased council tax (empty homes are often eligible for council tax discounts and exemptions during their first year) b community benefits that are much harder to quantify, including improved safety and security, increased spend in the community from more residents and jobs for local contractors.

The partnership believes that working with owners is the best way to bring empty homes back into use. Councils and communities should have effective enforcement powers as a last resort where empty homes are having negative impacts on local communities. Often a change of ownership is all that is needed; usually the issue that is keeping the property empty is not to do with its location or fabric but the owner’s mindset, skills or financial situation.

Existing powers, such as compulsory purchase, are just too costly and time-consuming for most councils to consider: what is needed is something they will actually use. That is why the partnership supports the introduction of a compulsory sale order for empty buildings. This would allow councils to force long-term problem properties on to

the market when owners show no sign of bringing them back into use.

We also want to see a larger variety of funding streams and financial incentives for different bodies to get involved in bringing empty homes back into use: e.g. there is nothing currently available to encourage the purchase and restoration of an empty home by a first-time buyer.

The potential of replicating successful English schemes, such as the Empty Homes Community Grant Programme, should be explored for Scotland. There is also a problem when it comes to empty homes that have fallen into serious disrepair, which need more than a small loan or grant to make it economically viable to bring them back into use.

Empty homes are a huge issue and this must be taken into account when it comes to funding. Their impact on community wellbeing goes far beyond the standard economics of housing supply. R

Kristen Hubert is National Manager of the Scottish Empty Homes Partnership kristen_hubert@shelter.org.uk

The Empty Homes Advice Service can be contacted at emptyhomes@shelter.org.uk or 0344 515 1941 http://bit.ly/1VdbKda Gavin Leask, Manager, Empty Homes Local Projects gavin_leask@shelter.org.uk

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Comparing the market is not enough

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Comparable evidence and a rationale are vital in residential property valuation, says Fiona Haggett

o many times in my years as an auditor I have heard the statement: “Why should I justify my valuation? I have been doing this for 30 years and know my market.”

It always sets alarm bells ringing. It shows a shocking lack of professionalism, ignorance of the Red Book as a set of mandatory minimum standards for all valuers, disregard for published RICS guidance, a worrying lack of concern for the long term and total amnesia about events in the profession during the past 10 years.

Comparable evidence is defined in the RICS information paper Comparable evidence in property valuation, 1st edition, published in 2011 (http://bit.ly/1ktchK9) as “an item used during the valuation process as evidence in support of the valuation of a different item of the same general type”.

The selection of comparable evidence relies on the well-established principle of substitution – a prudent buyer will not pay more for an item than the cost of acquiring a satisfactory substitute. Where the market is imperfect and these are not identical, the substitute will require quantifying and analysing to render it directly comparable to the subject.

On this basis, the identification of comparable evidence is the search for the most appropriate substitutes. A supporting rationale is the process by which imperfect substitutes are made directly comparable. The extent of the rationale will reflect the diversity of the identified substitutes.

Spending time on a strong rationale gives the valuer additional advantages: b it conveys a professional, careful and conscientious approach b it gives an opportunity to consider the various factors influencing the proposed valuation and whether any additional information is valid, correct and given the appropriate level of weight in the final outcome b it provides a vital defence in the event of a later claim, particularly in the light of case law findings that require an effective rationale b it renders the valuation compliant with the Valuation Professional Standards in the Red Book (VPS2 (10) and VPS3 (1)) b last, but by no means least, it satisfies internal and external auditors.

Sourcing and analysis The valuer needs to look for properties that are identical or similar, recently transacted, arm’s-length transactions and verifiable. Recent transaction data can be either direct (properties sold by local estate agents, transactions about which the valuer knows personally) or publicly available (e.g. Land Registry, industry websites, databases). Where this is not available, asking prices and historic data may be considered, but not 3 6 M A R C H /A P R I L 2 0 1 6

without a comprehensive supporting rationale for your final valuation. As a support to existing comparables and as part of the rationale or adjustment for the final figure, the use of market indices and automated valuation models can be considered.

Comparable evidence should be recorded on the file, preferably in a consistent format in all cases, its relevance to the subject property and final valuation identified and contribution to that figure made clear.

Suitable comparables need to be analysed and adjusted, in line with the principle of substitution detailed above. Ensure that you are comparing like with like and not just obvious factors such as property type, location, size and condition. Are the lease details comparable (remaining term, escalating ground rents, onerous stipulations); are there any restrictions that may affect value; are planning and Building Regulations approvals distorting figures – have they been obtained where required; is listed building consent a factor?

The adjustment may reflect qualitative issues (is it in a poorer condition?) or quantitative matters such as difference in size. It may be necessary to break down the elements of the property to render it comparable. Above all, your analysis and conclusions must be clear to any third party who may read the case file.

Once this exercise is complete, review your analysis to ensure that it fully reflects your thinking. Ask yourself whether it is legible, relevant and comprehensive. On reading your file, would a third party arrive at a similar conclusion?

Case study Legal and General Surveying Services (LGSS) research confirmed the need for both comparable evidence and an effective rationale to explain a valuation. LGSS audits a proportion of

Figure 1 Group choice with three comparables 16 14 12 10 8 6 4 2 0

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Figure 3 Value comparisons

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the many thousands of cases it manages each year. When challenged, many valuers responded that a rationale was not required because “the comparables speak for themselves”.

Geoff Bramall, LGSS Technical Manager, conducted a simple experiment based on a real-life case, which was published in the LGSS Technical Newsletter. A sample of 160 residential valuers was divided into two groups and asked to analyse a test property and select an estimated value from a range of options. One group was provided only with a matrix of three comparables; the other was given the same matrix and a brief explanatory rationale.

The property was a standard 1970s estate house; the three comparables were a 1970s house, a 1930s detached house and a modern detached estate house. The opinions of the group given just the three comparables were quite scattered across the options, as shown in Figure 1.

However, when the comparable evidence was supported by a simple rationale, it produced a much narrower range of opinions, as seen in Figure 2.

Put together, it is clear that it was easier for a third party to arrive at an opinion when presented with a rationale to explain the valuation thought process (Figure 3).

The rationale simply explained the adjustments made by the original valuer to the presented evidence to arrive at the end value: b Subject not quite as well appointed as comparable 1, but larger and has double garage. Valuation higher by say 10%. b Subject has extra bedroom but similar overall size to comparable 2, has less character and in inferior location.

Valuation lower by say 10%–15% b Subject larger than comparable 3, in slightly superior location but no en suite and much poorer kitchen/bathroom. Valuation therefore lower by say 5%–10%.

The comparables certainly did not speak for themselves. Surely this case study proves the value of a rationale.

A word of caution: when researching comparables, do not rely on influencing factors that could distort the end result, e.g. a purchase price, builder or vendor-supplied information or incentives. Each valuation should stand alone. Valuers who work back from a purchase price or estimate to justify their own valuation are (and have been) open to criticism in court.

Case law accepts that there is a level of tolerance in valuation (depending on the nature of the property), but undue reliance on

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external influence and indices will not reflect well on you if you have to justify your figure.

Shortage of evidence The LGSS case study was a fairly standard property, but what happens when comparable evidence is in short supply? This could be for many reasons, including an over/underactive market, an unusual or unconventional property, a new market or development, or restrictions on the enquiries you can make.

The Red Book is clear that the valuer must comment on any issues affecting the certainty of valuation. Their report must not mislead or create a false impression about the level of confidence in the valuation (VPS3).

Where you find yourself faced with an element of valuation uncertainty, consider the use of special assumptions; these must be realistic, relevant and valid (VPS4) or sensitivity analysis (the effect of a change in variables). All issues affecting the degree of certainty must be detailed in the report and any mathematical models used to arrive at the figure explained. Ultimately though, you must come to a clear conclusion and provide only one valuation figure, not a range.

Conclusion Emma Vigus of Howden Insurance Brokers confirms that, in its experience, a claimant is most likely to succeed when the valuer fails to show they have followed the right methodology.

Howden suggests approaching every job as if a claim will arise, ensuring that the site notes provide the ‘muscles to the defence of a claim’.

In its words: “Neither an overvaluation nor a missing defect is negligent in itself. The aim is to show that even if an overvaluation has been made or a defect missed, nevertheless the survey was carried out with the reasonable skill and care of the ordinary, skilled professional.” R

Fiona Haggett FRICS is RICS UK Valuation Director fhaggett@rics.org

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One thing leads to another In the first in a series on the causes of damp, Mike Parrett looks at the connections between building design, failure and occupants’ lifestyle

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ood design is pivotal to preventing damp. Without it, buildings cannot be maintained, construction elements fail and buildings cannot cope with people living in them.

In 2006, CABE’s publication, The cost of bad design (http://bit.ly/1Yi94kt) stated: “Too often, the people who design and construct buildings and parks don’t worry about whether they will work properly or what will they cost to run ... But the public has to live with badly built, poorly designed buildings and spaces.”

It cites examples such as the Holly Street ‘snake blocks’ built in the 1970s in Dalston, London. Before their demolition, problems included dark staircases, badly situated lifts and poor estate lighting. But this publication only offers architects’ views of poor design and does not comment on the towers’ actual functionality, the effect on residents and the many damp problems.

Design and maintenance William Morris, founder of the Society for the Protection of Ancient Buildings, advocated regular maintenance to stave off decay. Various types of buildings since demonstrate that poor access leads to poor maintenance, decay and decline, and often to damp problems.

The Construction (Design and Management) Regulations were introduced in 1994 to improve building design and the safety of those maintaining them. At their launch, a speaker showed photographs of a building with a ring of lights high above the lobby. Without access for a safe working platform, changing a lightbulb was expensive and risky. Poor design 3 8 M A R C H /A P R I L 2 0 1 6

meant they would gradually expire and may not be replaced.

In another example, some wharf buildings on the bank of the Thames were converted into flats. On the street side, scaffolding was needed to maintain the windows and gutters. On the river side, this work needed cantilevered scaffolding over the water. How often do you think windows and gutters were maintained?

Materials also play a major role. The original design of Borough Market required 70 tons of thin code 3 lead to be resin-bonded on to plywood sheets for roof panels, but when the sun warmed the lead it just de-bonded. The architect was trying to reduce the roof weight and expense, but did not consider the environmental issues.

Surveyors should consider the failures associated with different classes of buildings, which often provide clues to the risk of dampness. b In 1875, the Public Health Act introduced damp-proof courses in walls to address problems caused by unconnected sewerage and drainage.

New buildings were also separated by 1m to lower the water table. b Until the 1920s–1930s, there was generally no undersarking to roofs to prevent water penetration if the tiles became defective. Many old buildings with original roofs are still without undersarking.

I have seen many examples of people unwittingly contributing to damp issues Images © Michael Parrett

1 b Before the 1950s, roof void insulation was uncommon and unlagged water tanks and pipes were vulnerable to freezing, made worse by wind penetration and heat loss from a lack of undersarking. b Until recently, most suspended solid floors were laid without vapour barriers, but rising water tables meant moisture transfer through the vapour-permeable concrete; with ground-supported solid floors, it was incorrectly believed that compacted reinforced concrete, even 400–500mm thick, was vapour-impermeable. b During the inter-war years, ground floors could be a mix of clinker ash and bitumen tar with timber-boarded and battened floors laid on to them; these

R ESIDE NTIAL BUI LDI NG PAT HO LO G Y

2 m1 Black mould to external corner of party wall behind bedroom furniture.

Mould also found at bottom of external wall. Level 1 or 2 surveys suggested use and occupation and/or penetrating damp (via high abutting external timber decking) was to blame. A Level 4 survey found construction and design issues were the main causes k2 Opening a suspended (block and beam) solid floor revealed high rubble and arisings from original construction, in some areas in contact with the floor’s underside. No DPM to the oversite or vapour barrier to the floor (not a requirement in late 1970s/early 1980s properties on level sites) water mains were often routed under suspended floors towards the rear kitchen; these lead pipes are vulnerable to fracture or perforation resulting in underfloor or underground leaks. b The well-documented failure to construct modern airtight buildings gives rise to heat loss pathways and routes for moisture to permeate and penetrate. failed because of upwards moisture transfer into timbers via the iron nails.

Linoleum, vinyl and rubber-backed carpeting also trapped moisture. b Until the 1950s, many solid ground-supported floors were laid without damp-proof membranes (DPMs).

Some later dwellings relied on overlaying pantiles and wood-block flooring with bitumen-based adhesive serving as DPMs. Replacement floors were often laid without any DPMs. b Victorian and Edwardian properties with chimneys rarely have damp-proof courses (DPCs) to fender walls, which act as conduits for moisture transfer into the breast and adjoining walls. b In Victorian properties, potable

Improvements to older properties (e.g. adding loft insulation and blocking up old fireplaces) mean inherent defects from different building types may not be identified. Many improve the energy efficiency of buildings but also hermetically seal them and retain moisture.

A serious problem associated with energy-saving solutions is retrofit cavity wall insulation. Some fibre insulation retains moisture penetrating from the outer leaf of the wall. After flooding, wet cavity wall insulation may not dry fully, allowing moisture release through the inner leaf into habitable spaces. This creates the conditions for mould long after the drying-out period.

Occupants’ lifestyle Without large-scale monitoring of environmental conditions inside properties, it is impossible to fully establish the effect of use and occupation on dwellings. However, I have seen many examples of people unwittingly contributing to damp issues.

Someone on a budget may buy a second-hand tumble dryer with a missing hose, for example, but an unvented dryer can pump around 7.5 litres of moisture into the atmosphere in 24 hours. Occupants in social housing or fuel poverty often underheat homes; in some, I have struggled to record internal temperatures above 120C (below 150C damages the health of children and the elderly). These homes are often thermally inefficient, with large external solid wall areas, single-glazed windows and no loft insulation. Poor heating and heat loss increase the risk of condensation and damp, especially when combined with building defects.

Societal and cultural problems may contribute to dampness. Some people living on ground floors may choose never to open their windows or curtains because their rooms are visible from outside. Installing tinted, one-way glass may encourage them to do so and improve ventilation.

Accommodating different cultures is very important. Some bathe by pouring water over themselves; if this splashes over the floor it could penetrate into a property below and/or cause the rotting of nearby timbers. If bathrooms were converted into wet rooms, people could bathe however they wanted.

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PassivHaus would have problems because of the extra moisture in the internal air.

Identifying problems It can be difficult to identify the true cause of damp. For example, crescent-shaped mould can indicate internal atmospheric moisture, but from use and occupation, building defects, such as dampness coming through the solid floor or walls, or both?

We should consider some definitions: b penetrating damp is moisture that has moved from one side of a wall to the other b rising damp is moisture that has moved vertically by capillary action or suction where the moisture source is from the ground below the building.

These definitions are important because: b rising, penetrating and condensation damp are not causes of damp: they are mechanisms b all the causes of rising and penetrating damp create condensation b condensation caused by use or occupation rarely creates penetrating or rising damp.

It is easy for surveyors to assume that mouldy walls are due to occupants’ lifestyles. In a HomeBuyer Report, surveyors can cover themselves by stating it could be caused by the three principal mechanisms of rising damp, penetrating damp or condensation.

Even an overcrowded PassivHaus would have problems because of the extra moisture in the internal air But there is no specific diagnosis. This inexorably leads to the recommendation that the homeowner or purchaser seeks ‘commercial’ help … from those benefiting financially from their own diagnosis. This is like a doctor passing their patient on to a drug company. I have rarely known a surveyor recommend damp-related pathology tests.

Conjecture is risky for surveyors but they should assume nothing.

Understanding the different contributing factors causing damp in buildings is pivotal and not assessing all possible causes, or recommending the required tests for a Level 4 survey, is a mistake.

Surveyors might make an intelligent assumption from tangible findings, e.g. high readings from timber skirtings, but in my experience, the three main assumptions about damp in walls is that it is caused by failure of the DPC, no DPC or bridging of the DPC.

3 I can confidently say that if a surveyor finds a high moisture reading in a wall it would be a huge error to assume a problem with the damp-proof course. It is likely to be, for example, a solid floor without a DPM, or even the resistance or capacitance meter coming into contact with conductive material.

A suggested approach The first action should be to ask the occupier about the damp problem.

Has it always been present or has it started suddenly? Does it happen when it rains or during cold weather?

Is there a problem next door? In social

Case study The leaseholders of a 1970s ground-floor flat complained that the damp and mould issues in the dwelling were beyond what a couple would create. The freeholder insisted the problems were entirely due to their use and occupation.

The investigation The leaseholders said the mould problem had become steadily worse since they moved in four years earlier and suspected it was more severe in winter and when it rained. The local water table was not known to be high.

The dwelling had a solid floor overlaid with wood laminate that had become distressed, indicating the presence of moisture. There were no external low-level through-wall air vents. Capacitance meter readings on the solid floor

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suggested dampness. A hygrometer was secured to the floor overnight. The next day, its relative humidity reading had risen from 60% to just over 90%. A solid floor should emit no more than 75% for it to be sufficiently dry to overlay with floor coverings. These measurements indicated a damp solid floor.

A small excavation in the floor to check for a DPM revealed it was actually a suspended solid floor. A hygrometer probe was inserted into the sub-floor void and left for 40 minutes. It also found just over 90% relative humidity, indicating that the dampness emanating from the suspended solid floor was at equilibrium with the sub-floor air.

An endoscope inspection found a deep sub-floor void. It contained builder’s rubble and earth very close

Images © Michael Parrett

to the underside of the floor; this would become increasingly damp during rainfall as the ground became saturated. There were water droplets on the underside of the floor and no vapour barrier. The lack of air vents meant a build-up of water vapour and condensation that permeated into the habitable space.

Remedial actions The soil and rubble were removed, through-wall air vents installed to the external walls and a DPM installed.

Internal mould was removed using a biocide and the flat redecorated and floors recovered. The problem of dampness and mould was resolved to the satisfaction of the occupiers and an out-of-court settlement reached.

R ESIDE NTIAL BUI LDI NG PAT HO LO G Y

4 k3 With evidence of distressed wood laminate flooring, a mechanical hair floor hygrometer was sealed to the exposed floor trapping a pocket of air, which stabilised at 90% relative humidity.

As per BS 8203:2009, the solid floor was damp above the tolerable level (75%) for overlaying with floor coverings.

Further investigation was required (see picture 4) r4 Floor section removed to look for a DPM. We found the solid floor was not ground-supported but suspended block and beam. A hygrometer probe was inserted to measure the moisture content of the sub-floor air, which was found to be 90.7% relative humidity and at equilibrium with moisture transfer through the floor. An optical endoscope examination confirmed significant rubble and arisings in contact with some sections of the floor housing, the repair history of a portfolio can allow a surveyor to identify common problems.

The next step is to produce a floor-plan drawing, particularly if damp is at ground level. This is a pathological storyboard showing your measurements, indicating, for instance, where they were taken and the equipment used. You should photograph your instruments to record evidence of your readings.

Measurements using a range of equipment to a Level 4 survey should be considered to find the causes and sources of the dampness, including: b electrical resistance meters on timber b electrical capacitance meters to map the wall and/or solid floor surfaces b invasive tests after high readings, e.g. calcium carbide chemical testing, gravimetric profiling, optical endoscope examinations

b testing for the presence of chloride and/or nitrate ions b a hygrometer to measure humidity b testing for sulphates in solid floors b taking environmental readings, e.g. internal/external air temperatures and moisture content of the internal air b U-value calculations and heat-loss gradient profiling across wall constructions.

The findings of internal and external reconnaissance should then be compared. For example, if there is dampness in the corner of two external walls, is this from internal condensation or is there a defective rainwater pipe at the corresponding external location?

A surveyor should then form an opinion about the potential causes of damp and indicate any further measurements to pinpoint the source of the problem.

Some tests may be beyond the scope of standard surveys, but by understanding the symptoms, surveyors can refer clients to further pathology work in a more prescriptive way, similar to a GP referring a patient to an independent medical specialist. The findings will help educate clients in follow-up actions and conversations with experts in damp.

Art and science Understanding a building’s design, layout and construction materials are vital when determining the risks of moisture intrusion. If there is little or no contribution of dampness from these sources then occupiers’ lifestyle must be considered, possibly requiring periodic environmental monitoring to measure their impact on the dwelling.

Without a holistic approach to damp, it can be difficult to differentiate between the various causes due to building design, building failure and occupants’ lifestyle – and the connections between these. That is why Professor Malcolm Hollis said: “Surveying buildings is an art, verifying the cause of failure is a science.”

The next article will look into the design issues that may cause damp problems. R

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

Level 4 surveys are discussed in Diagnosing damp, Burkinshaw and Parrett, http://bit.ly/22pV87C and in the Building Pathology channel on Isurv BRE Digest 297, Surface condensation and mould growth in traditionally built dwellings Building pathology film series, Limelite media BS 6576:2005 + A1:2012, Code of practice for diagnosis of rising damp in walls of buildings and installation of chemical damp-proof courses BS 5250:2011, Code of practice for control of condensation in buildings BRE Digest 245:2007, Rising damp in walls – diagnosis and treatment BS 8203:2001 + A1:2009, Code of practice for installation of resilient floor coverings Designing Better Buildings, Dr Sebastian McMillan, Routledge, 2003

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

Help or hindrance?

W

Vivienne Harris reports on discussions about the Money Laundering Regulations and their impact on estate agencies

With Her Majesty’s Revenue and Customs (HMRC) now responsible for enforcing money-laundering legislation, compliance is essential for all those in the property industry, especially estate agents.

Regulation 5 of the Money Laundering Regulations 2007 defines customer due diligence (CDD) as: b verifying and identifying the customer on the basis of documents, data or information b identifying any beneficial owner and taking adequate measures, on a risk-sensitive basis, to verify the identity of any such beneficial owner.

Regarding estate agency, it states that CDD must be applied when an agent: b establishes a business relationship with a client b carries out an occasional transaction b suspects money laundering or terrorist financing is taking place b doubts the validity of any documents or information previously obtained.

The identity of all customers must be verified before a 4 2 M A R C H /A P R I L 2 0 1 6

one-off or occasional transaction is undertaken, or before the formation of a business relationship.

However, CDD can be carried out during the establishment of a relationship, but only if this prevents disruption to the normal course of business and there is little risk of money laundering/terrorist financing.

The level of CDD should be determined by each business using a risk-based approach.

This means each agent must make their own assessment of the likelihood that a client, applicant or agent is laundering money or financing terrorists, and then use appropriate measures to reduce and manage those risks. These procedures should include staff training in the policies adopted by the agency and should be communicated to all employees. There will be some variation of the processes adopted by individual companies depending on their clientele, location and possibly the value of transactions.

Industry discussions Estate agents’ compliance with CDD, anti-money laundering (AML) and proceeds of crime legislation were discussed at a meeting of the National Association of Estate Agents (NAEA) in September 2015. Speakers from the NAEA, National Trading Standards, the Property Ombudsman and the National Crime Agency Image ©Shutterstock

all spoke about their specific areas of expertise and the relevant obligations on estate agents.

Until April 2014, the Office of Fair Trading supervised AML, CDD and enhanced due diligence. HMRC now oversees these areas. What was obvious at the meeting was the importance that HMRC places on these issues and that estate agents may not only receive an unlimited fine for non-compliance, but up to 14 years in jail.

However, Eversheds solicitors have written Anti-Money Laundering FAQs for Estate Agents, indicating that a two-year sentence may be more applicable.

Clearly, failure to follow the requisite risk-based guidelines is extremely punitive. It is obvious that HMRC will be visiting estate agents’ offices without warning, requesting to see relevant client paperwork and other internal notes to check that procedures for compliance are in place and staff are fully trained.

Impact At the September meeting, Sue Edwards, HMRC Deputy Director of Compliance, struggled to offer clarity on her department’s requirements. Unfortunately, the recommended procedures are somewhat opaque, but it is apparent that the rule-makers do not understand estate agents’ businesses or what impact these regulations will have on the industry.

A major concern was half-commission deals. If HMRC enforces the existing rules, this area of business could be wiped out overnight for sales and lettings.

Predominantly, it is London agents that cooperate with each other regularly, but the new rules require that a sub-agent has the principal agent’s AML paperwork on file as well as those for the vendors or landlords. The principal agent will have to provide identification details of their clients to these parties, breaching current client anonymity controls.

Failure to follow the requisite risk-based guidelines is extremely punitive

R ESIDE NTIAL ESTAT E AG ENC Y

Each agent must make their own assessment of the likelihood that a client, applicant or agent is laundering money or financing terrorists

Appropriate staff training is essential to comply with money-laundering legislation The agent AML and client AML information is required before viewings on all instructions; the sub-agent cannot accept the full AML information if it has been provided by the principal agent or even a solicitor, but has to run its own procedure directly for collecting AML information.

Additionally, there may be further issues regarding clients’ privacy that have not been addressed, as AML rules allow infinite requests from many third parties, including sub-agents, relocation companies and retained agents.

However, Eversheds’ FAQs say that a sub-agent may be able to accept the information via the main agent, but it will have to do so on a risk assessment basis. This means sub-agents have to trust that the principal agent has carried out sufficient checks, and they are satisfied that the principal agent is responsible and trustworthy in this regard.

Otherwise, the sub-agent will be obliged to carry out its own checks before any form of business relationship can be established.

Another possible consequence is that sub-agents, relocation agents and home-finders could

waste time, energy and resources trying to conform to the rules when they simply want to view a property.

Given that they make half-commission or retained appointments on properties for both sales and lettings on a daily basis, this could mean they need AML information on 10–20 agents and dozens of clients every day. Many of these buyer-led agents are not restricted by location, so the administration required to comply may prove a logistical nightmare.

The Data Protection Act 1998 This could be another hurdle. HMRC has said that agents should become data controllers, so they have authority to provide personal client information to third parties. To do so, agents will have to notify their clients that their data may be forwarded to other businesses, with fair notice in a specific format, and gain their consent.

LonRes, the website allowing agents to share fees and the organisation that asked Eversheds to create the FAQs, has said that merely adding a paragraph to the terms and conditions of business will not be adequate. Additionally, this data must only be used for the legitimate interests of the estate agent and the sub-agent, with protection in place to limit the amount of actual data shared.

Also, where a property is owned by a company or trust, AML checks are required on any director holding 25% or more of the shares or voting

rights in the company and any individual who exercises control over management.

For trusts, the criteria apply to any person with a specified interest of 25% or more who controls the management or in whose main interest the trust is set up.

EU directive The EU Fourth Money Laundering Directive comes into force on 26 June 2017 and requires letting agents to obtain AML details, but the guidelines for this will not come into effect until the UK government legislates accordingly. Letting agents tend to share fees with each other more regularly than sales agents so, depending on the mechanism for adherence, further issues may arise.

The directive will also amend some of the existing AML rules relating to the ongoing examination of all transactions and the risk assessment required to fulfil the processes. Other alterations include permission for obliged entities such as estate agents to provide AML and CDD information to sub-agents where the principal agent gives express permission that the information is reliable.

The sub-agent will still be required to ensure that they are confident in relying on the information given by the principal agent, or they could face prosecution.

Issues The main question at the NAEA meeting was: “How do agents ensure

compliance?” to which the answer was: “Make your own risk assessment, but if your assessment is wrong, you will be heavily fined or even jailed.”

From the high number of grievances aired at the meeting, it was clear that the current government guidelines were considered poor, onerous and unworkable for the majority of agents in attendance.

Subsequently, I understand that HMRC has begun another consultation to engage with estate agents on these issues, although the timescales for the completion of this process is not yet known.

Fundamentally, there is a lack of clarity on how these rules affect estate agents based on poor insight into the industry. Agents need clear guidelines that are simple, quick and easy to apply. R

Vivienne Harris is Managing Director of Heathgate Estate Agents vivharris@heathgate.co.uk

The NAEA, RICS, the Association of Relocation Professionals and the Association of Residential Managing Agents have produced Money Laundering Guidance for their members, http://bit.ly/1YHnk2V Eversheds solicitors’ Anti-Money Laundering FAQs for Estate Agents, http://ow.ly/VA2BS Money Laundering Regulations: Estate Agency Business registration, HMRC, http://bit.ly/1lWZToc Money Laundering Regulations 2007: supervision of Estate Agency Businesses, HMRC, http://bit.ly/1O3dLnm Money Laundering Regulations: business inspections, HMRC, http://bit.ly/1QajNbY

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R E S I D E N TI A L I N T ER N AT I O N AL

Going Dutch

T

Thijs de Graaf looks at how international investors became involved in the Dutch residential market he Dutch residential investment market has become increasingly dynamic over the past three years.

Government policy changes have created a more level playing field and improved the diversity of the stock in the private rental sector.

Alongside these changes, interest in the Dutch residential market among international investors has increased significantly.

The years from 2010–2015

In the past decade, investment volumes in the Dutch residential market, unlike other commercial property segments, remained stable during crises such as the 2007 credit crunch. However, in common with global commercial real estate investment markets, investment volumes in the Dutch market declined steeply afterwards, although the effects on its residential investment market were less substantial, even during the low point in 2012 (see Figure 1).

The subsequent year was characterised by cautious growth in residential investment volume (€1.3bn), while the growth in investment increased dramatically in 2014: around €10bn was invested in shops, offices and commercial property, among other sectors. Residential investments accounted for around 30% of the total volume and were therefore one of the most popular sectors for real estate investors. In addition, the total volume of around €3bn represented a record for residential investments, and was €3bn again in 2015.

Besides seeing record investments volume, 2014 was also the year when international investors entered the Dutch residential

1 market; traditionally, Dutch institutional and private investors had been the most important players.

International investors accumulated around €1.5bn in residential investments in 2014, accounting for 50% of the total volume; in 2015, they increased their position even further.

The Dutch residential market has clearly gained interest from investors during the past three years.

Positive indicators From an international perspective, the Dutch residential investment market offers great potential, given the general trends in house values in different European countries (see Figure 2). As with other European markets, house prices saw a moderate decline during the financial crisis; they started to recover again at the end of 2009. However, Dutch house prices bottomed out at the end of 2013, and are now rising.

Interesting demographic developments are also forecast as the number of households in the Netherlands is expected to increase by around 483,000 until 2020, reaching a total of eight million. Demand for housing is growing fast, especially in the rental sector, but construction cannot meet this demand. As a

Figure 1

Figure 2

Total volume invested in Dutch commercial real estate vs residential real estate

Development of housing prices Q2 2002 – Q1 2015 (Q2 2002 = 100)

15 200 12

9

150

6 100 3

0 2006

2007

2008

2009

Total volume

Source: Capital Value, 2016

4 4 M A R C H /A P R I L 2 0 1 6

2010

2011

Residential investments

2012

2013

2014

2015

50 02-2

03-1

Netherlands

04-1

05-1

Germany

06-1

07-1

Sweden

08-1

09-1

France

10-1 UK

11-1

12-1

13-1

14-1

15-1

Spain

Sources: Bundesbank; INSEE; Instituto Nacional de Estadística; Ministerio de Vivienda; Nationwide; Office for National Statistics; Statistics Netherlands; Statistics Sweden; 2015

R ESIDE NTIAL I NT ERNATIO NAL

1 In 2014, British investor Round Hill Capital acquired a portfolio of around 3,600 homes from housing association Wooninvesteringfunds 2 Patrizia was involved in the largest residential investment in the Netherlands to date and acquired a portfolio of 5,500 homes from housing association Vestia

2 result, housing shortages are increasing, especially in the rental sector in urban regions like the Randstad; around 125,000 new homes are needed for the rental sector across the country over the next five years.

Market and policy changes The Dutch residential market consists of around 3.2 million houses. Housing associations own the largest share of these, 2.3 million houses, of which 94% are part of the regulated market. The non-regulated market has traditionally been small, representing only 10% of all rental houses, but future demand for non-regulated rental housing is set to increase substantially.

To boost this sector, the government has implemented regulations that will make investments more attractive.

1. New rent policy: The Housing Agreement of 2013 allows for rent increases above the rate of inflation for the regulated market, differentiated according to the level of household income. As a result, differences in rent between the regulated and non-regulated markets are smaller, encouraging households with higher incomes to move to non-regulated rental houses.

2. Restrictions for social housing associations: In March 2015, the Dutch senate approved new legislation for housing associations in the Netherlands. The new Housing Act defines the core tasks of housing associations, i.e. providing affordable housing (regulated rental homes) to people on low incomes.

By restricting their activities in the non-regulated rental market, private parties have more opportunities to do business in the regulated market.

3. Better opportunities to sell housing portfolios to private investors: In 2013, new regulations provided housing associations with more opportunities to sell entire complexes to investors. This including disposing of their non-regulated stock, which is not considered their core task.

4. The owner-occupied market: This has also been affected by the policy changes. Maximum loan-to-value rates are being decreased annually, reaching 100% in 2018, while a lower maximum deduction rate for mortgage loan interest is creating equal opportunities for the rental and owner-occupied market.

Dutch residential investments Since 2014, international investors have poured more than €2.3bn into the Dutch residential market. The largest transaction was by Patrizia, a German investment fund, which acquired a

€577m portfolio (around 5,500 units) from housing association Vestia, while London-based Round Hill Capital acquired the second largest portfolio of around 3,800 units from housing association WIF for €365m.

A survey among investors with interests in the Dutch residential market shows that the scope of their investments is generally mid- to long-term (Capital Value, 2016). This can be explained by the growing interest among investors who work with institutional capital and tend to seek more core or core-plus assets, with a greater focus on direct income with low risk. They therefore have a longer investment scope.

Most assets in the Dutch residential market have a core/core-plus profile and are therefore a good match with the investment profile of institutional investors. Transactions in 2015 involving international investors show that this group has a broad range of interests in the different sectors of the Dutch residential market.

There is also an increase in interest among international investors in development opportunities and turnkey developments. This is partly due to the lack of existing portfolios matching their risk–return profile that were brought to market in 2015. A particular group of international investors awaits the right moment to enter the Dutch market with a big buy-in, hoping to acquire a substantial portfolio (€250m).

The question remains whether there will be a sufficient supply of portfolios and complexes to service their demand. R

Thijs de Graaf is a researcher at Capital Value research@capitalvalue.nl

The full report can be obtained from Capital Value, info@capitalvalue.nl Capital Value specialises in residential investments in the Netherlands www.capitalvalue.nl

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R E S I D E N TI A L FI R E

Mick Johns and Chris Stephens set out the safety lessons learned from the fatal Shirley Towers fire

Dealing with disaster

O

n 6 April 2010, a fire at flat 72 on the ninth floor of Shirley Towers, Southampton, resulted in the death of two firefighters. A police investigation was followed by an investigation by the Health and Safety Executive and although no legal charges were brought by either organisation, a letter issued under the provisions of Rule 43 of the Coroner’s Rules following an inquest in 2012 drew attention to nine separate areas needing action, three concerned with the building.

The 16-storey residential block was built in 1967 for Southampton City Council using the REEMA construction process, which uses a reinforced concrete frame with room-sized precast concrete bolted to the outside. The 150 flats, constructed to a complicated scissor-block design, with individual residences covering three floors, housed 350–400 people.

The flats are served by a single staircase and two lifts in vertical shafts separated by a protected lobby, which contains the dry rising main and isolators for gas and electricity for each floor.

The landlord instruction to occupiers is to evacuate if they have a fire or operation of the smoke detection system within their home. Other occupiers are instructed to remain in their flats unless advised to leave by the fire and rescue service.

In practice, seeing the arrival of the fire and rescue service or smoke travelling up past their windows, many residents chose to self-evacuate, irrespective of their location in relation to the fire.

On the night of the fire, this caused congestion on the single staircase as 4 6 M A R C H /A P R I L 2 0 1 6

firefighting teams ran their hoses and other equipment up to the fire, making the route very difficult to negotiate for more elderly residents or those carrying children.

Fire cause The fire was caused by curtains being ignited by an uplighter lamp. After initial attempts to extinguish the blaze, the young family occupying the flat evacuated. Critically, the firefighters were not able to identify or speak to them before crews were committed to search for and extinguish the fire.

On entering the flat, the heavily smoke-logged conditions prevented the teams from locating the fire in the lounge area and they proceeded upstairs past the bathroom to the bedrooms.

They then decided to open bedroom windows to ventilate the smoke to assist in the search.

The effect was that the fire rapidly intensified. Due to extreme heat, the firefighting teams were unable to make their way back down the stairs to their entrance point. One team managed to find the fire escape door exiting on to the 11th-floor corridor. Sadly, the second team was unable to escape.

Adding to the problem, the heat melted wall-mounted conduits and allowed hot sticky cables to fall, covering

Firefighters were not able to easily identify emergency exits from specific flats Images © Hampshire Fire and Rescue Service

3 entry and exit doors at chest and head height along the entire corridor. Shirley Towers had been rewired in 1995 and 1996, and the replacement wiring was routed along the walls of the common areas and within the flats via surface-mounted plastic trunking.

The installation was compliant with electrical installation regulations in force at that time, but both the men who lost their lives had become entangled in the cables and been unable to free themselves.

In the few moments that the 11th-floor exit door (fitted with a self-closing device) remained open, the pressure from the extreme fire conditions allowed hot gases and smoke to fill the corridor from floor to ceiling.

At this point, the occupants of the 12 flats on that floor would not have been able to negotiate this area.

Hampshire Fire and Rescue Service

1

R ESIDE NTIAL F IR E

2

1 Two firefighters died in the fire at Shirley Towers 2 The 11th-floor corridor filled with hot smoke 3 The apar tments were configured in a scissor-block design

Control operators provided advice to the residents, some of whom were suffering extremely challenging conditions, which fortunately improved following the closure of the door and a reduction in the pressure of gases in the corridor.

The fire was subsequently brought under control and extinguished by the Fire and Rescue Service.

Lessons learned The coroner drew attention to the findings of a previous inquest following a fatal fire at Harrow Court in Hertfordshire when firefighters lost their lives after becoming entangled in fire alarm cabling.

He noted that cables in Shirley Towers, although in compliance with current regulations, were not secured with fire-resisting cable fasteners which meant the conduit released heated cables and prevented escape. The coroner

recommended that regulations should be amended to ensure that all cables are fitted with fire-resistant supports.

Secondly, firefighters were not able to easily identify emergency exits from specific flats. Stairways (the firefighters’ main work area) did not clearly identify floor levels, causing a degree of confusion throughout the incident.

The coroner recommended that there be an obligation to provide signage to indicate floor levels both in stairwells and lift lobbies in high-rise premises, to assist the emergency services, with signs indicating flat numbers and emergency exits placed at low level to increase visibility in smoky conditions.

all its high-rise buildings in excess of 30m, particularly those identified by fire and rescue services as having complex designs that make firefighting more hazardous and/or difficult.

Irrespective of legislative requirement, Southampton City Council has maintained close liaison with Hampshire Fire and Rescue Service and has worked to improve fire safety at all its high-rise residential stock, particularly the three scissor-block designs.

Soon after the incident, signage was improved in the stairwells and lobbies to assist emergency service workers understand their exact location. Signage indicating flat numbers to both entrance doors and escape doors has also been improved, placed lower down to make it more visible in smoky conditions.

The council has actively investigated the possibilities of retrofitting domestic sprinklers into its three scissor blocks. Despite the financial constraints faced by all local authorities at this time, it has secured the necessary funding to fit sprinklers to Shirley Towers and is currently tendering for this. When the sprinklers are being fitted, the opportunity will be taken to rewire and fit fire-resisting cable fastenings throughout in accordance with the new British Standard BS 7671. R

Mick Johns and Chris Stephens are Group Managers at Hampshire Fire and Rescue Service mick.johns@hantsfire.gov.uk chris.stephens@hantsfire.gov.uk

Sprinklers In addition, the coroner stated that social housing providers should be encouraged to consider retrofitting sprinklers in

Related competencies include Fire safety

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R E S I D E N TI A L HO M E S A FET Y C ERT I FI CAT ES

Are you acting responsibly?

C

Frank Bertie outlines a new industry-led initiative to help landlords carry out regular safety checks and meet their legal obligations

Conditions for England’s nine million tenants in private rented accommodation are currently worse than in any other housing sector. Around a third of properties fail to meet the government’s Decent Homes Standard, and millions of tenants experience potentially life-threatening risks, such as electrical hazards and gas leaks.

While some of these failings may be caused by rogue landlords who flout the law, others may simply be unaware of their obligations.

Not only can this result in serious health and safety risks, but if a landlord puts a substandard property on the market they may also experience difficulties with selling it.

Many hazards that plague the sector, such as faults in hidden electrical wiring systems, will not be immediately apparent from a visual inspection. Surveyors should, therefore, seek to make the best use of time-saving resources to guard against potential claims of negligence.

4 8 M A R C H /A P R I L 2 0 1 6

The legal landscape But what are a landlord’s legal obligations? Surprisingly, they are not always clear cut.

In terms of utilities, for instance, the Landlords and Tenants Act 1985 simply states that short-lease landlords must: “keep in repair and proper working order the installations in the dwelling-house [they let] for the supply of water, gas and electricity”. There is no mention of regular checks.

Industry guidance regarding electrics has long been that an Electrical Installation Condition Report (EICR) should be carried out by a competent electrician every five years. This is in line with other legislation such as the Management of Houses in Multiple Occupation Regulations. However, a lack of clear obligations increases the likelihood of landlords forgoing appropriate checks and hazards going unnoticed as a result.

Defusing hidden hazards Most hazards are entirely avoidable if a schedule of checks is carried out and appropriate action taken.

Historically, property owners have not had access to a single point of reference to detail their health and safety responsibilities, but following an All-Party Parliamentary Home Safety and Carbon Monoxide Group seminar in 2014, a Home Safety Sub-group of the Electrical Safety Roundtable

Around a third of rental properties in England fail to meet the Decent Homes Standard (ESR) was formed to consider a new, whole-house solution.

With the support of insurance providers, landlords’ associations, mortgage lenders, trade associations and professional organisations, including RICS, a Home Safety Certificate was created, along with supporting checklists and guidance documents.

Designed for landlords but useful for anyone with an interest in property safety, the resources are primarily intended to encourage those who may be unaware of their legal obligations to carry out appropriate checks.

The Home Safety Certificate recommends an EICR every five years, for example, along with an annual visual check, to bring much-needed clarity to this otherwise uncertain area.

A similar approach is taken with other specified checks.

It enables landlords to prepare, among other things, an up-to-date: b EICR b Gas Safety Certificate

b Legionella risk assessment b falls-prevention risk assessment b record of the presence of safety devices such as carbon monoxide and smoke alarms.

The certificate allows landlords to confirm that they have completed important industry-recommended checks and acted in compliance with both their explicit and implied legal obligations.

The ESR is continuing to work with insurance providers, landlords’ associations, mortgage lenders, trade associations and RICS to ensure that Home Safety Certificates are used to best effect and become more closely aligned with house buying and sales.

Master of all you survey Easy access to records of the detailed checks carried out by trade professionals can provide essential information when an accurate Homebuyer Report or building survey is being compiled.

It is worth enquiring whether landlords are using the Home Safety Certificate resources when you next appraise a property. These will help you ensure that a property is both safe and saleable, as well as saving you valuable time when assessing its condition. R

Frank Bertie is Chairman of the NAPIT Trade Association for the building services and fabric sector frank.bertie@napit.org.uk

www.homesafetyguidance.co.uk Can’t complain: why poor conditions prevail in private rented homes, Shelter, http://bit.ly/1IEs7OA

p p

R IC S P ROP E RT Y JOU RN A L

PERSON A L

PROPER T Y

personal property arts + antiques

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RICS P ROP E RT Y JO U RN A L

P E RS O N A L P R O P E RTY L E GA L

Questions of ownership Tim Maxwell and Becky Shaw discuss one of the first cases dealing with the ownership of street art and explain its implications

I

nterest in the issue of who owns street art has been increasing as a result of the public renown and financial recognition of artists such as Banksy, meaning that whoever can assert title to such works could see a potential windfall.

The Creative Foundation v Dreamland Leisure Limited & Ors [2015] EWHC 2556 (CH) concerned the law of property as opposed to intellectual property. Due to the risk of exposing himself to liability for criminal damage, neither Banksy nor his agent will formally authenticate his street art. As a result, no issues of copyright and, in particular, moral rights – such as being able to prevent the destruction, alteration or possible removal of the artwork – arose.

Facts The Creative Foundation, a charity dedicated to the regeneration of Folkestone, Kent, through creativity and the arts, organises a three-yearly event showcasing the town through public displays of artworks. During the third Triennial in September 2014, the Banksy work known as Art buff appeared on the back wall of an amusement arcade overnight. Great excitement ensued when it appeared on Banksy’s website with the strapline “Part of the Folkestone Triennial, kind of”. Art buff quickly became popular locally, attracted numerous visitors and received attention in the local and national press. Then just over a month after the artwork first appeared, Dreamland, the tenant of the amusement arcade, arranged for the mural to be cut from the wall, without the landlord’s 5 0 M A R C H /A P R I L 2 0 1 6

knowledge or permission. It was sent to the US where it was offered for sale, first at Art Basel Miami and then in a gallery in New York. This provoked a number of public protests seeking its return, and a social media storm.

The wall on which the Banksy appeared was part of a property where Dreamland had a 20-year lease.

Dreamland had the benefit of a demise, including the external and structural walls of the premises. The owner of the freehold was a separate company whose only role in the proceedings was to provide an assignment of their rights to the work and any accompanying causes of action to the Creative Foundation.

The case In response to the public backlash, the Creative Foundation began legal proceedings with the aim of securing the return of the artwork to Folkestone.

The first step was to obtain an injunction preventing Dreamland, and those involved with it, from selling or having further dealings with the artwork. This was followed by a further court order, placing the artwork in specialist safe storage in New York pending the outcome of proceedings.

Once it was secured, the Creative Foundation applied for summary judgment on the question of ownership and delivery up of the artwork.

The Creative Foundation’s position can be summarised as follows:

The issue was, what term should be implied in this particular scenario?

Image © Andy Maguire

b once the paint was sprayed on to the building it became part of the land b during the term of a lease, the tenant has a right to use the premises according to that lease, which gives it a qualified right to possession but no right to use part of the demised premises for other purposes b neither the tenant nor anyone else has a right to cut the walls of the premises to remove and treat as its own the bricks and cement forming part of the premises, and the lease contained an express prohibition against this b on being cut from the premises, the bricks and cement (along with the paint sprayed on them) regained their character as chattels, and title to them is vested in the landlord b therefore, in cutting the walls of the premises and removing the artwork the tenant committed the torts of trespass and conversion.

In contrast Dreamland’s position can be summarised as follows: b that an artwork by Banksy should be treated the same as any other graffiti b that a term should be implied into the lease that if the tenant is cutting the walls in compliance with its repairing obligations then the parts removed

P ERSO NA L PR OPE RTY LEG AL

The case provides a useful precedent in an area where direction is strangely lacking

become vested in the tenant and they are therefore entitled to any value b that the tenant had taken appropriate advice and that its chosen method of compliance (removal) was reasonable when compared with the other means open to it (e.g. cleaning and/or overpainting).

The case, essentially, turned on two points: first, whether Dreamland was obliged to remove the artwork to comply with its obligations under the lease; and second, whether its method of repair or removal constituted a reasonable means of compliance.

Judgment In giving his judgment, Arnold J was “narrowly persuaded”, based on the evidence before him, that the mural, as graffiti, needed to be removed to avoid the wall attracting further graffiti. With the repairing obligation engaged, Arnold J went on to consider whether Dreamland’s method of removal was reasonable and has been assessed objectively. Dreamland argued that it was advised – not by a surveyor or cleaning contractor but by an art dealer experienced in dealing with Banksy’s works – that unless the mural was cut

out of the wall rather than being painted over or cleaned off, the wall would become a ‘shrine’ for the artist’s followers and would attract further graffiti. Removal, therefore, was not only reasonable but an advisable means of complying with the covenant.

The judge was not persuaded by this argument and concluded: “Dreamland had no reasonable prospect of establishing that it was entitled, let alone obliged, to remove the mural in compliance with its repairing obligation.”

The second and more important issue concerned the ownership of the mural, being a valuable part of the demised premises, affixed when sprayed on to the wall, that was removed by a tenant in the course of carrying out its repair obligations, notwithstanding Arnold J’s decision that Dreamland was not entitled to remove the mural to comply with those obligations.

It was common ground that it was necessary to imply a term into the lease to determine what should happen to parts of the building, whether structural, decorative or everyday fixtures, that have to be removed by a tenant in complying with its repairing obligations. It was also common ground that such parts revert to the status of chattels once removed from the building. The issue was, what term should be implied in this particular scenario?

Perhaps surprisingly, there was no authority directly dealing with the point, although Arnold J considered what authority there was in concluding that the term to be implied was that the mural became the property of the landlord.

Four reasons were given for the decision:

b the default position is that every part of the property belongs to the landlord, and the tenant has the burden of showing that an implied term should transfer ownership of part of the building to it instead b the fact that the tenant is discharging its repairing obligation does not justify an implied term that it acquires ownership of such a chattel, only that it has permission to remove and possibly dispose of it b even if a term may be implied with respect to the ownership of waste or chattels with minimal value, it does not follow that the same term should be implied for chattels with substantial value b Arnold J held that where the value is attributable to the spontaneous actions of a third party, the landlord had the better right to that windfall than the tenant.

Arnold J therefore granted summary judgment on the Creative Foundation’s claim for delivery up of Art buff.

Implications The case provides a useful precedent in an area where direction is strangely lacking, and will obviously have application to other situations involving street art. Existing artwork on the premises is likely to be dealt with under the specific terms of the particular lease. However, the case will have wider application in the field of landlord and tenant law concerning the extent of the implied permission enabling the tenant to remove items from premises during repairs.

Subsequent events Banksy’s Art buff has now been returned to Folkestone and is being restored before being put back on public display.

Recently, another suspected Banksy appeared on the same wall, playing on the theme of Art buff. It is not clear whether this was Banksy’s work, but it was swiftly vandalised nonetheless. P

Tim Maxwell is Partner and Becky Shaw Solicitor in the art law team at Boodle Hatfield www.artlawandmore.com

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P E RS O N A L P R O P E RTY R ES A L E R I G HTS

Only collect Kimberley Ahmet of the Artists’ Collecting Society reflects on 10 years of the Artist’s Resale Right

O

n 14 February 2016, the Artist’s Resale Right (ARR) celebrated its 10th birthday. Since its inception, the royalty has benefited many thousands of artists and their legatees across Europe.

For those who are not familiar with it, ARR is an intellectual property right that entitles artists to a percentage of the sale price whenever their work is resold on the open market, above a particular threshold. So if a work of art is resold at an auction in the UK and reaches a hammer price of €1,000 or above, that sale will automatically qualify for ARR. ARR was introduced into UK legislation (http://bit.ly/1jZHhSR) on 14 February 2006 under EC Directive 2001/84 and applies to all artists who are European citizens. However, it is thought that loose forms of the law have existed in parts of Europe since the 1920s. The alleged origins of ARR can be traced back to the apparent public outcry sparked when it was revealed that the relatives of Jean-François Millet (1814–75) were living in poverty while his works fetched enormous prices at auction.

ARR is treated as an inalienable right in the UK, meaning that under UK legislation an artist cannot waive his or her right to it.

The UK regulations also state that ARR must be administered by a registered collecting society, and the Artists’ Collecting Society (ACS) is one of two such societies currently operating in the country.

ACS was set up in 2006 by Harriet Bridgeman, founder of Bridgeman Images, at the behest of leading artists and art

market professionals. Established as a community interest company, ACS operates solely for the benefit of member artists and artists’ estates, which range from well known artists such as Frank Auerbach, Howard Hodgkin, Paula Rego and Martin Creed to the estates of important artists such as Lucian Freud and Dame Barbara Hepworth.

How is ARR calculated?

The royalty is calculated on a sliding scale set out in the Intellectual Property Office’s Regulations (see Table 1). Currently, the lower threshold in the UK is €1,000. All sales of a price between €1,000 and €50,000 generate a royalty of 4% of the sale price. Works that sell above this are calculated at a lower percentage for the portion of the sale that exceeds €50,000.

For the resale of a work at €600,000, for example, the calculations would be as shown in Table 2.

ARR applies to all sales subsequent to the first transfer of ownership by the artist. This first transfer can be, among other means, by way of sale, gift or legacy. ARR applies to all original pictures, collages, lithographs, sculptures, paintings,

Table 1

Table 2

Sliding scale for ARR

Breakdown of ARR charged on a work resold at €600,000

Resale price

Royalty percentage due

Resale price scale

Portion of sale price

Royalty %

ARR charged

€1,000–€50,000

€50,000

4.00

€2,000

€1,000–€50,000

4.00%

€50,000.01–€200,000

€14,999.99

3.00

€4,500

€50,000.01–€200,000

3.00%

€200,000.01–€350,000

€14,999.99

1.00

€1,500

€200,000.01–€350,000

1.00%

€350,000.01–€500,000

€14,999.99

0.50

€750

€350,000.01–€500,000

0.50%

Over €500,000

€9,999.99

0.25

250

€500,000

0.25%

TOTAL

600,000

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9,000.00

P ERSO NA L PR OPE RTY RES A LE R IG H TS

Changes In the UK, ARR is currently collected from the sales of works by both living and deceased artists. However, for the first six years of its operation the right only applied to secondary sales of work by living artists. This was due to the exemption that the government secured from the application of ARR to sale of works by deceased artists. Known as derogation, the exemption was designed to give the UK art market a few years to adjust to the new legislation. As of 31 December 2011, this exemption came to an end and the right was extended to the secondary sales of works by deceased artists in the UK. As ARR lasts for the length of copyright, that is, the lifetime of the artist plus 70 years following his or her death, ACS spent the 12 months in the run-up to the end of derogation searching for the beneficiaries or legatees of artists’ estates. By securing a mandate prior to the end of derogation, it was able to ensure that the royalties were paid out to the correct individuals without any delay. However, despite ACS’s best efforts, there are a significant number of artists and artists’ estates who are classified as ‘orphan’, meaning that they are not registered with a collecting society. In the case of artists’ estates, the legatees are often not aware that they are the beneficiaries of the royalties. We work tirelessly to locate the beneficiaries in such circumstances and often use professionals in probate research and genealogy to help us identify the correct individuals.

Challenges drawings, tapestries, ceramics, engravings, prints, glassware and photographs. It is important to note that while ARR cannot be sold, waived or given away if an artist is living, it can be inherited. This means that beneficiaries, trusts and foundations of an artist’s estate are able to register for ARR. There are of course some caveats, namely that ARR can only be inherited by a natural person or persons (i.e. not a company or partnership), although it can also be inherited by a charity, or charities.

Reception When ARR was first introduced it was welcomed by artists but met with trepidation by art market professionals. Many of the latter expressed concern that ARR would have an adverse effect on the UK art market. However, as many subsequent reports have highlighted, their fears were unfounded. Indeed Robin Woodhead, Chief Executive of Sotheby’s International, is quoted in the Antiques Trade Gazette as saying: “At the top end of the market, the €12,500 ceiling for droit de suite on any single work is not going to be a deciding factor. London is such an important centre and the market here is so strong, led by names like Freud, Bacon and Caro, that ultimately I do not believe it will make a difference.” One of the major findings from a 2008 study into the effect of introducing ARR on the UK art market, commissioned by the Intellectual Property Office, showed that there was “no evidence that ARR has diverted business away from the UK, where the size of the art market has grown as fast, if not faster, than the art market in jurisdictions where ARR is not currently payable”.

However, as derogation drew to an end in 2011 and the right could be applied to the sale of work by deceased artists, the old fears were again vocalised. Happily, those same fears proved to be again unsubstantiated. The 2015 Art Market Report published by the European Fine Art Foundation found that the UK increased its global market share by 17% between 2013 and 2014. Despite the unfavourable reception, ARR is now more accepted than ever among art market professionals.

Image © iStock

The legislation is quite easy to follow. However, there are several challenges faced on a daily basis. Aside from searching for and registering artists’ estates’ legatees, most of these challenges come in the form of art market professionals’ compliance. Every quarter, ACS requests ARR information from professionals for secondary sales of works by artists and artists’ estates that have mandated ACS to collect royalties. Under the UK legislation (http://bit.ly/1IRyyOs), art market professionals then have 90 days from the date of receipt to supply the information requested. While most dealers and art market professionals understand the importance of compliance, there are still dealers who do not submit information. Unfortunately, the legislation lacks the necessary teeth when it comes to non-compliance on the part of dealers.

Future As outlined above, ARR exists throughout Europe. However, there are a further 81 countries that have some form of royalty akin to ARR in place. Argentina, Canada, New Zealand, Switzerland and the USA are just five that are either debating the introduction of such rights or have bills to introduce rights pending.

It is important to note that while resale rights are inscribed in the international Berne Convention, they operate on an optin, opt-out basis. Global harmonisation is the top priority for adhering countries, and on 3 July 2015 the issue was officially added to the World Intellectual Property Organisation’s agenda.

This was a huge step towards negotiating a global treaty, something that countries which have already passed legislation are extremely keen to introduce. If, as we hope, a global treaty is successfully agreed, it would level the playing field, especially in countries like China and the USA where the art markets are particularly buoyant. P

Kimberley Ahmet is Senior Manager at ACS kimberley@artistscollecting society.org.uk

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