Spring 2009 Volume 3: Number 1
SCS
REVIEW In at the deep end
News: New online CPD system Annual Dinner: Pictorial review Management: Looking for a silver lining
President’s news
Working for a better future
Since the publication of the last SCS Review, at least two momentous events have occurred, both of which should be good for the Irish economy. Firstly, Barack Obama has been inaugurated as the 44th President of the United States. There is already a very positive wave of sentiment following this, driven by optimism around the scope to change, improve and stabilise the world economy, of which the United States is an integral part. Our own Economic and Social Research Institute (ESRI) has estimated that 50% of our recovery will be driven by external global factors. Growth policies for the United States economy may bring challenges in relation to foreign direct investment in Ireland; however, these challenges can be met with an emphasis on investment in innovation and education in preparation for highend jobs in Ireland in the future. Secondly, Anglo Irish Bank has been nationalised, which has been an important step towards restoring stability in Irish banking. The merits of this move have generated considerable debate, albeit not always balanced, but it is clear that renewed availability of debt in the property market is essential if some normality is to return. The careful management of existing loans across all lenders is required and this is made somewhat easier by the environment of falling interest rates. Chartered Surveyors have an important role to play in this process and are already making a contribution. Much has been said about lack of Government leadership in recent weeks and certainly there is a general lack of communication of a vision, and a stabilisation and recovery plan is needed. However, for the individual citizen to simply sit back and wait to be led is not good enough in my view. There is an onus on all citizens to make an effort, adapt to changing circumstances and focus on working to recovery in whatever way they are able. In my view, we as Chartered Surveyors are well placed to apply this philosophy and add some value individually and collectively. The Society is interested in your ideas for inclusion in policy formation for Government lobbying in the coming months and your input is needed. The Society is already represented on the Urban Forum, along with the Royal Institute of Architects in Ireland, Engineers Ireland, The Irish Planning Institute and The Institute of Landscape Architects in Ireland. The purpose of this group is to provide a strong voice and influence Government policy on strategic medium-term planning and development issues. Details on the work of the Forum can be found on the SCS website. The Society is also heavily involved with the ongoing work of the Construction Industry Council (CIC). Arising from a concern within the industry at the lack of any real detail in terms of a recovery plan for the industry from Government, the CIC decided before Christmas to embark on
2 SCSREVIEW
some detailed research in both the public and private sectors with a view to preparing a report for Government, which will set out a series of proposals and recommendations. This initiative by the CIC will be the biggest industrywide state of the sector survey that has ever taken place, and will define the industry for the next few years. The CIC, whose membership includes the Society, The Royal Institute of Architects in Ireland, The Association of Consulting Engineers, Engineers Ireland, The Building Materials Federation and the Construction Industry Federation, is in the process of compiling this detailed report, highlighting the value for money that currently exists within the industry, and in particular focusing on the economic benefits to the economy of continued investment in public capital programmes and stimulation of activity in the private sector. Proposals to assist in resolving the funding deficit have also been prepared. In terms of the more short-term requirements of our members, I am pleased that the Society recently launched its Career Support Programme for those who have been made redundant in our industry, and who may need assistance in preparing to seek new employment. Watch out for more dates. I am also pleased to note that we continue to improve our CPD programme and IT systems, to which there is a huge voluntary contribution from enthusiastic members all over the country who work closely with our thirdlevel institutions. I attended CPDs in Waterford, Dundalk and Galway in February. It is important that we continue to focus on these areas as an important investment in our future. Finally, I would like to thank all contributors to this issue: your hard work is very much appreciated.
Sean McCormack ASCS, MRICS, ACI, Arb. President, Society of Chartered Surveyors
Contents
18 The Society of Chartered Surveyors,
5 Wilton Place,
Dublin 2.
Tel: Fax: Email: Web:
01-676 5500
01-676 1412
info@scs.ie
www.scs.ie
EDITORIAL BOARD Chairman:
John Oliver Costello
Board:
Tom Cullen John Minihane Ciara Murphy Paul O’Grady Gillian Reynolds Derry Scully
PUBLISHERS Published on behalf of SCS by Think Media Ltd Editorial:
Ann-Marie Hardiman Paul O’Grady
Design:
Tony Byrne Tom Cullen Ruth O’Sullivan
Advertising: Pat Murray
New Aribtration Bill.
04 Editorial
Leadership the key
04
New online CPD system, support for members facing redundancy, Annual Dinner and more
News
06
Annual Dinner
08
Belief in our future
Management
Looking for the silver lining
12
Getting to know
16 Survey
18
Arbitration
20
Legal matters
21
Legal opinion
Through the roof to through the floor
Assessing the Arbitration Bill
Case law review
Upward only rent reviews
www.scs.ie
Building surveying the BER essentials Views expressed by contributors or correspondents are not necessarily those of the Society of Chartered Surveyors or the publisher and neither the Society of Chartered Surveyors nor the publisher accept any responsibility for them.
14 Start-up
In at the deep end
22 Review
24
SCS survey
Sharp falls in property values
Tender Price Index shows prices back at year 2000 levels
CLASSIFIED SECTION see page 23 SCSREVIEW 3
News
Editorial
RJ Consultancy
Leadership the key The issue of leadership is raised throughout this edition of SCS Review. Sean McCormack pulled no punches in his Presidential address to the Annual Dinner last month. He identified that this economic climate has no place for people without belief – belief in Ireland and in our future, and that the current climate is a test of character that we need to respond to with confidence. Leadership – and character - is also evident in abundance in the accounts given by our colleagues who worked their way through the
difficult years of the 1980s. These men lived in an Ireland that we like to think about as firmly in the past. Difficult times have returned, but their accounts show that it is possible to get through downturn – not easy, but possible. Aidan Ringrose gives his tips on setting up as a sole practitioner for those who are thinking of taking the plunge and going it alone. It’s practical and timely advice. Going it alone is a thrilling but challenging
undertaking. It requires loads of the aforementioned character and leadership – and a smattering of luck to go with it. Aidan identifies many of the key issues which new business owners need to manage. We hope you find this edition of the SCS Review timely and useful. John Oliver Costello Honorary Editor
Click on to the Society’s new online CPD system
The Education Office launched a new online CPD booking and tracking system in February, which can be found in the members’ centre of the SCS website (www.scs.ie). Developed over the past six months with a UK-based web developer specialising in software solutions for professional bodies, this excellent new service is freely available to all members of the Society. The service has a number of facilities, with an emphasis on efficiency, convenience and accuracy. Members can now record and review all personal CPD activity and hours in an online diary, such as attendance at non-SCS events, structured reading and research, postgraduate study, and Society activity (e.g., committee membership, final assessing). Members can also book attendance at CPD events using the online diary – simply click into the event on the calendar and subscribe. The weekly CPD Newsletter that members receive by email contains direct links to the calendar for convenience. Members are encouraged to ensure that all CPD bookings are now made online. All free one-hour CPD
4 SCSREVIEW
Robert Janke has founded his own international consultancy business, RJ Consultancy, after having spent the past five years with Lisney. At Lisney he successfully led the company’s German operations. RJ Consultancy provides personalised transaction-oriented consulting services for portfolios and single assets to private high net worth and institutional investors with a focus on Germany and the US East Coast. Robert Janke BSc(Hons) MBA MRICS EPMIR Founder/CEO RJ Consultancy – International Real Estate Tel: +353 1 442 9242 Mob: +353 85 703 3720 Email: rob@rj-consultancy.com Web: www.rj-consultancy.com
Changes at Jones Lang LaSalle lectures are filmed and these streamed videos are available for viewing, free of charge, in the resources section. Also available – when provided – are additional notes provided by lecturers. And members who wish to do so can add other resources, either for personal use or to be shared with other members. The Society’s comprehensive nationwide CPD calendar of events will be regularly updated and subject to change, so check in to the members’ centre on a regular basis.
Student and probationer members can record and book PQSL activities in the online diary. The members’ centre also features a users’ manual to help members to get started, together with guidelines for attaining CPD activity. These are designed to help members to get the most out of their CPD. The new system is aimed at making it as easy as possible for members to plan and keep track of CPD activity. Members can now easily manage all aspects of CPD using their computer – whether at work, at home, or on holiday!
As of January 1, 2009, John Mulcahy (above) has become Chairman of Jones Lang LaSalle, and John Moran (below) has taken over as the company’s Managing Director.
News
Help is at hand Society launches career support services for members coping with redundancy Over the past six months, some Society members have lost their job as a result of redundancy owing to the economic downturn in the property and construction industry. In response, the Society has put in place a programme to support those now out of work. The Society has retained the services of Sanders & Sidney O’Shea, Career Change Specialists, to provide career transition support services to Society members. “It is a three-step process,” according to Gerard O’Shea, Managing Partner at Sanders & Sidney O’Shea. “The first step is to help people cope with the emotional impact of job loss, the second is to reinforce that they are going to relaunch their career, and the third is to help them to identify their skills and market themselves to potential employers.” The Society launched the first of a number of workshops, which will take place nationwide over the coming months, in Dublin in February. The workshops are designed to help members step quickly and successfully into their next job or career move. Through exercises and role play, they will seek to give members the know-how, confidence and energy to go out and find a new job. Areas covered in the workshops include: ■ what you’ve got to offer – identify marketable skills, experience, work styles and values and see their relevance to your future career;
■ thinking about your options – consider your next move based on your personal needs, values, and future career aspirations; ■ making your CV work – receive advice and tips on creating a good CV to reflect the latest ideas and market trends; ■ routes to the job market – review your current knowledge of the job market to ensure that you do not miss suitable opportunities, both hidden and visible; ■ getting your message across – how to make best use of email, phone and letters during your campaign; ■ application packs – a guide to being truly effective in this increasingly complex area; ■ interviews – how to prepare thoroughly and have maximum impact; some role play is included; and, ■ managing your campaign – how to structure a pro-active campaign, which covers all areas of job search and leads to success. The Society encourages affected members to avail of this service. It will help to inform your future plans and may improve your chances of achieving both professional and personal goals. For further details regarding workshops (Cork, March 12 and Dublin, March 26) please contact Susan Clancy, Email: sclancy@scs.ie.
New Associates at DTZ Sherry FitzGerald In South Africa
From left: Kirsty McCaul; Barry Cunningham; Fintan Tierney (Managing Director); Lisa Finn; and, Louise Donnelly.
DTZ Sherry FitzGerald would like to congratulate the following staff members, who recently passed their APC and are now Associates of the Society: Liam Louden, Kirsty McCaul, Lisa Finn, Louise Donnelly, Andrew Sherry and Barry Cunningham.
Arthur Ryan new to Dublin Arthur Ryan Property Consultants have commenced practice in central
Dublin. For further details, please contact:
Arthur D. Ryan, Managing Director,
Arthur Ryan Property Consultants,
92/93 St Stephens Green, Dublin 2.
Tel: 01 230 0300 Mob: 087 237 2435
Email: aryan@arpc.ie www.arpc.ie
Chartered Surveyors Tom Whelan, QS, Purcell Construction; Paul Dixon, QS, Dixon Dever; Ciaran Byrd, BS, Pat McGovern & Associates; and, Pat McGovern, BS, all took part in the Niall Mellon Township Trust trip to South Africa in December. They were part of a group of 2,100 volunteers who constructed 253 houses during the one-week building ‘blitz’, which takes place every year.
Noel Brennan achieves Chartered
Fellowship status Noel Brennan, Associate Director of Healy Kelly Turner & Townsend, has been awarded Chartered Fellowship status from the Institution of Occupational Safety & Health (IOSH) for his work in the construction industry and commitment to continuous professional development. Noel, who heads up
Healy Kelly Turner & Townsend’s Health & Safety team, has played a pivotal role in the development of the unit, which is currently addressing the health, safety and access needs of clients such as Dublin Airport Authority, Dublin Docklands Development Authority, and Waterford Regional Hospital.
SCSREVIEW 5
Annual Dinner
Belief in our future
Despite the tough economic climate, there was a strong turnout to support the Society’s Annual Dinner. President Sean McCormack (below) delivered an upbeat address, voting confidence in the future for Ireland, while Opposition Spokesman on Finance, Richard Bruton TD, issued a scathing critique of the Government’s performance.
In his Presidential address to the Society’s Annual Dinner, the President of the Society of Chartered Surveyors, Sean McCormack, said that unless the Government provides strong and innovative leadership, the construction and property sectors face a massive increase in unemployment. In a hard hitting address, Sean McCormack said: “There is no place for people who lack belief in positions of power and influence. The time ahead will be a test of character where we need to raise our game and respond to current challenges with confidence”. McCormack pointed out that while the output of the construction sector in 2007 was €38 billion, it now looked as if this could shrink to €14 billion by 2010 in the absence of policy intervention. He said such a dramatic fall could lengthen the economic depression and delay any prospect of recovery. “In addition, the skills and experiences of the construction industry built up over the last decade would be lost, undermining the State’s ability to get real value for money at a time when the Society’s Construction Tender Price Index has shown a significant decrease in tender prices in the previous 12 months. In fact, the latest figures show that prices fell by 11% in 2008, most of the reduction happening in the second half of the year. This means that we are actually back at price levels not seen since the year 2000.” He welcomed the recent government announcement committing to the maintenance of investment in the Public Capital Programme and urged the timely implementation of this commitment, thereby assisting towards the safeguarding of thousands of jobs in the industry. Turning to the commercial property sector, he said that despite the fact that we had arrived at a point where the risk associated with real estate had been re-priced significantly, an active trading market in property investments could not grow again until the availability of debt improved. Highlighting the diverse skills of, and varying employment opportunities available for Chartered Surveyors, McCormack noted that: “While more challenges face Chartered Surveyors to adapt to current market conditions, the underlying need for expert services is a constant in principle”.
6 SCSREVIEW
Claire Solon, ESB; John Shaw, President The Law Society of Ireland; Pauline Daly, Jones Lang LaSalle; and, John Davidson, Chairman RICS Northern Ireland.
Keynote speaker, Opposition Spokesman on Finance, Richard Bruton, TD with SCS President, Sean McCormack.
Annual Dinner
Anthony E Collins, Eugene F Collins Solicitors; Catherine Treacy, CEO, The Property Registration Authority; Rachel Glavin, Eugene F. Collins Solicitors; and Mark FitzGerald, Chief Executive, Sherry FitzGerald.
Richard Mossop, D.L. Martin and Partners; Claire Solon, ESB; Andrew Ramsey, Krystyna Rawicz and Associates; and, Tony Cullen, Thorntons Chartered Surveyors.
John Costello, Costello Commercial; Ann Hargaden, Lisney; Tony Smith, Society of Chartered Surveyors; and, Felix McKenna, Eircom.
Brian O'Driscoll, P.J. Hegarty and Sons; Ciara Murphy, Director General, SCS; and, Andy O’Gorman of the Construction Industry Federation.
SCSREVIEW 7
Management
Looking for the silver lining Property and construction businesses have been hit harder than most by the current downturn; however, this is not the first time Ireland has faced recession. ANN-MARIE HARDIMAN asked five former Chairmen* of the Society how they survived the recession of the mid-1980s, and what advice they would offer to those who are trying to weather the storm in these difficult times. Ian French Ian French was Managing Director of Hamilton Osborne King (now Savills)
from 1985 to 1995, and Chairman from 1995 until his retirement in 2003. As
auctioneers, estate agents and valuers, the company offered a broad range of
services in the commercial and residential property markets, including property
management, employing approximately 50 staff between offices in Dublin and
Cork. So how did the downturn in the mid-1980s affect business?
“It was absolutely disastrous. With estate agents, it’s not a matter of price rise
or price fall; in a downturn, property stops selling, and when that happens,
revenue disappears.”
Faced with a portfolio of investment properties that nobody wanted to buy,
Ian had to diversify his activities, including acting as arbitrator in rent reviews,
and working on a refurbishment scheme in Ballymun.
The need to reduce costs was pressing, and that meant reducing wages.
“It was an awful situation. You had to let people go every year, because things
got worse every year.”
However, the company tried to act strategically, to make sure that
the foundations were laid for better times, and that meant making
tough decisions. “We held on to key, bright people, and that was one of the reasons we were successful later on. You have to think about the firm, make sure you come out alive! It’s one thing for a company to say everyone will take a cut to save jobs, but are you prepared to do that next year, and the year after?” There were harsh realities to face too, in the fight to stay afloat. “We had to be very careful who we took instruction from. We had to ask ourselves: ‘Will they be able to pay?’”
8 SCSREVIEW
Ian credits these strategic decisions as having been key to the company’s survival, as well as “a very good culture of leading from the top”. Senior staff and partners took salary reductions too, and every effort was made to maintain morale. When asked what advice he would give to companies struggling in the current climate, Ian is succinct. “Act early in cutting costs – don’t leave it till you’re in trouble with the banks. Think strategically in terms of keeping key people, and be adaptable – you’ll be amazed at what you can do when you have to!”
Larry Martin Larry Martin started DL Martin and Partners in 1970 and worked as a quantity surveyor until his retirement 10 years ago. He now acts as a consultant for the company on a part-time basis. In the early 1980s the company was becoming established, and was doing well. “We had a lot of big jobs for a company of our size (about nine employees), a lot of public service contracts in education, health and the OPW. We also had some private contracts.” When the downturn happened, Larry says the company was “very fortunate”. “Small firms are dependent on having two or three large jobs at any time, and two jobs that had been on the long finger actually came to life, and saw us through that recession. We could easily have been doing nothing.” Nevertheless, there were still tough decisions to be made. “We had to let people go, which is a horrible job.” Like Ian French, he emphasises the importance of preserving “core skills” in a downturn, so that when the good times come again, the company is ready. He points
Management
out that at that time, principals or partners were the principal fee earners: now they tend to be managers and the surveying work is done by other staff. Companies were smaller then too, so “wages are now a far greater proportion of costs”. The key factor that kept some firms going during the recession was “taking a very short-term view, paying wages and vital costs on a month-to-month basis”. There was no money for research, and companies simply hoped that key equipment would not need to be replaced: “If you can’t afford it, don’t buy it”. Larry feels that the best piece of advice he could give to companies today is to “be realistic. Look at the projections and see what you need to do to build a size of company that you can sustain through a downturn”.
Noel McDonagh Before his retirement, Noel McDonagh worked as a quantity surveyor for Mulcahy McDonagh & Partners. He jokes that as he retired in 1991, he had no experience of the Celtic Tiger (“I watched with envy!”), and recalls that before the downturn of the ‘80s, they had a very buoyant business, which had grown steadily since the company’s establishment in the 1960s. Then, in the 1980s, “the bottom fell out of the market”. Noel feels that decisions made before the downturn helped to cushion the company: “In the ‘70s, when things were going well, we began to interest ourselves in alternative markets, specifically in Saudi Arabia and the UK. We also began expanding from a quite limited QS service to a more broad range, for example in the areas of cost planning and construction economics”. However, the recession still hit hard: “To use a prevalent phrase, there had to be considerable downsizing”.
SCSREVIEW 9
Management
Partners commuted to London, moving out of their comfort zone to find new business. “In the good times, there’s a lot of hard work because there’s a lot of work, but it’s a comfort zone because you have no worries about work. When hard times come, they bring new worries,” says Noel. Downsizing and looking further afield for business were the main strategies the company employed, but it was also necessary to “accept a reduction in your own personal living standards”. Noel feels that a combination of tough graft and careful cash flow management – watching every penny – got the company through, and that the overseas markets, especially the UK, were critical. He also points out that the skill set gained in a quantity surveying qualification is adaptable, and that many young surveyors branched out into areas other than property and construction, for example resource management. In that way, recession encouraged people to think more broadly in terms of their career development. And his advice? “Hold your nerve. It may take longer than people expect, but it will get better – keep the faith!”
10 SCSREVIEW
recession meant “three-day weeks and reduced salaries, and significantly reduced turnover”. For Brendan, it meant emigration. “I was the younger partner, so I packed my bags and went over to open an office in London. We had good contacts and could research a business plan to get contracts when we got there.” They had some help from the Irish Export Board, who were running initiatives at the time to assist companies, and they obtained contracts in England for work to be carried out in Ireland, which helped to keep people employed at home. For Brendan, this expansion to London was key in keeping the company going during the downturn. In addition, more than half of their work in Ireland was in government projects, and the government continued a programme of works during the down times. As the only one of our interviewees who is trading in the current downturn, Brendan is aware that this recession is very different to the last, but hopes that his decision to “leave a large organisation where I was a director and set up on my own” will prove to be the right one for him. He feels that, although there are more competitors in the market these days, the best advice is to: “Keep as much as you can on the go and look into new markets”.
Brendan Sheridan
Harry Whittaker
The only one of our former Presidents who is still at the coalface, Brendan Sheridan recently struck out alone as a management consultant to the construction and property industry, and set up Brendan Sheridan Chartered Surveyors. From the 1970s to the mid ‘80s, Brendan was a partner in Desmond MacGreevy & Partners, one of the top three QS and consulting firms in Ireland at the time, with 30-plus employees. For them, the
Harry Whittaker worked in GP surveying for Lisney from 1967 to 1998, and points out that the first downturn actually came in the 1970s, when the combination of the oil crisis and the Auctioneers’ Act had a huge impact. “The Auctioneers’ Act meant that liability for fees changed from purchaser to vendor. Before, the purchaser paid on the day of the auction. After, the vendor waited until they were paid, sometimes weeks or months later, and then might try to negotiate a better rate.”
Management
This had a serious effect on cash flow, and led to redundancies and reduced wages, before the late ‘70s and early ‘80s saw a slow climb back to normal levels of activity. Then came the downturn in the ‘80s, when many surveyors had to emigrate, or become ‘five-day commuters’ to the UK. Harry credits the fact that Lisney was a broad general practice, with a range of other activities, such as property management, with the fact that the company got through the recession without redundancies. However, he points out that: “There was less activity, so we made less money”. He feels that the only thing companies could do was “look after your clients as well as you could. Maintain the core business for when things got better”. He advises companies to be careful when considering cutting jobs. “Redundancies cut costs, but also reduce the talent at your disposal when things get better, which you always expect them to do.” He believes that companies must accept the reality of earning less money. “Accept that you may have to let some staff go, but keep key staff. Look after clients and staff, if not financially, then by sharing the burden. Companies that didn’t share the good times with staff and clients will have a harder time expecting them to share the bad. Maintain good relations and the confidence that you are treating them well.”
All of our interviewees agreed that this time around, the global nature of the downturn, and accompanying banking crisis, means that things are worse than they were during the ‘80s: companies cannot get credit, and the old emigration ‘bolt holes’ are no longer available to companies or individuals. However, they are also in agreement that for those who act strategically, and hold their nerve, the upturn will come again, as it always does. Hindsight may have 20:20 vision, but these gentlemen are living proof that it is possible to survive a downturn and go on to better things and better times. *After the Society’s incorporation in 1993, the title of Chairman was replaced with the title President.
SCSREVIEW 11
Building surveying
Getting to know the BER essentials
GUY DOBSON and SEAN ORAGANO take us through the new Building Energy Ratings regulations. The Building Energy Rating (BER) scheme was established under the European Communities (Energy Performance of Buildings) Regulation and was introduced into Irish law under Statutory Instrument number 666 of 2006. In Ireland this scheme has been phased in over a two-year period, with new residential buildings requiring a BER from January 2007, new non-domestic buildings from July 2008, and it is now compulsory for all property transactions, whether for sale or letting, from January 1, 2009. The penalty for non-compliance with the legislation is a â‚Ź5,000 fine. Within the Regulation there are other provisions aimed at improving the energy performance of residential and non-residential buildings.
What is a Building Energy Rating? A BER is essentially an energy rating certificate for the premises to be built, sold or let, much the same as electronic appliances are rated from A1 to G, with A1 being the best rating and G being the worst. There are also corresponding CO2 emissions ratings for the particular property. This certificate will produce an indicative energy performance report on the property, much the same as kilometres per litre for cars; however, it only takes into account energy used for lighting, water heating, ventilation and space heating. Energy used for activities such as watching television, Playstations, laundry, etc., is not accounted for as these are considered to be occupancy behaviour.
BER for domestic buildings In order to produce a BER the property will need to be assessed to establish the existing building fabric, heat loss, space heating system, water heating efficiencies, ventilation and losses, as well as the percentage of low energy lighting within the property. DEAP (Dwelling Energy Assessment Procedure) software, which is used to produce the BER, will assume certain heating factors, occupancy factors
12 SCSREVIEW
and other efficiency factors, which are based on the inputs from the onsite survey or taken from the building drawings if the property is a new build. All the building elements will need to be physically measured and dimensioned to establish the extent of, and types of, walls, floors, windows, roofs, etc., and this information is inputted into DEAP software. Appendix S, which is the methodology to be used for existing dwellings, has additional information that is appropriate for these properties, as opposed to new dwellings. Once the on-site information, or information from the drawings, is inputted into the software and the rating established, the DEAP software XML file is then uploaded to the Sustainable Energy Ireland (SEI) website for publication. At this stage, the publishing fee of â‚Ź25 plus VAT becomes payable. SEI have stated that BER assessors must have at least a Fetac level 6 qualification, with at least two years experience in the construction industry. However, some concerns have arisen over the past few weeks in relation to the standard of BER assessments that have been carried out. SEI has a key role to play in ensuring standards in the delivery of BER training.
BER for non-domestic buildings The implementation date for non-domestic buildings was July 1, 2008, for new non-domestic buildings for which planning permission is applied for on or after that date, and on January 1, 2009, for all existing nondomestic buildings on offer for sale or rent. The BER is produced from NEAP (Non Domestic Energy Assessment Procedure) methodology, which demonstrates compliance with specific aspects of part L of the Building Regulations and also generates the non-residential BER certificate. NEAP calculates the energy consumption and CO2 emissions associated with the standardised use of the building. This energy is expressed in terms of a KW hour per metre squared floor area over a year period, and CO2 emissions are expressed in kg and CO2 per square metre floor area.
Building surveying
General information A BER certificate is valid for 10 years from the date of issue, assuming that there are no material changes to the building that would affect its energy performance (new heating system, new controls, new insulation, etc.). From January 1, 2009, all public buildings with a gross internal floor area greater than 1,000m2 are required to display an energy certificate, which should be clearly visible to the public. It is anticipated that the energy certificate will be produced by employees or nominees. In order to become a BER assessor for large public buildings, a candidate must be nominated by a manager in a public body, attend a workshop for large public buildings, complete an application form and complete a BER Assessors Code of Practice for Public Service Buildings.
Chartered Surveyor assessors Members of The Society of Chartered Surveyors are eligible to apply to register as BER assessors for non-domestic buildings subject to the requirements listed below and published on the SEI website. SEI has published the updated registration requirements for interim BER assessors to include both new and existing non-domestic buildings. There are two routes to qualification as a level 4 assessor during the interim period for new and existing non-domestic buildings: 1. Satisfy the following criteria: ■ a degree in a building-related discipline (level 8 under the
National Framework for Qualifications);
■ membership of a professional organisation at grade listed for level 4;
and,
■ pass an interim non-domestic level 4 qualifying examination. Or 2. Membership of a UK accreditation scheme for non-residential energy assessment at level 4.
The SCS has identified an anomaly for Chartered Surveyors who wish to register as BER assessors Level 4 (New and Existing NonDomestic Buildings). According to Sustainable Energy Ireland interim qualifying requirements, in addition to membership of a qualifying professional organisation, and the passing of an interim examination, assessors must have a degree in a building-related discipline at Level 8 (honours degree). As many Chartered Surveyors previously qualified under the RICS examinations route and do not hold a Level 8 qualification, they are currently deemed ineligible. The Society is currently in consultation with SEI to resolve the matter at the earliest opportunity and will advise members as appropriate. The once-off registration fee for interim non-domestic BER assessors is €100+VAT. Candidates who registered before the end of December 2008 were not required to pay an additional registration or renewal fee for 2009 to operate as an interim non-domestic BER assessor. The registration of interim non-domestic BER assessors will be superseded by the Energy Assessor Accreditation Schemes. The Energy Assessor Accreditation Schemes will entail registration with scheme operators approved by SEI. SEI intends to invite applications from organisations interested in establishing Energy Assessor Accreditation Schemes for nondomestic buildings in January 2009. Further details on levels 3, 4 and 5, including the application form, can be found on http://www.sei.ie.
Guy Dobson and Sean Oragano Guy, Bsc (Hons) MRICS ASCS and Sean, Bsc (Hons) MRICS ASCS are both directors at Building Surveying Solutions Limited in Dublin.
SCSREVIEW 13
Start-up
In at the deep end AIDAN RINGROSE offers practical tips for those considering going it alone. In this article, I do not propose to discourse on the whys and whens of embarking on such a journey, and instead have simply focused on the hows, wheres and whats of the various aspects that should be considered. So, assuming you are ready, willing and considering such a career path, here are a few practical points gleaned from my experience over the last few years that may be of some assistance.
Corporate identity The first problem, or bit of fun, is to decide on your trading name. I know it sounds simple, yet I still drew up a list of over 15 names before electing on the highly original ‘Aidan Ringrose & Associates’. However, it was not to last, as after two years it proved to be too long and unable to fit neatly onto marketing media, alongside words such as ‘for sale’, ‘telephone number’ and ‘property description’, etc. So instead I simply shortened it to ‘Ringrose’ and the lesson learnt is to keep the message simple, clear and concise.
Accommodation You will need somewhere to work from and, thankfully, with contemporary communication technology, your choices can vary from your bedroom to Fitzwilliam Square with little cost differential, in that you could elect to simply procure a postal address facility and redirect telecom communications to a more anonymous venue of choice. However, I would strongly recommend that you tap into your network of contacts and attempt to procure even a cupboard space in an attic or squat in an unused corner of someone’s surplus space (with consent), as it’s healthy to have people around. Whatever you do, do not sign long-term lease agreements until such time as your future can be assessed with more clarity.
Accountancy The next issue should be aired in the office of your accountant, as you have two unavoidable choices to make: either incorporate as a limited company or, alternatively, elect to practise as a sole trader. I would suggest initially keeping
14 SCSREVIEW
things simple and travelling along the route of a sole trader, as there is less expense and regulatory restriction. Then when your activities become profitable you could consider converting to limited company status, which can afford some excellent tax planning opportunities as part of the transitory process. However, I would caveat all of the foregoing with the strong recommendation that you take accountancy and legal advice tailored to your circumstances and listen carefully. You should also at this juncture apply for a VAT number and educate yourself fully on the requirements for filing bi-monthly returns, etc.
Regulatory requirements You need to procure professional indemnity insurance and possibly an auctioneer’s licence to cover your activities and the Society of Chartered Surveyors will be of great assistance to you in this respect.
Companies Office and bank Once you have decided on your trading name, and assuming you are initially operating as a sole trader, the next trip is to the Companies Registration Office (via telephone and post) to register the trading name for a modest fee, and then over to an amenable bank manager (if there are any left) to open bank accounts to channel all fees, expenses and VAT monies.
Office support facilities Now that you have your corporate identity, address, bank accounts and VAT number sorted, there are still a few more boring, yet highly necessary items to be collected, such as a computer, printer, telephone, broadband service, mobile phone, filing cabinet, desk, chair, notepaper, business cards, etc. I would also suggest becoming competent with the ‘Dragon 10’ voiceactivated software package (upon which this text is being dictated directly onto my computer screen), which, at a cost of less than €200, is substantially cheaper than hiring secretarial support. Finally, if you plan to be involved in lengthy trans-national telecommunications, you should consider utilising Skype.
Start-up
Records
Wages
You should adopt a simple record system upon which you diligently record and receipt every single cent of expenditure on a weekly basis (before you forget), in addition to mileage and subsistence expenses. Every cent recorded can ultimately reduce your tax liability on earnings by up to 50%, and don’t forget, a penny saved is a penny earned, and in the early days you will possibly need every single one of them. Lastly, you need to adopt an accurate and numerically referenced fee invoice and credit note record system.
If your circumstances permit, raise sufficient cash before you commence so
that you can put aside six months to a year’s wages in a bank account, to
be drawn down monthly.
If you have this luxury it certainly takes the edge off worry and removes
the temptation to act or advise out of desperation, to a client’s detriment,
in order to satisfy the raw requirement for cash. As an unexpected bonus,
it can also put you in a stronger mental frame of mind when pitching for
business or instructions.
Now, assuming that you are good to go and ready for take-off, this begs the really big and obvious question: what are you going to do?
Market segment I would not presume to advise on which market segment you should choose to inhabit, except to suggest that you should pick a space within one or more of your core professional competencies and then consciously focus across a defined spectrum of activities. Failure to do so will lead to a dissipation of energy, to frustration, and possibly to the risk of drifting into fields of activity in which you are not competent. However, on a focused basis, don’t be afraid to explore other potential work areas of a lateral position to your existing core competencies, because the old truism applies: if you enjoy what you do, it’s not work and you will master it with ease. Also, remember that you are in the advice-based business! In order to persuade people to pay you money, you have to be on top of your game professionally and firmly within your professional peer group. Therefore, unless you are endowed with abundant natural talent, that takes work, practice and repetition of the aforementioned.
Discipline Of paramount importance in tandem with the foregoing is the absolute requirement for personal discipline in regard to timekeeping. Set out a plan of hours that you intend to work, together with specified breaks, and then stick to it at all costs. You only have so many hours a in day and, once dissipated, they are not returnable. So forget about Google, Facebook, crosswords and the sports page, etc. When at work, work. If you do not, the money will not flow in and it’s really that simple!
Source of work If you are concerned about where your work is going to come from, I can only pass on an excellent piece of advice given to me before I set up regarding my concerns around that area. “The best source of work is the piece of work in front of you”. Do it well, exceed expectations and give a superior level of personal service. Dublin is a small city; people talk and verbal recommendations are simply the best source of business. So one piece of work done well will invariably be followed by another and another and another. That is how successful practices are built up, brick by brick!
Tax As the fees come in, pay your bills and VAT on time and simply allow the bucket to fill up again, so at year or half year end, you just pay your income tax, plus pay yourself and start again!
Mentors Another area of supreme importance is the necessity to acquire two or three mentors who are successful in their own fields of business, and who will act as your cheerleaders, supporters, advisers and taskmasters. Their importance can simply not be underestimated, as they will help you maintain focus through offering practical advice from an impartial, detached, yet knowledgeably supportive perspective.
Rewards I have to say it’s not all about money, all of the time. Working for yourself is also immensely gratifying and great satisfaction can be derived from doing a job well and bringing home an excellent result for a grateful client. Also, not to be underestimated is the rapport and collegiality of operating with other practitioners in the business, never mind the benefits of absolute control over your time in terms of holidays, breaks and leisure activities, plus the lifestyle convenience that can be engendered through your personal choice of office location.
Risks Some people might perceive a downside in that they are giving up a ‘secure job’, and my belief is that such a view is largely illusory, as in contemporary times we have seen mighty banks falter, plus large established companies contract and shed staff, so it’s simply not the case. So invest in yourself professionally, and if you are fortunate enough to enjoy good health, then that truly is security!
Action For those of you on the edge, I would exhort: JUMP! Give it a go; at the worst you will learn a lot about yourself, plus gain an invaluable insight into the process of business from a proprietor’s point of view. This will stand to you in whatever else you elect to do subsequently. Alternatively, at its best and when it works, it’s great!
Solitude Ask yourself the question, do you have the ability to work on your own and are you comfortable with your own company for long periods of time? Remember, as a sole practitioner, you can spend hours or even days engaged in relatively solitary activities and you must have the ability to keep going under your own steam without the benefit of colleagues pushing and pulling you.
Aidan D. Ringrose FSCS, MIAVI, FRICS, ACI Arb
Aidan runs Ringrose Chartered Surveyors in Dalkey, Co. Dublin.
SCSREVIEW 15
Survey
Through the roof to through the floor
CAROLINE O’SHEA reviews the SCS/IPD Index at December 2008, and finds that it shows the worst figures since the Index began.
The SCS/IPD Index measures the un-geared performance of properties in the IPD database. This database comprises 325 properties, worth almost €3.8bn, representing most of the property held by Irish institutions including AIB Investment Managers, Irish Life Assurance Company, Bank of Ireland Asset Managers, Irish Property Unit Trust, Friends First and ESB Superannuation Fund, who submit data to IPD for analysis on a quarterly basis. The assets are valued quarterly by a range of independent valuers. The results provide an accurate picture of the movement in market valuations over the relevant period. The Index comprises approximately 50% office, 40% retail and 10% industrial property. 2008 marked the worst performance from property since IPD records began in 1984, with capital values of properties marked down by 37.2%, bringing values back to June 2004 levels. Previous downturns in ‘84/’86 and ‘91/’94 saw cumulative declines of around 16% (see Figure). The rate of decline accelerated during the year, with values falling by 17.7% in the final quarter of 2008. The equivalent yield at the end of December ‘08 stood at 6.67%, an incredible increase of 262 basis points above the December ‘07 yield of 4.05%. Rental values actually increased by 2% during 2008; growth had, however, tailed off by Quarter 4, when overall rental values were flat.
37.5% and retail warehouses were down 33.3%. Retail rental values grew strongly over the year at 3.4%, although Grafton St values were virtually unchanged on the year. The rate of rental growth slowed as the year progressed but rental growth of 0.2% was still recorded in Quarter 4. The extent of yield movement is illustrated by Grafton St and Henry St, where the equivalent yield doubled during the year from 2.7% to 5.4%. The overall retail equivalent yield ended the year at 6.2%, having started the year at 3.4%.
Office In the office sector, values of prime properties in central Dublin decreased by 35.5%, compared with suburban properties where values declined by 29.3%. In Quarter 4 2008, rental values in Dublin 4 and in suburban Dublin fell by 1.4%
Irish Property Market 40.0
30.0
20.0
10.0
%
Retail Although all sectors of the Irish market have been impacted, there has been a wide differential between the three sectors, with retail values contracting by 42.6% compared with offices at -34.4%, and industrial performing best with values down 26.2%. In general it appears that lower yielding or prime properties have been worst hit, with Grafton St and Henry St values down over 49% in the year. In comparison, shopping centre values were down
16 SCSREVIEW
0.0
-10.0
-20.0
-30.0
-40.0
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Income return
Capital growth
Survey
and 0.4%, respectively, although this was not enough to offset increases in other sub-sectors as overall office rents increased by 1% for the year. Older buildings with larger floor plates have also experienced rental declines. Office equivalent yields ended the year at 6.9% having started the year at 4.4%.
Industrial The industrial sector showed least decline in values over the year, reflecting the trend whereby higher yielding properties have been less impacted. Equivalent yields increased by 190 basis points from 5.2% to finish the year at 7.1%. Industrial rents increased by 1% over the year, although in Quarter 4 rents fell by 0.9% for properties under 2,000sqm in size whereas rents for properties over 4,000sqm showed strong growth of 3%. These figures confirm that 2008 marked the end of a property bull-run that spanned most of the last 14 years. Unfortunately, this has coincided with a global recession and with the international credit crisis, and the prospects for
the Irish economy are now quite grim. In this environment it is difficult to see property values bottoming out until there is an improvement in the credit markets. The prospects for property will thereafter depend on how quickly the Irish economy can get back to growth. In 2009, the focus of the markets will be on rental values and investors will focus on the quality of their tenants and their ability to pay their rent.
Caroline O’Shea BSc Surv, FRICS, FSCS, Dip Prop Invest. Caroline heads a team in the property section of the asset management area of AIB Investment Managers.
SCSREVIEW 17
Arbitration
Assessing the Arbitration Bill LARRY FENELON highlights some of the issues raised at the recent symposium on the Arbitration Bill 2008, hosted by Engineers Ireland.
The aim of the symposium was to canvass the views of the arbitration community in Ireland on the current draft Bill, which is due to overhaul arbitral law through the introduction of the UNCITRAL Model Law. The Bill is at Committee stage in the Dáil. While there was widespread agreement that an overhaul was required, it was also agreed that if a consensus of views on how to improve the current draft of the Bill could be reached, then these views would be articulated to the legislature in good time. The symposium was organised jointly by the Chartered Institute of Arbitrators, the Law Society and the Bar Council, and was chaired by Ciarán Fahy, the current chair of the Chartered Institute of Arbitrators. A number of panellists were asked to outline their understanding of current topical provisions, which were then put to the attendees for comment and debate. Valuable contributions were received from Michael Carrigan, Anthony Hussey, Brian Hutchinson, Seán McCormack, James O’Donoghue, Mr Justice Frank Clarke, Nael Bunni and Colm O hOisín SC.
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Model Law Prior to 1998 there was no distinction between domestic and international arbitration. However, following the introduction of the Arbitration (International Commercial) Act 1998, two separate regimes existed, one for domestic and another for international arbitration. The new Bill adopts the UNCITRAL Model law for both regimes. The key provisions of the Model Law include: Article 5 – no special case stated procedure Article 7 – agreement must be in writing Article 16 – rule on their own jurisdiction Article 31 – reasoned award Article 32 – right to terminate for want of prosecution Article 33 – right to seek interpretation of award Article 34 – three-month time limit within which to set aside award It was clarified that in addition to the Bill adopting the Model Law in its
Arbitration
entirety into domestic legislation, it also reiterated some of the provisions
of the 1954 and 1998 Acts.
The following is a summary of the debate surrounding each of the key
sections of the Bill that required further debate.
below the monetary jurisdiction of the Small Claims Court (€2,000). The question remained: would arbitration claims that were not quantifiable be excluded also? The consensus was that this particular subsection should be dropped since it would prevent arbitrations of non-monetary claims, with a good example of these being sports arbitrations.
Section 3 – transitional arrangement Sean McCormack stated that a transitional arrangement allowed for the development of twin parallel regimes of arbitration, which allowed for the possibility of a new lease being subject to the provisions of the old legislation for the next 30 years. The consensus was that the new regime applies to all arbitrations after the commencement of the Act, as to be otherwise would foster confusion.
Section 12 – time frame to set aside on public policy rounds Brian Hutchinson believed that the extended time limit within which to apply to have an award set aide on the grounds of public policy did not warrant special protection of 90 days from the circumstances giving rise to the challenge.
Section 14 – witness examination Whereas there was no mention of affirmations being permitted as a means of giving witness evidence, this ought to be included for witnesses of a non religious persuasion.
Section 16 – consolidation of arbitrations There was a view that this provision is largely redundant but that it could be left in.
Section 31 – reference to arbitration by courts There were questions as to what extent this provision was now necessary, as the court inherently had such power to refer disputes to arbitration.
Section 32 – setting aside challenges (i) Error on the face of the award that was so fundamental Strong views were expressed in the contributions from Colm O hOisín SC and Nael Bunni that this provision was not necessary because the parties had chosen the arbitrator and the parties’ autonomy was at the heart of the process and should not be interfered with. The onus was on representative bodies to provide competent arbitrators. In essence, the parties had signed up to a process that was final and binding and that there should be no appeal. (ii) Conduct which is procedurally unfair It was the view of both contributors that if such procedural unfairness is of a minor nature then there should be no court involvement. Much of what is set out in s.32 (1) (b) is set out in Article 34 of the Model Law and to include them simply leads to confusion.
Section 34 – case stated and new evidence Section 20 – agreement in advance re costs As currently drafted, the Bill allows parties to reach agreement in advance in respect of costs, which is specifically prohibited under the 1954 Act. There was passionate debate on this issue. Anthony Hussey statd that such a provision would effectively allow one party in negotiation to abuse the position so as to ensure that each party pays their own costs in the event of arbitration. However, Colm O hOisín countered that the very essence of arbitration is that the parties should have the right to agree whatever they wanted, and that to alter the current draft would affect the attractiveness of Ireland as a place to host international arbitration.
The current draft allows an arbitrator to state a case to the High Court if the arbitrator wishes to do so. The view was that the appropriate amendment should be that the arbitrator can state a case only if the parties agree. The consensus was that this provision was not needed. The other draft provision relates to the fact that the arbitration can be re opened if new evidence comes to light that was not available during the arbitration. This is a distinct change to the old regime whereby an arbitrator’s role was functus officio once he delivered his award. This provision as drafted is open-ended, and a time limit needs to be applied.
Section 21 – liability of arbitrator
Section 36 – opt in/out for consumers
The view was that this provision was too broad as it does not allow for the liability of an arbitrator who has acted in bad faith.
There was considerable debate surrounding this provision, which allowed for parties to opt in or opt out of ability to allow a case stated to the High Court. There was a sense that the case stated provision should be made redundant. Mr Justice Frank Clarke introduced some very topical debate on the role of the High Court in arbitration. He suggested that there ought to be little appetite for the judiciary to intervene in arbitral awards. However, there must be a balance between what the aggrieved party can do in respect of a clearly bad decision and the need for certainty and speed in arbitration.
Section 28 – application to other arbitrations Seán McCormack proposed that this section needed to be re-drafted to be consistent with Section 48 of the Arbitration Act 1954, which applies to all arbitrations such as ground rents.
Section 29 – exclusion of certain arbitrations The current draft excludes arbitration of employment disputes. Pat Brady stated that, whereas historically there were ideological reasons to exclude labour law disputes from private arbitration, to do so now would be contrary to public policy and that there is no good reason.
Larry Fenelon Larry is the Public Relations Officer of the Chartered Institute of Arbitrators – Irish Branch.
Section 30 – exclusion of small claims James O’Donoghue explained that the current draft excluded all claims
SCSREVIEW 19
Legal matters
Case law review
Vincent Kelly v John Simpson High Court Commercial Division [2008] IEHC 374
This case involved a contract for the sale of a house and land including the ruins of a former house in Schull, Co. Cork. The judge found that the fundamental ingredients for a contract for the sale of land required that the parties be identified as vendor and purchaser, that the land be identified with substantial precision and that the price should be agreed. The judge found as a fact that the purchaser was buying the site in order to sell it on, as the purchaser believed that the site would be capable of development. He also found that the seller’s agent had represented the property to the defendant as having this development potential. Save for this representation, the judge found that the parties had entered into an otherwise enforceable contract for sale of the property. The Court emphasised that specific performance is an equitable remedy and is to be exercised at the discretion of the Court in a manner that is neither arbitrary nor capricious. The Court found that this case concerned the duty of the Court not to grant an equitable remedy where the effect on specific performance would be to require a purchaser to take a property at a price that was only achieved due to an agreed scheme to undermine the planning code. It found that the price would never have been achieved had the defendant not been induced to consider the site as being more valuable than it was by specific representations made on behalf of the seller designed to undermine the planning code and the entitlement of the Local Planning Authority to properly control planning in the area. The Court therefore refused to enforce the contract.
Platform Funding Limited v Bank of Scotland plc (formerly Halifax plc) [2008] 42EG 168
This English case was an appeal of a successful claim for damages for breach of duty by a valuer in the valuation of a property for mortgage purposes. Unusually, it was not a claim in negligence. The borrower had defaulted on the loan, and the property was repossessed and subsequently sold by the respondent, leaving the respondent with a shortfall of £30,000, which it sought to recover from the appellant. The property, the subject of the valuation, was under construction at the date of valuation. The borrower had misled the valuer into inspecting another property, albeit located in the same development. Negligence was not alleged against the valuer but rather a claim for breach of
20 SCSREVIEW
contract was made on the basis that the valuer had valued the wrong property. The appellate court found that a surveyor’s normal retainer to inspect and value a property contains an inherent and absolute obligation to inspect and value the correct property. An inspection and valuation of a different property constitutes a breach of contract notwithstanding the surveyor’s reasonable skill and care. It found that there was no good reason to extend the presumption that those providing professional services do no more than to owe a duty to exercise reasonable care and skill in providing their services, to the unqualified contractual obligation to inspect the correct property.
Kidney and Another v Charlton and Another Master of the High Court, January 22, 2009
This was a hearing of the plaintiff’s application before the Master of the High Court seeking the appointment of an arbitrator to conduct a rent review in respect of commercial premises in Dawson Street, Dublin. The Master of the High Court sits in a quasi-judicial capacity with specified limited jurisdiction. The defendant lessees sought to resist the appointment of an arbitrator on the basis that any appointment would be premature. The defendants were seeking rulings on a “variety of contentions regarding the interpretation and legality of the upward review clause”. The defendants suggested that, prior to the appointment of an arbitrator, the Court should clarify the parameters of the task of the arbitrator. The Master found that there was, in this case, an assertion by the lessees that the clause in dispute was ambiguous. He found that it was not necessary to rule on that assertion in itself but rather the defendants should make their case to the court to which the case would be assigned. It is clear that the matter is to be decided on its merits and from first principles by the court to which it is to be assigned. Further reporting of this case will follow its progress.
John Minihane ASCS MRICS John is a partner, specialising in real estate, with Mason Hayes+Curran.
Legal opinion
Upward only
rent reviews
DESMOND J. BOYLE offers an opinion on recent discussions regarding the role of arbitrators in rent review.
The recent decision by the Master of the High Court in Kidney v Charlton (22/1/09) has understandably caused widespread concern among many Chartered Surveyors, especially when the reporting of this decision in the national press evoked certain disparaging remarks against those professionals who participate in the rent review process in their capacity as arbitrators, or indeed when acting for landlords and tenants in such cases. In particular, the Master’s comment that “a system in which rent reviews are apparently adjudicated by estate agents whose day job is the marketing of like property usually by reference to selling points such as ‘strong rental growth potential’ is prima facie a system which gives rise to significant and legitimate misgivings” is to show a less than clear understanding of the process, and as such is offensive to Chartered Surveyors from a number of points of view.
Clarification Firstly, rent review arbitrators who are appointed by agreement between the parties or who are appointed by a third party, primarily by the President of the Society, to determine the open market rental value, will base their decision on evidence. If the evidence adduced gives the arbitrator reason to state that the rent is below the passing rent, then the arbitrator will so adjudicate. The arbitrator does not concern him or herself with the validity or otherwise of upwards only clauses contained within the lease. Secondly, arbitrators appointed from the Society’s President’s Panel are professionals of high standing in their field of expertise. The Society takes its role in the appointment of arbitrators in the rent review process very seriously. Indeed, Council of the Society last autumn adopted all of the recommendations of a working party established to review the Society’s role in the appointment of arbitrators in rent review disputes. These recommendations ensure that every current and future member of the President’s Panel has the appropriate level of education and training and that the Society is in a position to appoint the correct calibre of arbitrator to each application for the appointment of an arbitrator received.
fall below that payable immediately before the review date”. In my experience, the benchmark is almost always the passing rent at the time of the review. Where leases are renewed under the Landlord and Tenant Acts, and the terms fixed by the Circuit Court, there is no upward only rent review clause. According to Professor John Wylie, it is also unlikely that the future enforceability of such clauses will be determined by the courts. However, with rental values falling and strong anecdotal evidence of tenants seeking rent reductions on revised rents, some pressure may be brought to bear on the Government to act. I recall that the British Government imposed a commercial rent freeze in the early 1970s to try to counteract the dire economic situation at that time. There has been considerable debate in the UK about abolishing upwards only clauses. De Montfort University undertook a study in 2003 and concluded that if abolition was to occur, the preferred option was for upwards or downwards (market rent) with a clause preventing the rent falling below the initial rent agreed. The study also found that banks would look a little less favourably on investments where leases did not have an upward only clause. In today’s market, that might not have any adverse effect. In a buoyant market, rents will rise. In a falling market, lessees may be less inclined to look for mid-term reductions. Finally, it should be noted that the opinion of the Master of the High Court is not a formal ruling and, as such, is not law. The High Court sat on March 9 to hear the Kidney v Charlton case and the latest indications are that the High Court will proceed to appoint an arbitrator in the next week.
‘Upward only’ explained ‘Upward only’ is a bit of a misnomer and is always likely to provoke a negative response from some parties. A leading English textbook, Landlord and Tenant Law (Woodfall, 4th edition), notes that: “an upwards only review may be one of two types. The clause may provide for the rent never to fall below the rent agreed at the start of the lease, but otherwise to fluctuate up or down according to changes in market value, or it may provide for the rent never to
Desmond J. Boyle FRICS, FSCS, MCIArb Desmond runs Boyle Commercial Chartered Surveyors and Property Consultants in Artane, Dublin.
SCSREVIEW 21
Review
Sharp falls in property values
DONAL BUCKLEY summarises the main points from a number of industry reports. The pace of decline in construction tender prices looks set to slow down this year after a sharp fall in 2008. This is the agreed view of two well-known consultancy firms, Bruce Shaw and Davis Langdon PKS (DLPKS). Both firms agree that the decline could be pinned to around 4% in 2009. According to Bruce Shaw managing partner Gerard Campbell, some builders quoted below cost prices for construction projects in 2008 in order to generate business that would allow them to retain key staff. However, such below cost tendering is likely to become less prevalent in 2009. In its 2009 handbook, Bruce Shaw reports a 12% fall in average tender prices in 2008 although in some cases falls of over 20% were seen. It reports that both contractors and sub-contractors competed aggressively last year to secure work in a dramatically dwindling market. Bruce Shaw also expects 2008 construction output to fall to €25 billion due to deteriorating conditions. In its earlier report, DLPKS estimated that average tender levels reduced by 13.5% in 2008, and some fell by 30%. Norman Craig, DLPKS’s managing director, says that the fall in tender prices indicates that the Government will now get exceptional value for money in terms of its spending on key infrastructure. “In relation to investment in infrastructure, the Government should focus its investment on projects that will give the best economic return,” he adds.
Dublin property drops to bottom of international league Meanwhile, in terms of the property market, Dublin office and retail values suffered some of the sharpest falls in Europe, the Middle East and Africa
22 SCSREVIEW
(EMEA) in the last three months of 2008. From previously being ranked among the most expensive in Europe they are now ranked with cities like Glasgow, Edinburgh, Birmingham and Budapest. These are among the findings of a CB Richard Ellis survey, and CBRE director Sean O’Brien says values could fall by a further 15% this year because of the reluctance of the banks to fund property purchases. Although Dublin rents are still among the highest in Europe, commercial property valuations are among the lowest. On a comparison of yields, Dublin retail values fell by 61% in 2008 – the sharpest fall of any of the 41 EMEA cities surveyed. In contrast, prime Dublin retail rents remained static over the year at €4,700 per square metre – the fifth most expensive in EMEA. Consequently, Dublin retail yields increased to 6.5%, ranking them 28th out of 41. Dublin’s prime offices suffered the second sharpest fall in values in EMEA – down 36% in the fourth quarter (Q4) and 50% on the year. Rents fell 7.4% over the year but, at €623 per square metre, they are also still the fifth highest in EMEA. In contrast, Dublin office values were ranked 34th.
Retail In its analysis, DTZ Sherry FitzGerald cites the example of two Grafton St retail properties. In 2007 the yield on the River Island Wallis deal was around 2.5%. Recently, the yield being quoted for the Tommy Hilfiger store, almost across the street, was 5.25%. Its report also points out that prime shopping centre yields now range between 6% and 7%, while those for prime retail warehouses are in the 6.5% to 7.5% range.
Review
CLASSIFIED SECTION CLASSIFIED ADVERTISING
However, as security of income has now replaced capital gain as a key driving force for investors, DTZ says that the adage of ‘location, location, location’, has been replaced by ‘tenant, tenant, tenant’. Furthermore, it adds: “A high yield is worth nothing if the rent is not being paid”. Nevertheless, DTZ expects activity levels “to increase in 2009 as liquidity eases, although we do expect yields to increase as investors remain nervous about the future”.
A new initiative for the SCS Review is the introduction of classified advertising. Lineage advertisements offering suitable positions in the profession (four lines) will be FREE TO MEMBERS of the SCS. Please send your advertisement by email to greynolds@scs.ie Display advertisements of one sixth of a page (as below) will be available at a cost of ¤200 (plus VAT) on the Classifieds Page through pat@thinkmedia.ie.
Flanagan & Associates Chartered Quantity Surveyors Returns Irish investors saw the returns from their property portfolios fall sharply in 2008, dropping by 14.5% in Q4 and by 36.4% in the 12 months to December 2008, according to the latest Irish Property Index by Jones Lang LaSalle. Capital values fell by 39.6% in the year to December 2008 and by 15.9% in the final quarter. Capital values in the office sector declined by 36.8% in the year and by 14.5% in Q4. Values in the retail sector fell by 45.1% in the year and by 17.6% in the final quarter. Industrial capital values performed slightly better, with an annual decline of 28.5% and a fall in Q4 of 16.3%. Rental values increased by 1.5% in the year and by 1.7% in Q4, following a fall of 1.9% in Q3. The retail sector had a marginal rental growth in Q4 of 0.2%. The office sector recorded no change in rental values during Q4 2008, while industrial rental values fell by 0.6% during this period. In the year to December 2008 rental value movement was positive for both offices and retail, with growth of 1.8% and 1.5%, respectively. Rental values in the industrial sector declined slightly during the year. Income growth for the Index portfolio remained strong, increasing by 3% in Q4 and by 5.5% in 2008.
M&E QUANTITY SURVEYORS Abu Dhabi two senior M&E QSs required for university and health care projects in Abu Dhabi, ranging in value from $55m to $130. Requirements: ■ Contractor or PQS background; and,
■ Minimum of five years post-graduate experience at project surveyor level.
This role offers the suitable candidates career progression in an established and
dynamic company.
A competitive remuneration package is available.
Please forward your CV in confidence to info@faa.ie, or
alternatively, contact Sharon Lyons, Tel: +353 91 565 740.
Office opportunities Lisney’s annual review points out that difficult market conditions create opportunities for those wise enough to spot them. “The shift in power has now moved in favour of the [office] occupier. Those seeking new space as a result of growth in their business, new ventures or because their existing lease has expired, may be able to acquire better accommodation on more flexible terms at lower overheads. For occupiers with break options, there’s a chance to renegotiate leases and perhaps renegotiate further break options or the rents. “There are also opportunities for developers. With land costs and construction costs falling, the total cost of providing product has also fallen dramatically. Therefore, astute developers will be able to acquire older buildings in prime city centre locations that produce an income stream in the short term and have good medium-term development potential. “In all likelihood, rental levels will fall, or where developers maintain headline office rents, the incentives available to occupiers will increase. The amount of vacant properties will continue to increase. It is clear that there will be no significant speculative development over the next two to three years and, as transactions occur, vacancy levels will slowly decrease,” Lisney adds.
Donal Buckley Donal is Commercial Property Editor of the Irish Independent.
SCSREVIEW 23
SCS survey
Tender Price Index shows prices back at year 2000 levels
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New research shows that construction tender prices fell by 11% last year and are now back at levels not seen since the year 2000. The SCS Tender Price Index for the second half of 2008 shows a decrease of 7.4% for the second half of the year and a decrease of 11% for the year as a whole. SCS President Sean McCormack, said: “This research confirms what we have been hearing anecdotally for some time. Some tenders received
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during 2008, particularly in the later months, showed decreases well in excess of the average decrease for the year, so further falls are assured”. McCormack said the figures reflected the dramatic fall off in all sectors of the construction industry including residential, commercial, public sector and civil engineering works, and the fact that the industry’s output is likely to reduce to less than half of its peak of €38 billion in 2007. The Figure illustrates the
substantial fall in tender prices during 2008, particularly in the second half of the year. “Without strong government intervention, output could actually shrink to €14 billion by 2010. The fall in tender prices reflects the situation where contractors are bidding at or below cost in order to secure a share of the everdiminishing market. It is likely that there will be further reductions in tender prices during 2009 but perhaps at a slower rate, as below cost tendering can only be a shortThe SCS Tender Price Index is the only independent assessment of construction tender prices in Ireland. It is compiled by the Society’s quantity surveying members, and is based on actual tender returns for non-residential projects during the period for which it is undertaken. It is also based on
term solution,” McCormack said. He continued: “Now is the time for the Government to forge ahead with the National Development Plan and other capital projects as there is real value to be had in the market. Obviously this would help to safeguard thousands of jobs and retain the skills and experience gained over the last decade in the construction and property sector”. The SCS Tender Price Index will continue to monitor construction tender levels and trends and will publish the results for the first half of 2009 in the summer. predominately new build projects with values in excess of €0.5m and covers all regions of Ireland. The Index should be regarded as a guide only when looking at any specific project, as the pricing of individual projects will vary depending on such factors as their complexity, location, timescale, etc.