SCS REVIEW Autumn 2009

Autumn 2009 Volume 3: Number 3

SCS

REVIEW Is that a light I see?

All aboard the NAMA express

CIC Report: Meeting with Department of Finance Rent: The upward only rent review issue Construction: Your guide to insolvency

Meet the team: Pat McGovern BSc FSCS FRICS – Managing Director Chartered Building Surveyor Mobile: 087 2586315 E-mail: pat@mcgovernsurveyors.ie Ciaran Byrd BSc ASCS – Structural Surveys/Defect Analysis Chartered Building Surveyor Mobile: 087 906 3164 E-mail: ciaran@mcgovernsurveyors.ie Brian Duffy BSc ASCS – Structural Surveys/Defect Analysis Chartered Building Surveyor Mobile: 087 674 0507 E-mail: brian@mcgovernsurveyors.ie Kevin Hollingsworth BSc ASCS MRICS – Project Management Chartered Building Surveyor Mobile: 087 279 7782 E-mail: kevin@mcgovernsurveyors.ie Seamus Mulligan BSc ASCS – Schedules of Dilapidations Chartered Building Surveyor Mobile: 087 699 3133 E-mail: seamus@mcgovernsurveyors.ie Danny O’Brien BSc – Topographical Surveys & Boundary Disputes Land Surveyor Mobile: 087 657 2090 E-mail: danny@mcgovernsurveyors.ie

ASSESS - ASSURE - PROTECT McGovern Surveyors – the new brand name for Pat McGovern & Associates 59 Merrion Square, Dublin 2.

Tel: 01 661 0390 Fax: 01 661 0391 info@mcgovernsurveyors.ie www.mcgovernsurveyors.ie

Contents

09 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 Emma Dakin John Minihane Ciara Murphy Paul O’Grady Gillian Reynolds Derry Scully

PUBLISHERS Published on behalf of SCS

by Think Media Ltd Editorial:

Design:

Ann-Marie Hardiman Paul O’Grady Tony Byrne Tom Cullen Ruth O’Sullivan

Advertising: Pat Murray

SCS Annual Conference

04

President

Facing into a very busy period.

13

Cover Story

John Minihane reviews the contentious NAMA legislation.

05 News

Career support services for members; an award for fund raising; and members on the move.

17 Rent

Eoin McDermott examines the situation on upwardonly rent reviews.

06

Interview

President Ken Cribbin calls on the Government to act now on the Report of the CIC.

18

Construction

Mark Etherington offers advice on negotiating issues around insolvency.

09

Conference

Staying afloat in uncertain times is the theme for this year’s SCS Conference.

20 Legal

Property case reports.

12

Director General Ciara Murphy reports on a key meeting with the Department of Finance.

22

John O’Connor discusses pension options for surveyors.

www.scs.ie

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.

CIC Report

Personal Finance

The NAMAexpress leaves on page 13

SCSREVIEW 3

President’s news

Taking action With the autumn session in the SCS now underway, we face into a very busy period in the Society.

A number of key challenges face us as a profession, including the imminent enactment of legislation to enable the establishment of the National Asset Management Agency (NAMA), the implementation of the Construction Industry Council (CIC) proposals and the commencement of the registration of title process for both quantity and building surveyors.

Building Control Act to enable the registration process for both quantity and building surveyors. Although these nominations have still not been received, the Society’s working group has been working in the background to finalise the organisational and administration arrangements for this new and important role within the Society. Members will be informed of developments in this area as they arise.

NAMA The draft NAMA legislation was published at the end of July. It was not unexpected that the detail relating to how long-term economic value is to be calculated was not set out in more detail in the draft legislation. More detailed regulations are currently being drawn up and are due to be published in September. What is clear from the draft legislation is that valuations by NAMA will have to be consistent with EU Commission guidelines and will be based on the current market value of the underlying collateral, adjusted to reflect a longer-term economic value that the underlying asset could reasonably be expected to attain. The Society’s working group is reviewing the legislation and will make submissions to the Government as appropriate.

CIC Task Force The Task Force established by the CIC to lobby for the implementation of its submission to Government of May 2009 reported on the outcome of its efforts at the end of July. This Task Force, which includes our Director General, Ciara Murphy, and former Society President Derry Scully, has successfully persuaded the Government of its proposal to draw upon pension funds to continue with the delivery of the Public Capital Programme.

Having highlighted the narrow window of opportunity that exists for the Government to avoid a total collapse of the construction industry and a consequent deepening of the economic crisis, the Task Force is continuing in its campaign to ensure that the CIC’s proposals are implemented this autumn.

With the establishment of NAMA and the expected improved financial liquidity position of the banks, coupled with the stimulus of alternative funding underpinning the Public Capital Programme as set out in the CIC report, it is hoped that the effect of these policy decisions will mark a turning point for the construction and property industry. These two very important initiatives should at least bring stability and confidence to the industry, allowing us all to plan for the medium-term future with a degree of certainty that has been lacking for the last 18 months.

Working for members The Society’s ever increasing role in policy areas of concern to the profession is evident to all. In this regard, I wish to express my sincere gratitude to both the executive staff and the members of the various committees and working groups for all their time and dedication in ensuring that the views of Chartered Surveyors were brought to the fore. Members are urged to log on to the Society website – www.scs.ie – on a regular basis to keep apprised of the latest submissions made by the Society on behalf of the profession. A new members’ discussion board is now live on the members’ section of the website. This is a valuable tool for members to exchange views on a whole variety of topics that are of common concern. I hope that members will start to use this new feature of our website over the coming weeks.

As you are by now aware, the SCS Annual Conference will take place on Friday, October 16, in the O’Reilly Hall, UCD. Details on the full programme are on page 9 and I look forward to welcoming as many of you as possible to the conference, which is set to stimulate interesting debate and is an important event in the Society’s calendar.

I intend to visit each of the Regions in the coming months and hope to meet as many members as possible. In the meantime, please feel free to forward your views on any front to me at president@scs.ie. Alternatively, the executive staff in Wilton Place will be happy to assist in any way possible.

Registration The Minister for the Environment, John Gormley, indicated his intention last June to proceed to appoint his nominees to the various Boards under the

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Ken Cribbin President

SCS News

SCS receives award

EDITORIAL

Ken Cribbin, President of the Society of Chartered Surveyors, recently accepted an award on behalf of the Chartered Surveyors in Ireland for fundraising efforts in aid of the LionHeart benevolent fund (an independent charity run by the members for the members). The award was presented in the UK by Simon Kolesar. Lionheart exists to provide confidential advice, information, support and, in certain circumstances, financial assistance to those who, for whatever reason, find themselves in difficulty. The Society’s latest fundraising effort took the form of a golf event, which took place on June 12, 2009. This annual event raises proceeds of approximately €10,000 per annum for LionHeart.

Accepting the award on behalf of the Chartered Surveyors in Ireland, Ken Cribbin said: “On behalf of the organisers of the Society of Chartered Surveyors Benevolent Golf Outing I would like to thank The Company of Chartered Surveyors for recommending our golf outing as the recipient of the award. Having reviewed the very deserving other nominees considered for the award, we realise that the trustees had a very difficult job in picking one, as each and every one of the short list are worthy of this award”. Ken expressed his thanks to past and present senior Chartered Surveyors involved in running the golf outing over the past 23 years.

Key role of Society in crisis

Career support services HotDesk facility One floor of the SCS offices in Wilton Place has been reconfigured to offer office facilities and a meeting room for members who are unemployed. The facilities are free of charge and include desk space, IT resources and a meeting room.

This is an opportunity for those currently between jobs and office spaces to meet with colleagues, clients and prospective clients, as well as to avail of much-needed office space and IT resources to assist you in carrying out your business or while you search for employment.

If you are interested in availing of this service, please contact the Education Office at education@scs.ie.

Database for shortterm/contract work The SCS has created a database for members available for short-term or contract work. This database is viewable on the SCS website – http://www.scs.ie/jobs/scs_membe rs_seeking_employment.

The database is regularly updated and includes information such as a brief work history and contact

details. If you would like your details to be included, please contact the Education Office at education@scs.ie.

The Society encourages all possible employers to avail of this database when recruiting. Your firm could benefit from availing of highly skilled and experienced surveying professionals on a short-term or contract basis.

A Day in the Life In order to raise awareness of surveying as a profession – and to promote surveying as a future career – the Society of Chartered Surveyors is undertaking the ‘A Day in the Life’ programme, whereby surveyors from across the industry will visit secondary schools and speak to Transition Year students about the work that they do on a daily basis, and the profession in general.

The Education Office has already been in contact with career guidance counsellors around the country and has received a huge response from schools interested in participating in the programme.

We are now looking for volunteers to go out and spread the word! If you have some spare time and

would be interested in visiting a school to talk with students about your work, then please contact the Education Office at education@scs.ie, indicating a school or area that would suit you best.

2009 SCS Conservation Accreditation Course The SCS Conservation Accreditation Course, run on behalf of the Society by the Dublin Civic Trust, is intended to serve as an induction module providing an introduction to the philosophy, principles and practice of architectural conservation in Ireland. Applicants who complete the Course will receive accreditation at Grade III level.

The course will be run one day a week over five weeks, commencing in late September, and will cover the following topics: philosophy and legislation; inspection and structure; materials; services and specialist investigation; specifying works; and, costing. The course fee is €1,000 and it will be held in Dublin.

For further information or to book a place, please contact Susan Clancy, Email: sclancy@scs.ie.

It is a time of crisis and the Society has stepped up to the mark very significantly. That is absolutely evident in the contents of this issue of the Review. Our role in the Construction Industry Council has been progressive – as has that of all partners. The Report from the Council offers the Government a vital route to alternative finance for major infrastrucuture. We continue to play our part in encouraging the Government to adopt that proposal and provide much needed support for the construction industry specifically, and employment and the economy generally.

Parallel to those efforts, our Society’s working group is paying very close attention to the Bill to set up NAMA and again, the Society will communicate urgently with Government on the key issues. This is especially true in relation to valuation where we have the necessary experience that others do not.

If I may be so bold, I would suggest that the role of the Review is also heightened in this difficult time. Members will benefit from reading all of its contents, but in this issue I want to draw your attention to the President’s interview, the Director General’s report on meeting the Department of Finance, and John Minihane’s article on the Bill to establish NAMA. These really are compulsory reading for all professionals in our industry and lead to the conclusion that our strength is in the collective we form, and the excellent work of our officers and executives.

John Oliver Costello

SCSREVIEW 5

Interview

Invest now President of the Society, Ken Cribbin, is clear about what the Government needs to do to get the industry working again. Interview by Paul O’Grady.

“The Society of Chartered Surveyors has significant contributions to make to several of the key debates taking place now in Irish life. We have the people best qualified to make considered and helpful contributions to the debate on valuations that surrounds the setting up of the National Asset Management Agency (NAMA).

“The Society’s working group made a preliminary submission to the Department of Finance focussing on the proposed valuation method set out in the draft legislation. The Society has acknowledged that while mark to market is the most appropriate valuation concept, given the current extraordinary circumstances, the new proposed model of ‘Long Term Economic Value’ may, at this juncture, represent the only possible addition to market value in order to achieve the specific purpose of the establishment of NAMA which is to extract the toxic loans from the banks. The working group will review the regulations that will provide more detail in relation to Long Term Economic Value when published in mid September.

“We have already made an important contribution to the Report of the Construction Industry Council which has been submitted to and recently adopted in principle by Government. We understand and can make informed comment on issues relating to the infrastructural deficit and the need for the Government to maintain labour-intensive construction projects over the coming years.”

Profile of a President The Society of Chartered Surveyors’ President for 2009/2010, Ken Cribbin, is a quantity surveyor who graduated from Bolton Street in 1989 and became a Chartered Surveyor in 1991. In 2005, he became a Fellow of the Society. He has served the members in various capacities, including as Chairman of the YCS in 1995; as Chairman of the Quantity Surveyors from 2005 to 2007; and on the Council over many years.

Ken joined Brendan Merry and Partners in 1987, becoming an Associate in 1993 and progressing to company director in 1995. He cites Brendan Merry as a mentor and friend and said Brendan’s passing was a major loss both personally and professionally. “Brendan encouraged participation in the

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They’re the views of SCS President, Ken Cribbin. One of his priorities for his term is raising the profile of the Society amongst policy makers through making contributions to the public discourse and political debate on national issues, and, as is evident from the above, the Society is already engaged at a very high level in that debate. (See also Ciara Murphy’s report on the meeting with the Dept of Finance about the Report of the CIC on page 12.)

ON THE CONSTRUCTION INDUSTRY…

“If you examine the figures, the reality is scary.”

His other priority is to ensure that the Society does all in its power to assist those surveyors who have been made redundant to keep in contact with and connected to the profession.

Investment in badly needed public infrastructure projects Ken Cribbin is full of praise for the various professional bodies that cooperated to such good effect in producing the Report of the Construction Industry Council and submitting it to Government. He comments: “If you examine the figures, the reality is scary. Construction work at its height

Society by everyone in the company and served as President himself in 1981,” says Ken. Brendan had established the practice in 1968 and there are now four directors: Ken, Fintan Bennett, Michael Mulryan, and Damien Morgan. The company provides project management and quantity surveying services to public and private clients and Ken specialises in the healthcare and education sectors. He is married to Carol and they live in Howth with their four children: Niamh (13), Sean (10), Aoife (6) and Conor (5).

On the unique demands of holding down a job, having a young family and being President, Ken says: “I rely on the support of my fellow directors in work, and of my wife and family at home, but I am proud to serve the members and honoured to hold the office of President of the SCS.”

Interview

reached €38.4 billion per year in Ireland. In 2009, the number is likely to be €16.9 billion, with €12.4 billion projected for 2010 and 10.2 billion projected for 2011. This reduces the number of construction related jobs during the period 2009 to 2011 by a further 84,000 to just 126,000. As a result, there has to be an effort made by Government to invest in public infrastructure projects to deliver projects for the public benefit and also support the construction industry through the most severe contraction in the past 30 years. To be effective, investment should be focussed on those projects that are both labour intensive and will provide the greatest return to the economy. While he notes that the Government has adopted the recommendations of the report, in particular the suggestion to encourage pension funds to invest in public infrastructure, he expresses the hope that it will move on its recommendations quickly. “There is an opportunity for the Government to get incredible value in public tender prices at the moment.

Construction costs are back to levels of 1999 or 2000. As a country, we should use the spare capacity in the industry to get great value and put people back at work.”

ON THE GOVERNMENT…

“While they are making up ground now, the next Budget will be crucial. I believe it will be a defining moment for this Government.”

Ken’s own view of the likely length of the recession is that there is some good news emerging internationally now and, given that we are to some extent dictated to by the global economy, that is good news for Ireland too.

“However,” he warns, “it’ll be at least another 12 months before Ireland starts to see recovery.”

On the Government’s performance, Ken says that the jury is out. “They were very slow to recognise the severity of the downturn. While they are making up ground now, the next Budget will be crucial. I believe it will be a defining moment for this Government.” And his advice for Government? “Implement the recommendations of the Construction Industry Council Report as soon as possible to provide the necessary alternative funding to underpin the Public

Capital Programme and draw on the expertise that is available amongst Chartered Surveyors in making public policy decisions.

ON THE SOCIETY…

“…the Society is working very hard to bring its influence to bear on the Government…”

Asked about the strengths of the Society, he says its greatest strength lies in the diversity of its members. “Our members are involved in the whole life cycle of a property – from green field to construction to commissioning to use, right through to decommissioning and back to brown field. I believe we derive a great strength from that comprehensive involvement in all aspects of the property business.”

Stay connected It may not be the only tough time in the history of the Society, but this next 12 months looks like being the toughest in the last 30 years. Concluding, Ken repeats his commitment to make sure that the Society does everything in its power to assist those members who are facing a very difficult time as a result of the economic downturn. “I would appeal to all of them to stay involved with and connected to the Society and to let us know if there are any further actions we can take that will help.” Additionally, he states that the Society is working very hard to bring its influence to bear on the Government so that Chartered Surveyors can be part of the solution in assisting the industry through these difficult times. It’s a challenging time to be President of the Society.

Paul O’Grady

Paul is a journalist and a Director of Think Media.

SCSREVIEW 7

Business News

New consultants at Brian Bagnall & Associates

Following several years of operating in the Middle East, Flanagan & Associates has opened their new regional headquarters in Abu Dhabi in the United Arab Emirates.

Flanagan Arabia Tel: +971 2 6192396

Obituary Gerald Michael Costello FSCS, FRICS Gerald (Gerry) Costello passed away on June 18 at the age of 94.

Gerry was the only son of a ship’s captain based in Hong Kong and grew up in the bustling colonial outpost. At the age of 14 he returned to Dublin to be educated as a boarder at Blackrock College.

After leaving school he opted for quantity surveying as a career and joined Morris and Kavanagh as an articled pupil in 1933. He moved to Dublin Corporation as an assistant QS in 1936 and passed the RICS final examinations in 1939. Any inclination to return to Hong Kong was thwarted by World War II, which saw his mother trapped in Hong Kong and his father’s ship sunk by the Japanese (although fortunately he survived).

8 SCSREVIEW

Eamon Mulqueen has left Howard Eurocape and set up his own company, Eamon Mulqueen & Partners Ltd, a quantity surveying, BER assessment, and project management company.

Eamon Mulqueen & Partners Ltd 3 Esker Glebe, Lucan, Co. Dublin www.eamonmulqueen.ie

John Stewart & Associates

Krystyna Rawicz & Associates has moved to Kilcoole, Co. Wicklow.

Staff mobiles and email addresses

remain the same but clients are requested to please note the new landline and postal address: Krystyna Rawicz & Associates E11a Network Enterprise Park Kilcoole, Co. Wicklow Tel: 01-281 9158 Fax: 01-281 9182 www.kra.ie

John Stewart commenced practice under the title John Stewart & Associates on June 29, 2009, specialising in professional services work to include landlord and tenant cases, CPO, valuation for all purposes, rent reviews, arbitration and expert witness instructions.

John Stewart & Associates 20 Lower Baggot Street, Dublin 2 Tel: 01-634 5350 Mobile: 087-948 4054 jdstewart@eircom.net

Gerry was appointed Dublin’s Chief Quantity Surveyor in 1964, having acted in that capacity for some years. The housing crisis in Dublin led to the expansion of the Quantity Surveyors’ Department during the ‘60s. The provision of new housing stock to replace the decaying city centre tenements was tackled and, in addition to providing QS services for the Corporation’s building and maintenance programme, the Department also valued all malicious injury claims against the Corporation. During the ‘60s it was one of the largest, if not the largest, QS office in the State, with in excess of 70 staff.

Gerry had a great interest in the RICS, and later the SCS, and was proud to have helped to develop the profession in Ireland. He was active in the Junior Organisation, later joined the Quantity Surveyors’ Committee, became its Chairman in 1967 and again in 1970, and was

elected Branch Chairman/President in 1977. He believed that the RICS should set a high standard for its members; he always strived to maintain those standards and had great respect for both the Institution and for his QS colleagues. He was directly involved in the development of both the Standard Method of Measurement and the National Building Elements documentation.

Until his health began to fail he kept in regular contact with his peers in the surveying profession, and he enjoyed meeting the ‘old guard’ from both the Corporation and the Irish RICS organisation at their annual reunions, which he attended into his nineties.

After retiring from the Corporation in 1977 he maintained his interest in the profession through his involvement as a consultant to his son Peter, who had established a QS practice in Galway. His daughter Anne also qualified as a Chartered

QS and is in practice in Dublin, while his other three sons qualified as engineers.

Gerry was a gifted artist with a particular interest in capturing the beauty of landscapes and buildings.

Rowing was his pastime in his youth and he also enjoyed golf. He was a devoted family man and is mourned by his wife Norma, with whom he celebrated 66 years of marriage, his children Michael, Gerald, Peter, Brian and Anne, and his extended family.

From left: Mike Doyle; Brian Bagnall; and, Declan Bagnall.

Flanagan & Associates opens new office

Eamon Mulqueen & Partners Brian Bagnall & Associates has announced the appointment of two new consultants. Mike Doyle joins the company from Warren Private Clients, where he was responsible for the asset management of a mixed commercial portfolio including shopping centres, office and retail properties in Ireland, the UK and Europe.

Declan Bagnall has joined the company from Savills Ireland where he spent five years in the retail agency division with specific experience in shopping centre projects.

Fax: +971 2 6192398 info@faa.ae www.faa.ae

Krystyna Rawicz & Associates move

STAYING AFLOAT IN UNCERTAIN TIMES

GOLDSPONSOR

SCSCPD 6 hours

MEDIASPONSOR

The SCS 10th Annual Conference is taking place on Friday, October 16, 2009, and is set to be another successful event for the Society.

In order to accommodate the popularity of the conference, the venue will again be the O’Reilly Hall, Belfield, UCD. The Society is delighted to announce that the conference will again enjoy the support of The Irish Times as our media partner for the event. Additionally, MARSH and Travelers, professional indemnity providers for members of the SCS, have agreed to support the event by becoming a conference partner, with additional associate sponsorship from Mason Hayes+Curran and Paramount HR. Attendance will account for six hours of CPD activity, and counts towards the required 60 hours of CPD over three consecutive years necessary to retain membership of the Society.

This year’s conference theme, ‘Staying Afloat in Uncertain Times’, will address areas such as the economic outlook for the construction and property sector, the impact of the National Asset Management Agency on the

profession, and an overview of the financial landscape in the aftermath of the credit crunch. A highly experienced panel of speakers from diverse backgrounds will address delegates from a number of different perspectives. This year our conference will be opened by the Minister for Finance, Brian Lenihan.

Other speakers include: ■ Alan Dukes – keynote speaker; ■ Dr Alan Barrett – Research Professor, ESRI; ■ Dr Peter Stafford – Research and Policy Development Executive, Construction Industry Federation; ■ Dermot Reidy – Development Advisor, Enterprise Ireland; ■ Mark Cunningham – Managing Director, Bank of Ireland Private Banking and Director of Business Banking, Ireland and the UK; ■ Michael Mortimer MRICS – Senior Risk Manager, Travelers Professional Risks; ■ Professor Brian Lucey – Associate Professor in Finance, Trinity College; and, ■ Peter Stapleton – Managing Director, Lisney.

Dr Alan Barrett, Research Professor, ESRI, will discuss the latest forecasts

ASSOCIATESPONSORS

from the ESRI’s Quarterly Economic Commentary, covering short-term economic prospects. He will also comment on medium-term prospects for the economy.

Dr Peter Stafford, Research and Policy Development Executive, Construction Industry Federation, will look at the outlook for the Irish construction sector in 2010. Peter will review the state of the house building, general contracting and civil engineering industries in 2009, and will give a forecast for each sector into 2010.

Dermot Reidy, Development Advisor, Enterprise Ireland, will discuss Enterprise Ireland’s experience in the field of internationalisation and its successful execution. He will also provide information on the assistance available through Enterprise Ireland.

Mark Cunningham, Managing Director, Bank of Ireland Private Banking, and Director of Business Banking (Ireland and the UK), will speak on the issue of property financing conditions in the Irish market, with particular reference to the property and construction industry in the current economic climate.

Michael Mortimer MRICS, Senior Risk Manager, Travelers Professional Risks, will look at the proposed purchase of property-related loans

by State supported and owned “toxic banks” which will be a massive undertaking for many countries in the EU. The presentation, which will be accompanied by recent illustrative property transactions, will look at the evolving valuation methodology to be utilised.

Professor Brian Lucey, Associate Professor in Finance, Trinity College, will give an economist’s view of NAMA. He will explain the difficulties NAMA will encounter in trying to make a profit in the future.

Peter Stapleton, Managing Director, Lisney will talk about how NAMA will manifest itself in the role of Chartered Surveyors over the next few years.

The Society looks forward to welcoming you to the annual conference and to your participation in the discussions that will ensue.

For booking enquiries, please contact SCS Conference Organiser Donna O’Connor, Tel: 086 837 0577, or Email: conference@scs.ie.

October 16, 2009. O’Reilly Hall, UCD, Dublin 4.

SCSREVIEW 9

Business News

There is an increasing number of low carbon concrete block suppliers around the country. These include (clockwise from top left) Ducon in Cork, Loughnane in Offaly, Hanlon in Kildare, and Esker in Galway. Others, not pictured, include Gleeson in Tipperary, Morrisey in Carlow, Cannon in Galway, McGrath in Mayo, CMC in Galway, Harrington in Galway, Sligo and Mayo, and Kilsaran in Dublin.

Ecocem goes carbon neutral From May 2009 all cement supplied

by Ecocem will be carbon neutral.

By using Ecocem’s carbon neutral cement in concrete, companies can create significant CO2 savings and reduce their impact on the environment.

By driving efficiencies and making changes to the plant, and through sourcing more green energy, Ecocem has reduced its carbon footprint to approximately 2530kg/tonne, which is over 30 times greener than ordinary cement (approximately 900kg/tonne). In addition, the company has teamed up with Emission Zero to offset its remaining carbon footprint.

Cement accounts for 90% of the footprint of concrete. So by

10 SCSREVIEW

replacing this polluting material with a zero CO2 material, companies can achieve massive environmental benefits.

Carbon neutral cement is a giant step towards truly sustainable construction. Because concrete is the most widely consumed resource in the world after water, using carbon neutral cement means the benefits on a worldwide basis will be significant – many multiples of Ireland’s entire carbon footprint.

Ecocem green cement is also used to make low carbon concrete (LCC) blocks, which have a much lower embodied CO2 footprint than ordinary blocks. On a typical family house, using LCC blocks could save up to 10 tonnes of CO2, the equivalent of leaving your car at home for over two years. Details of suppliers can be found at www.lowcarbonconcrete.ie.

Congratulations from Lord Mayor

Former Lord Mayor of Dublin, Eibhlin Byrne (left), congratulates John Newell, MD Ecocem Ireland, and Vivienne O’Riain, Director, Ecocem Ireland, on Ecocem going carbon neutral.

CIC Report

Department welcomes CIC report A recent meeting between the Department of Finance and the Construction Industry Council (CIC) Task Force has confirmed a positive response. CIARA MURPHY, SCS Director General, reports.

As members will be aware, the Government has been exploring new ways to fund capital investment. The pension funds industry and other institutional investors represent one possible source of additional private sector funding for public–private partnership projects. In this context, the Government very much welcomed the report from the CIC and the emphasis it gave to accessing new sources of funding for public infrastructure. They confirmed that the CIC report has been an important spur to work in this area, and to the overall effort to find alternative and innovative means of funding the investments we need to position Ireland for economic recovery.

The Government is very keen to access and encourage investment by pension funds and others in public infrastructure. The Department of Finance, together with the National Development Finance Agency (NDFA) and others, has been actively engaged with a number of interested private sector parties to work through the details of funding proposals that could potentially help to unlock additional sources of private capital for infrastructure funding. We were advised that these discussions are encouraging.

The Government has now asked the Department of Finance to expedite work on this issue with a view to bringing on new sources of private funding for projects as soon as possible. More than one mechanism is being looked at to encourage and facilitate additional funding from institutional investors.

Getting it right The key issues for the State are to ensure that the terms are right and in the taxpayer’s favour, that value for money is secured and that the private sector shares the appropriate level of risk to minimise the State’s exposure to additional borrowing. The challenge it faces is to devise an infrastructure financing arrangement that both meets the State’s requirements and offers a risk/return profile that is acceptable to investors.

Achieving an “off balance sheet” status for projects is not the main driver for our capital investment decisions. In capital investment (including privatelyfinanced investment), the Department of Finance’s priority is always to achieve value for money for the taxpayer. However, given the current difficult budgetary circumstances that the country faces, they also confirmed a need to minimise the State’s exposure to additional Exchequer borrowing.

Other countries in Europe are also engaged in efforts to secure alternative funding for infrastructure projects. The Department of Finance is continuing to liaise with its European colleagues directly and through the European PPP Expertise Centre as they work through the details of potential funding

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solutions. The Department is continuously monitoring the endeavours of other EU States to see if their approaches can be applied with benefit in Ireland.

Creating opportunities The advantages of accessing additional funding for infrastructure investment were also acknowledged. The Department of Finance shares the CIC’s view that infrastructure investment helps to create jobs. They acknowledged that the employment impact of construction projects does vary, and that research conducted in this area suggests a range of 8-12 direct jobs created per €1million invested in infrastructure. They agreed that the directing of additional private sector investment towards infrastructure would also help to further boost Ireland’s public capital stock and so support efforts to increase competitiveness and raise economic growth.

They also reminded the CIC that the Government is continuing to invest substantial Exchequer resources in capital infrastructure, with €7.3 billion allocated for capital projects in 2009 and some €31 billion allocated for the period to the end of 2013. This investment supports a substantial level of employment, while the reductions in tender prices mean that they can do more with less. This year, they will be spending 5% of GNP from the Exchequer on public infrastructure, which is one of the highest ratios in the EU15, and over the next four years, Exchequer capital investment will amount to an annual average of over 4% of GNP. Finally, the Department representatives confirmed that they will continue to work with other Departments, the NDFA and other procurement agencies such as the NRA on bringing forward a stream of economically worthwhile projects to access any new funds that may become available. There is a substantial pipeline of projects that could potentially benefit from private financing.

The Department of Finance will continue to keep in contact with the CIC Task Force to provide updates about the progress of this work.

Ciara Murphy

Ciara is Director General of the SCS.

Cover Story

All aboard the NAMA express JOHN MINIHANE reviews the contentious NAMA legislation.

A Bill discussion document (the “Bill”) to effect the establishment of the National Asset Management Agency (NAMA) was published on July 30, for the purposes of public consultation. NAMA will purchase, at a discount, an estimated €90 billion worth of property loans and property-backed exposures from banks, with a view to relieving the banks’ balance sheets of the loans at most risk.

NAMA has been established, broadly speaking, in the model of Securum, the Swedish asset management agency established in 1992 following a property crash. However, NAMA is very different in terms of its vastly larger scale and comparative relevance to GDP (bearing in mind Ireland’s approximately €182bn GDP in 2008), the worldwide environment in which it will operate, the fact that it will deal with non-nationalised banks, and the valuation of assets methodology to be used.

after consultation with NAMA and other agencies, designate an applying credit institution and its subsidiaries as participating institutions, where he is satisfied that it is systemically important and necessary to do so to achieve the purposes of the NAMA legislation.

The Minister for Finance, again after consultation, may prescribe classes of bank assets as subject to acquisition by NAMA. NAMA will then prescribe a schedule and timetable for acquisition of specified assets from participating institutions. The Bill provides for a limited appeal mechanism.

Foreign assets

NAMA will be a separate independent statutory body with its own board appointed by the Minister for Finance. Staffing resources and management services will be provided by the Irish National Treasury Management Agency (the agency charged with responsibility for management of Ireland’s sovereign debt). The Bill explains the purpose of NAMA, being to acquire, manage and realise assets and facilitate restructuring of financial institutions, all with a view to addressing a threat to Ireland’s economy and the stability of its credit institutions. It is intended that NAMA will have all necessary powers to achieve this purpose.

The Bill makes specific provision for the acquisition of foreign assets by NAMA. Where NAMA proposes to acquire a foreign asset of a participating institution, the transfer will be valid and binding in all respects if the law governing the transfer of the foreign asset is the law of Ireland. If the law governing the transfer of the foreign asset is a foreign law and that law permits the transfer of the asset, the participating institution is obliged to do everything necessary to give effect to such transfer. However, if the foreign law does not permit the transfer of the foreign asset, the participating institution is obliged to do all that it is permitted to do under the relevant foreign law to transfer to NAMA the greatest interest possible in the foreign asset, including the full beneficial interest. In this scenario, the participating institution is obliged to undertake such duties, obligations and liabilities as nearly as possible corresponding to those of a trustee in relation to that foreign asset, and to hold that asset for the benefit of NAMA.

Which banks’ assets will be acquired by NAMA?

Powers of NAMA

Any credit institution, including foreign owned ones, may within 28 days of the commencement of operations of NAMA, apply for it and its subsidiaries to be designated as “participating institutions”. The Minister for Finance may,

NAMA will be granted extensive powers under this proposed legislation.

After it acquires a bank asset, NAMA has and may exercise all the rights and powers, and is subject to all of the obligations, that the participating

What is NAMA?

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institution had. It may transfer, assign, sell or otherwise dispose of any acquired assets to any person, despite certain specified restrictions on disposal. If the asset is secured by a charge, but the charge is a second or subsequent charge, NAMA may redeem or discharge any prior charge in accordance with its terms. It may appoint a statutory receiver of property where specified defaults arise. It may apply to compulsorily acquire land or a relevant right in adjoining lands.

Valuation One of the most eagerly awaited aspects of NAMA is the valuation it will attribute to the relevant portfolios of assets. Part 5 of the Bill sets out the proposed valuation methodology.

A “bank asset” is defined as: “includes– (a) a credit facility and any security for it; (b) every other right arising directly or indirectly in connection with a credit facility, including– (i) a contract to which the participating institution is a party or in which it has an interest, and (ii) a benefit to which the participating institution is entitled; (c) every other asset in the ownership of a participating institution; and (d) an interest in a bank asset referred to in any of paragraphs (a) to (c)”.

It provides that: (a) “a reference to the current market value of the property comprised in the security for a credit facility that is a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’s-length transaction where both parties acted knowledgeably, prudently and without compulsion”; (b) “a reference to the current market value of a bank asset is a reference to the estimated amount that would be paid between a willing buyer and a willing seller in an arm’s-length transaction where both parties acted knowledgeably, prudently and without compulsion”; (c) “a reference to the long-term economic value of the property comprised in the security for a credit facility that is a bank asset is a reference to the value that the property can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated and in which a future price or yield of the asset is consistent with reasonable

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expectations having regard to the long-term historical average”; and (d) “a reference to the long-term economic value of a bank asset is a reference to the value that it can reasonably be expected to attain in a stable financial system when current crisis conditions are ameliorated”.

The acquisition value of a bank asset is to be its long-term economic value as determined by NAMA. The long-term economic value of a bank asset will be determined by NAMA by reference to the following: (a) “the current market value of the property comprised in the security for the credit facility that is the bank asset at a date specified by NAMA”; (b) “the current market value of the bank asset, at a date specified by NAMA, by reference to market rates and accepted market methodology”; and, (c) “the long-term economic value of the property at the date specified by NAMA”.

In determining the long-term economic value of a bank asset NAMA will do so having regard to: (a) “any value that the participating institution concerned submits as being, in its opinion, the current market value of the property comprised in the security for the credit facility that is the bank asset”; (b) “the acquisition value already determined in accordance with the valuation methodology of another similar bank asset”; (c) “the credit worthiness of the debtor or obligor concerned”; (d) “the performance history of the debtor or obligor in respect of that asset”; (e) “any reports furnished to NAMA”; (f) “the regulations made by the Minister under the Bill”; and, (g) “the rules in relation to State aid made by the Commission of the European Communities”.

NAMA will have the discretion to determine that the acquisition value to be assigned to particular bank assets or class of bank assets will be either their current market value, or a greater value (not exceeding their long-term economic value) that NAMA considers appropriate in the circumstances.

NAMA will make this determination after consultation with the Minister, subject to any regulations made by the Minister under the Bill and also having regard to: (a) “the purposes of the Act”;

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(b) “the expected dates of acquisition of bank asset concerned”; (c) “the type of bank assets”; (d) “the rule in relation to State aid made by the Commission of the European Communities”; and, (e) “any other relevant matter affecting valuation”.

The Bill provides that the Minister may make regulations for: (i) “the application of the acquisition value to be assigned to particular bank assets or class of bank assets”; (ii) “the taking into account, in determining the acquisition of the value of a bank asset, of any report of an expert concerning: (a) zoning; (b) availability of utilities; (c) availability of similar property in similar locations; (d) historic value of property in particular locations; and, (e) recent valuations of similar property in similar locations”; (iii) “the adjustment factors to be taken into account in determining the long-term economic value of a bank asset and the property comprised in the security for a credit facility that is a bank asset”.

For the purpose of the adjustment factors to be taken into account the Minister may have regard – (a) “to the rules in relation to the State aid and any relevant guidance issued by the Commission of the European Communities”; and, (b) “in relation to the determination of the long-term economic value of the property comprised in the credit facility that is a bank asset, to – (i) the extent to which the price or yield of the asset has deviated from the long-term historical average, (ii) supply and demand projections by reference to the type of asset and its location, (iii) macroeconomic projections for growth in the gross domestic product and for inflation, (iv) demographic projections, (v) land and planning considerations (including national, regional or local authority development or spatial plans) that may exert an influence on the future value of the asset concerned,

(vi) analyses presented by the Minister of the Environment, Heritage and Local Government on the extent to which existing land zoning and planning permissions granted and in force meet or exceed projected growth requirements, and (vii) analyses presented by the Dublin Transport Office and the National Transport Authority of existing and future transport planning and the associated supply and demand projections for land use”. (c) “in relation to the determination of the long term economic value of bank assets, to – (i) the long-term economic value of the property comprised in the security for a credit facility that is a bank asset, (ii) the net present value of the anticipated income stream associated with the loan asset, (iii) in the case of rental property, current and projected vacancy rates, (iv) loan margins, (v) an appropriate discount rate to reflect NAMA’s cost of funds plus a margin that represents an adequate remuneration to the State that takes account of the risk in relation to the bank assets acquired by NAMA, (vi) the mark-to-market value of any derivative contracts associated with the bank asset, (vii) any ancillary security such as personal guarantees and corporate assets, and (viii) fees reflecting the costs of loan operation, maintenance and enforcement; and, (d) any other matters that he or she considers relevant.”

Rights of appeal The Bill provides for the appointment of a suitably qualified person as the expert reviewer for the purposes of this Bill.

An institution can only object to the inclusion of a bank asset in an acquisition schedule on the ground that the bank asset is not an “eligible bank asset”. The institution must give written notice within seven days of receipt of the acquisition schedule. On receipt of notice, NAMA will either remove the bank asset from the schedule, revoke the asset schedule, or continue with the acquisition in accordance with the acquisition schedule and refer the objection to the expert reviewer.

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Where an objection is referred to the expert reviewer the institution will provide, to the expert reviewer and NAMA, all material on which it bases its objection and any comments it may wish to make regarding the objection.

NAMA and the institution will be afforded an opportunity to respond to the other’s material and comments.

The expert reviewer will advise the Minister as to whether he or she is of the opinion that the bank asset is or is not an eligible bank asset.

Following consideration of the advice of the expert review, the Minister will either confirm that the bank asset is acquired by NAMA in accordance with the acquisition schedule or direct NAMA to amend the acquisition by omitting the bank asset, or direct NAMA to revoke the acquisition schedule.

There will also be a valuation panel to adjudicate on certain disputes to it by NAMA. The Minister may appoint up to 12 members of the valuation panel who have relevant expertise or specialist knowledge.

If, after service of the acquisition schedule, an institution objects to the acquisition value of a bank asset, it will, within 14 days of receipt of the acquisition schedule, serve on NAMA a notice of its objection. On receipt of a notice, NAMA may remove the disputed bank asset from the acquisition schedule, revoke the acquisition schedule and/or continue with the acquisition in accordance with the schedule. This section also provides that, where NAMA continues an acquisition, the participating institution may dispute the total portfolio acquisition value.

If an institution disputes the total portfolio acquisition value, it may give notice of this and can only do so if it is of the opinion that the total portfolio acquisition value is incorrect having regard to the current market value of the acquired portfolio, and if it has served a notice objecting to the valuation of assets comprising at least 12.5% (by value) of the total portfolio acquisition value. Upon receipt of the notice NAMA will refer it to the valuation panel for review.

The institution will provide the valuation panel and NAMA with all of the material on which its dispute is based and any comments it may wish to make regarding the disputed portfolio acquisition value. NAMA is also required to provide all the information it had before it determined each acquisition value concerned and any comments it may wish to make on the dispute. NAMA and the institution will be afforded an opportunity to respond to the other’s materials and comments.

The function of the valuation panel is to review the total portfolio acquisition value specified for an acquired portfolio and to advise the Minister whether it

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considers that value to be correct or incorrect. Where the valuation panel considers the value to be incorrect, it must advise the Minister of what it considers to be the correct value.

The Minister may either confirm the portfolio acquisition value as advised by the valuation panel or, if he considers that the advice is wrong, remit the matter to the valuation panel, setting out his reasons for doing so. Where the Minister determines that the value should be increased, the Minister may direct NAMA to compensate the institution to the amount of the appropriate difference (whether in the form of further consideration or by the return of the bank asset or both), save where the current market value is not greater than the acquisition value, in which case no further amount is payable. Where the Minister determines that the value should be decreased, the participating institution will repay the overpayment.

Conclusion On first impressions, the Bill is very ambitious in scope. It seems at least possible that certain of the wide-ranging powers proposed to be granted to NAMA may be open to constitutional challenge, including those relating to compulsory acquisition of privately owned assets, restrictions on dealings with lands not subject to NAMA participating institutional borrowings and the manner in which the Bill imposes limitations on legal remedies.

The issue of valuation is key to transparency and equity. Much of the prescribed methodology of the proposed valuation remains to be detailed in ministerial regulations.

What is unusual about the Bill is that it has been published for the purposes of public consultation rather than for immediate presentation to the Dáil. It will, no doubt, undergo intense scrutiny over the coming weeks and is scheduled to be published in final form at the end of August and debated by the Dáil on September 16, 2009.

John Minihane ASCS MRICS John is a partner, specialising in real estate, with Mason Hayes+Curran.

Rent

Upward only rent review EOIN McDERMOTT takes us through the current situation with regard to possible legislation on upward only rent review.

In early 2009 the Minister for Justice, Dermot Ahern TD, issued an invitation to the Society and other interested groups to: “consider, in the context within which your organisation operates, how best you and your members might contribute towards ensuring that we continue to have a dynamic and vibrant retail sector which supports employment within the economy and which, at the same time, provides an appropriate return for those who have chosen to invest in this sector”.

The Society issued its response by way of a submission to the Minister in April 2009, a copy of which was posted on www.scs.ie. The submission noted that the experience of members was that in many cases where flexibility was warranted, landlords and tenants were agreeing some form of concessions, notwithstanding the terms of the lease, to assist tenants in getting through the current economic difficulties. A subsequent survey of members was undertaken by the Society and these backed up the submission, with over 80% of respondents confirming that they had been involved in, or were aware of, cases where landlords and tenants had agreed rent reductions or holidays.

The Society met with the Department of Justice following its submission. The meeting was positive, with the SCS delegation reviewing the results of the members’ survey with the Department, reiterating its view that the Government should not seek to retrospectively alter the terms of existing leases freely entered into, and explaining that the primary reason for its objection was based on the principle that there should be no interference with the operation of the market. The Society also repeated its call for the Minister to invite all stakeholders to come together to review the practice of commercial real estate leasing in Ireland.

New Bill Shortly after the Society’s meeting with the Department, the Labour Party introduced a bill entitled Financial Emergency Measures in the Public Interest (Review of Commercial Rents) 2009. The effect of the Bill would have been to allow the Government to make an order prohibiting “the setting of a rent, as a result of a review of rent payable under the tenancy, at an amount greater than the amount of the market rent for that tenancy at that time”.

The Government’s response was to make an amendment to the Land and Conveyancing Law Reform Bill, 2006. The new clause, as introduced in the Dáil, reads as follows:

“131.

(1) This section applies to a lease of land to be used wholly or partly for the purpose of carrying on a business.

(2) Subsection (1) shall not apply where— (a) the lease concerned, or (b) an agreement for such a lease, is entered into prior to the commencement of this section.

(3) A provision in a lease to which this section applies which provides for the review of the rent payable under the lease shall be construed as providing that the rent payable following such review may be fixed at an amount which is less than, greater than or the same as the amount of rent payable immediately prior to the date on which the rent falls to be reviewed.

(4) Subsection (3) shall apply— (a) notwithstanding any provision to the contrary contained in the lease or in any agreement for the lease, and (b) only as respects that part of the land demised by the lease in which business is permitted to be carried on under the terms of the lease.”

The Minister for Justice indicated, during the course of the Dáil debate, that all the advice available to him indicated that the legislation could not be made retrospective. He also said that he would allow a period of time to elapse before he signed the commencement order for the section. He elaborated on this in a subsequent debate in the Seanad, saying: “In the context of the upward-only rent reviews for the future, I wanted to, in effect, send a strong signal. This has not yet commenced. We accepted an amendment in the Dáil to include agreements for leases, recognising that these have the same effect as leases. Substantial representations were made to us and we recognise that.

I also recognise that this to a certain extent, may very well

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discommode some of the transactions that are in planning, but there is no agreement. Life in the commercial property sector is difficult enough as it is, so I indicated in the Dáil that I would commence this part of the legislation at a time when we believe it is appropriate to bring them on. I have done this with the Intoxicating Liquor Bill, in so far as I was willing to listen to representations made to me to the effect that it could be done better than by statute. If we find that from now on there is a reasonably level playing field and that new leases facilitate the ability to review rent downwards as well as upwards, then I would hesitate to bring this part of the legislation into operation. To a certain extent this is something that will be kept under review and we shall consult with the various interests involved.”

Construction insolv MARK ETHERINGTON of KPMG offers advice on negotiating the many issues around insolvency.

In effect, the Minister has armed himself with the powers he considers necessary to take action should he feel that the market has not responded as required. This is akin to what happened in the UK in 2002/2003 when the debate followed similar lines.

Potential complications While the Minister’s decision may, on the face of it, meet with the approval of tenants, it is becoming clear that it has the potential to cause a number of difficulties. Existing tenants may well find it harder to assign or surrender leases, while new tenants may find landlords seeking the option to break their leases at rent review time (which may move to three-year intervals) or only offering short-term leases. There may also be a reduction in both tenant incentives and the premiums that tenants can, in good conditions, obtain for their leasehold interests.

The onus is therefore on those in the property sector to come up with workable, imaginative solutions to the problems facing both landlords and tenants, or face having an imposed solution. A blanket refusal by landlords to consider nothing but upwards only reviews will result in an outright ban. An acceptance that tenants will have to be offered options, with, for example, differing pricing levels to reflect differing levels of risk for both landlords and tenants, would appear to be an equitable solution. Landlords should be prepared to offer, and tenants should look for, rental offers based on both upwards only and market (up or down) review clauses. A third price may be sought/offered for a review where the rent cannot fall below the initial rent. I am informed that when this approach was adopted in the UK, the result was that tenants generally went for the option that provided the lowest initial rent. It will be interesting to see if the same result will apply here.

As pointed out in the initial submission to the Minister, members of the SCS act for both landlords and tenants. The SCS’s mandate is to act with balance, bearing in mind the requirements of all stakeholders in the process. With this in mind, the Society will be carrying out a further survey of its members in the autumn to establish what changes, if any, have occurred in the market and has undertaken to provide the Minister with the results of the survey.

Eoin McDermott Eoin is Chairman of the GP Committee of the SCS.

Between January and April 2009 there were 486 insolvencies, of which 150 came from the construction sector (Insolvency Statistics, 2009).

A company is insolvent if it is unable to pay its debts as they fall due and/or if the realisable value of its assets is less than its liabilities, including prospective or contingent liabilities.

This article discusses the measures companies need to take to protect against the effects of insolvency in a client/contractor, and also explains the mechanisms involved in insolvency.

Before you sign Protection measures before signing contracts should include:

(a) Proper investigations as to the creditworthiness of the client Instigate proper credit checks and searches on the prospective employer; understand where the funding is coming from and what conditions may be attached. Make sure that the legal entity you are entering into contract with has sufficient financial standing. We are often asked to carry out such checks and these can prove to be invaluable.

(b) Clear contract clauses One of the objectives of a good contract must be the apportionment of risk arising out of the contract’s performance. When executing a contract, advice should be sought in relation to “pay when paid” provisions, insurances, termination at will clauses, performance bonds, retention of title, dispute resolution clauses, and joint account retention funds. (An often overlooked option, a contractor should consider setting up a joint account retention fund, which shall be held on trust by the employer for the contractor. In the event of the employer becoming insolvent, this account will not form part of the assets of the liquidator and is therefore accessible as per the terms of the contract.)

Early warning signs of possible future problems Once the contract is executed, possible indicators of underlying problems can include: (a) Change of management (b) Non-payment

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Construction

ency – planning to survive

When payments are not being made in accordance with the provisions of the contract, or the valuations are significantly reduced for no good reason, it is vital that the contractor understands his contractual rights: (i) Does the contract contain an express right to suspend work for non-payment? If yes, subject to strict compliance with the terms of the contract, then consider doing this; (ii) Even if there is no formal right of determination for non-payment, the contractor may nevertheless have a right at common law to treat non-payment by the employer as a repudiatory breach, subject to the contract containing an express or implied right to interim payments; and, (iii) If the contractor is working for and at the request of the employer, but without there being any contract, then the contractor is entitled to cease work at any time he chooses.

(c) Failure to secure a timely certification If the architect is refusing to issue a certificate (for example if the employer is putting pressure on him not to issue the certificate), your grievance is with the architect. The architect is required to exercise reasonable skill and care on the project in accordance with the normal standards of the architect’s profession (assuming that they are professionally qualified with national and EU recognised qualifications [RIAI]), and they are required to act impartially between the employer and contractor. In these circumstances, you should seek early advice from a construction solicitor.

(d) Nominated sub-contractors If you are a nominated sub-contractor, and monies that have been previously certified by the employer have not been paid over by the contractor, seek direct payment if available. Clause 16 of the standard RIAI form of main contract gives the employer the right to make direct payment to nominated sub-contractors in certain very limited cases.

As a nominated sub-contractor, it is preferable to get confirmation from the contractor that they are keeping monies in trust for you in a clearly separately identifiable account. If, as is usual, the funds are not paid into separate accounts and that the account is not in funds, a claim under a trust can be lost.

In this common scenario you have no greater protection than that of a domestic contractor and will be ranked as an unsecured creditor (see ranking below).

(e) Retention of title This is discussed further below.

(f) Dispute resolution provisions Most standard contracts provide what are sometimes called “dispute escalation clauses”, where the parties have to exhaust a dispute procedure before proceeding to the next stage, i.e., you cannot proceed to arbitration before exhausting conciliation/mediation.

Unfortunately, while mediation and/or conciliation often ends in a timely settlement, unless there is a willingness by both parties to engage, my experience is that the process can be used as a stalling tactic.

It is also important before commencing arbitration or litigation that further credit checks are made to make sure your opposition will have the funds to pay in the event of a favourable award or judgment.

Pre-insolvency procedures If you are in a situation where you are suffering any cash flow difficulties, then early advice from an insolvency practitioner should be sought to assess potential strategies for recovery or restructuring the company.

In preparation, you will need to be aware of the following:

(a) Reckless trading Under Section 138 of the Companies Act, 1990, the court may on the application of a receiver, examiner, liquidator or any creditor or contributory of the company, if it thinks it fit and proper to do so, declare that such person shall be personally responsible without any limitation of liability for all or any part of the debts or other liabilities of the company as the court may direct.

(b) Records Maintain appropriate records that substantiate your entitlement to any claim (including variations) under the contract, which a liquidator can use to maximise returns.

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Construction

Insolvency mechanism If the directors have formed the view that the company is insolvent, and there is no prospect of takeover or financial restructuring, the following options are open:

(a) Request the bank to appoint a receiver Under the Companies Act, 1990, a receiver is appointed, very often at the request of the directors of a company, by a debenture holder. To enable a receiver to be appointed, the company must have granted a charge and this charge is normally, but not always, granted to a financial institution. The granting of this charge is registered in the Companies Registration Office.

In selling a company’s property, a receiver shall exercise all reasonable care to obtain the best price reasonably obtainable for the property at the time of sale.

(b) Petition the High Court for the winding-up of the company by having an official liquidator appointed An official liquidator is appointed by the High Court on the petition of either the company or a creditor. What distinguishes an official liquidator from other forms of insolvency is that the liquidation is carried out under the auspices of the High Court.

(c) Call a meeting of the creditors under Section 266 of the Companies Act, 1963, to put the company into creditors’ voluntary liquidation Very often, a creditor first becomes aware that a company is in difficulties when he sees a Section 266 notice in the newspapers calling the creditors to a meeting. A Section 266 meeting arises where the directors resolve that the company is insolvent and calls a meeting both of the creditors and the shareholders with a view to putting the company into creditors’ voluntary liquidation.

The liquidator is appointed by the members and will stand appointed unless a majority in value of the creditors votes in favour of some other liquidator.

(d) Petition the High Court for the appointment of an examiner The role of the examiner was introduced in the Companies (Amendment) Act, 1990.

Where it appears to the court that a company is, or is likely to be, unable to pay its debts, and the company has not had a receiver appointed in the preceding three days or is not in liquidation, it may, on the application by way of a petition, appoint an examiner to the company for the purpose of examining the state of the company’s affairs.

The petition can be presented by the company, the shareholders, the directors, or the creditors.

The effect of the appointment of an examiner is that over the period of 70-100 days while the company is in examination, no proceedings for the winding up of the company may be commenced.

Once an examiner has been appointed, there is no other legal action that creditors can take.

The Act sets out the time frame under which the examiner must formulate proposals and report back to court. One class of creditor must support the examiner’s proposals in order for the proposals to be presented to the High Court for confirmation.

75% in value for each class(s). Typically, a dividend is paid immediately and further payment structured when agreed milestones are met. It leaves the directors in control, the shareholders remain the same (unless the scheme provides otherwise) and can offer more flexibility than other options.

Receiver/liquidator’s role Once appointed, the onus on a receiver/liquidator is to realise the highest possible value for the assets of the company and distribute the proceeds in order of priority.

The ranking of creditors is common under the above methods of insolvency and they are as follows: holders of fixed charges; preferential creditors; holders of floating charges; unsecured creditors; and, shareholders.

Post-appointment procedures Once a receiver/liquidator is appointed, the employer can elect to determine the contract under most standard forms. In these circumstances, the subcontracts will also be determined.

Thereafter, we are often contacted by sub-contractors wishing to recover goods that have not been paid for.

Retention of title claims A receiver/liquidator seeks to ensure that he is treating all creditors in an even-handed way. In relation to retention of title clauses, the ability to recover goods from the receiver/liquidator is limited as follows: ■ once stocks have been used in the construction of a building to such an extent that their identity has changed and they have become merged or affixed to the buildings, then title has passed to the employer; ■ raw materials on site, which have not been used in the construction of a building, may, nevertheless, have been certified and paid. In those circumstances such stock becomes the property of the employer and, accordingly, the original supplier cannot pursue a retention of title claim against the contractor; and, ■ where an invoice includes both material and labour costs, for example installation costs, the supplier can claim the labour cost if the item is going to be used on the contract.

Summary A number of self-help options are discussed above, as well as receivership/ insolvency options. As always, advice should be sought from professionals experienced in dealing with these complex issues.

References Furst, S., Ramsey, V. Keating on Building Contracts (7th ed.). London: Sweet & Maxwell, 2001.

Insolvency Statistics. Retrieved May 1, 2009, from Insolvency Journal – http://www.insolvencyjournal.ie/industrial_stats.aspx.

Mark Etherington

(e) Section 201 scheme of arrangement Used recently in a number of construction cases, this allows a company to enter into a scheme with all or particular classes of creditors. This scheme will be binding by all creditors once ratified by the court. In order to succeed, the company needs to get a majority in number representing

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Mark is a Director in KPMG’s Restructuring Group, and is a Fellow of the Chartered Institute of Arbitrators and an Accredited Mediator with ADR Group.

Legal

Property case reports Irish Life Assurance plc v Graham Quinn High Court, [2009] IEHC 153 The plaintiff had sued the defendant under a guarantee of the liabilities of a company that was a tenant of a unit at the Irish Life Mall, Irish Life Centre, Dublin 1. The proceedings sought recovery of rent and service charge arrears.

There was no dispute as to the amount of rent alleged to be due. However, the tenant disputed the calculation of the amounts alleged due in respect of the service charge.

The tenant argued that the landlord was not entitled to recover service charge until the amount of the service charge was certified annually by the landlord’s auditors.

The Court had no hesitation in finding that the specific lease provisions providing for advance payment of estimated service charge entitled the landlord to pursue its claim for service charge, notwithstanding that it had not been certified by the auditors.

The tenant also argued that the landlord was in breach of its obligations of good estate management. The allegation was founded as the assertion that the anchor tenant had vacated and one-third of the other units lay vacant.

The lease contained the standard provision that rent and service charge are payable “without deduction”. The Court noted that s.48 of Deasy’s Act provides a right of set off against rent due where a liquidated sum is due by the landlord.

Recent legislation National Asset Management Bill 2009 A proposal for a National Asset Management Bill 2009 (subject to approval by the European Commission) was published on July 30, 2009, for public consultation. This is the subject of a commentary elsewhere in this edition of the Review.

Land and Conveyancing Law Reform Act 2009 This Act was signed by the President on July 21, 2009. However, it is not yet in force. Certain of the provisions take effect from October 1, 2009, while the majority of its provisions will take effect from December 1, 2009.

The final form of the Act has not yet been published.

The Act provides for a comprehensive reform and modernisation of land and conveyancing law, and is the result of a joint project undertaken by the Department of Justice, Equality and Law Reform and the Law Reform Commission.

A late amendment to the Act was a provision effectively prohibiting “upward only” rent reviews in new leases. It will not be possible for parties to contract out of this provision if and when it is brought into effect.

A commentary in greater detail on the provisions of this lengthy Act will be included in the next edition of the Review.

In the circumstances, the Court considered it inappropriate to delay judgment where the issue of good estate management was not raised prior to the proceedings, no evidence was given as to the potential success of the cross claim and there was no attempt to quantify the cross claim.

The Court found that the plaintiff was entitled to judgment in the amount claimed. However, in reaching this view the Court stated that it “did not accept that the phrase ‘without any deduction’ means that the defendant contracted out of equitable set off”.

Abbeydrive Development Ltd. v Kildare County Council Supreme Court, [2009] IESC 56 The appellant applied for planning permission to build houses on a site in Kildare in 2002.

The respondent planning authority made no decision within the period of eight weeks prescribed by Section 34 of the Planning and Development Act 2000.

A notice requiring additional information was served one day outside the period.

The appellant claimed the right to a default planning permission pursuant to Sub-Section 8 of Section 34.

The respondent opposed the application on two principal grounds: firstly, that the application was for a permission, which, under the current County Development Plan, would not normally be granted and, secondly, that the application did not comply with requirements of the relevant planning regulations.

The Court found that the High Court has not held that the development would, if permitted, amount to a material contravention of the Development Plan.

The Court found that the points of non-compliance with regulations raised by the respondent were to be treated as de minimus and would never be taken in the ordinary handling of planning applications.

The Court found that the case turned on whether the respondent had the authority to grant the permission.

Based on the evidence given on behalf of the respondent acknowledging that the part of the development disputed “has sufficient merit” to be considered, and therefore was within the power of the respondent to grant permission, the Court held that the plaintiff was entitled to the declaration that a decision to grant planning permission had been made in default.

John Minihane ASCS MRICS

John is a partner, specialising in real estate, with Mason Hayes+Curran.

SCSREVIEW 21

Personal finance

Do you need to change your strategy?

JOHN O’CONNOR discusses pension options for surveyors, and looks at the stock market in the current economic climate.

Very few of us want to work forever, and as a result it would be nice to know that the savings we put into our pension funds will provide us with a good income when we want to retire.

Recent falls in stock markets have meant that many people have seen their pension funds reduce in value over the last 18 months. Naturally, this is very upsetting, as individuals see their hard earned retirement savings fall. In many cases it has left people questioning the investment strategy they have had in the past and looking for new ways of investing in the future.

you retire you will be allowed take 25% (€375,000) of your pension fund out tax free. The balance of the fund will be there to provide you with an income. If a person takes an income of 6% of the remaining €1,125,000, this will amount to a pension of €67,500 per annum. Admittedly, family costs may well have reduced, and mortgages, etc., may well be paid off, but this is still a significant drop for many surveyors’ incomes. Research among the professions shows that, as with society at large, a high proportion of professional people do not have adequate pension arrangements in place.

Reducing risk over time – investing over 50 In our experience many people have taken on investment strategies that have contained higher risk levels than they realised and as a result are looking at negative returns in their portfolio. It is very important that people look to reduce risk in their retirement savings as they get nearer their retirement age.

People in their 50s or with fewer than 10 years to retirement should be reducing the portion of equities in their pension funds in favour of more historically stable assets such as government bonds and cash. Their strategy has to be to reduce their exposure to risk and begin to focus on how much they can gather in their fund.

Capital secure bonds Something that many people don’t know is that there are capital secure bonds available for them to invest their pension funds in over the medium term. For example, an individual can invest some of their retirement savings into a secure bond for three-and-a-half years with their returns based on stock market growth. This puts a ‘floor’ on their pension fund that it cannot fall below. It also gives great peace of mind and a potential investment return of up to 35% if the basket of stocks in the bond recover over the next threeand-a-half years.

What should a 40-year-old surveyor have at retirement?

I would suggest that a 40-year-old today should aim to have at least €1.5 million in their pension fund at retirement. Under current legislation, when

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What should a 30-year-old employed surveyor do about their pension?

The earlier an individual starts to save for their pension the better. The difference in cost between a 30-year-old saving to have €1.5m in his/her fund at retirement and a 40-year-old is as much as €1,000 per month. By starting to make contributions to a pension fund at a young age, the fund can grow over a longer period of time making funding for retirement a much easier process later in a surveyor’s career.

In summary, I would say that people need to have different strategies for their retirement savings at different stages in their lives. Younger surveyors can afford to have a higher element of risk in their pensions, while people coming closer to retirement need to be much more conservative as to how their funds are invested.

The market emotions cycle This is a very interesting depiction of the human psychology on the stock market highs and lows. Look at how most of the investors feel when they are riding up a bull run – “excitement”, “thrill”, and “euphoria”! Alan Greenspan would have called it irrational exuberance. It is indeed the greed and behaviour of investors that drove the price up into a self-fulfilling prophecy: the share price is going up, let’s invest. The more money gets thrown into the market, the higher the share prices go. The masses continue to do it to a point that no more greed is able to sustain the run.

Personal finance

When the downturn begins, many (denial) investors will want to ‘believe’ that they have made the right investments and will continue to ‘believe’ that the stock will rebound. Often, they will call themselves long-term buy and hold investors when they admit that a short-term gain is not realised.

As the downturn worsens, “fear”, “desperation” and even “panic” create another self-fulfilling prophecy: the share price is falling, we need to sell. The more they sell, the more the prices will drop.

This cycle describes very well how we tend to react to our fortunes, and often misfortunes, during the investment cycle of the stock markets. In many ways it demonstrates great ironies in terms of our reactions to both the performance of our investments and also of the different trends of the markets.

How does it affect your own investment strategy?

Speaking to many people at present, I can sense their despondency in relation to their pension funds. I often hear people talk of how they have stopped paying into their pensions because their values have fallen so much in the last 18 months. It is very hard to argue with this until you see how the market can go against such a strategy. The market emotions cycle shows how we can get caught out by this. It is frustrating enough to know that we have suffered falls in our funds without having salt rubbed into our wounds by ceasing to contribute and then seeing the markets recover and not getting the benefit of it. We must remember that as prices fall we buy stock cheaper and this should encourage us to do more rather than less.

McGovern rebrands

Deflation In economics, deflation is a sustained decrease in the general price level of goods and services. Deflation occurs when the annual inflation rate falls below 0%, resulting in an increase in the real value of money – a negative inflation rate. This should not be confused with disinflation, a slowdown in the inflation rate (i.e., when inflation decreases, but still remains positive).

We may feel that a fall in prices is a good thing and that we will get better value for our money during deflationary periods. However, the opposite is more often true. Deflation tends to be bad for economies because we hold off buying this week as we feel we will get it cheaper next week. This is particularly true of our major asset purchases, such as houses and cars. Rising prices at a low level is usually considered to be the ideal price movement, because it keeps us buying goods for fear we will be able to afford fewer of them in the future.

John O’Connor

John is Managing Director of Omega Financial Management.

CLASSIFIED SITE MANAGER for hospital building project in Uganda to assist and back up Irish site engineer when on home leave. Travel and living expenses plus allowance paid. Contact mwebb@dlpks.ie.

SCS meeting rooms The Society currently has meeting rooms available for hire to members for arbitrations and other non-SCS business. The cost to hire a room is €85 for a half day and €125 for a full day.

Should you wish to avail of this facility, please contact reception, Tel: 01 676 5500, or email Breda Farrelly at bfarrelly@scs.ie.

Front row, from left: Chartered Building Surveyors Ciaran Byrd, Pat McGovern and Kevin Hollingsworth. Back row: Chartered Building Surveyors, Seamus Mulligan and Brian Duffy, Peter Rogers, Junior Surveyor and Danny O’Brien Land Surveyor.

Chartered building surveying firm, Pat McGovern & Associates, has rebranded as McGovern Surveyors. Changes and restructuring within the firm have led to the decision to rebrand and increase market profile. The company has three areas of service – building surveying (commercial and residential), project management, and land surveying. The formal company name Pat McGovern (Surveying) Ltd remains unchanged – it’s just the trading name that has changed. Further details on McGovern Surveyors can be found at www.mcgovernsurveyors.ie.

SCS discussion forum As part of the Society’s continuing efforts to improve communications within the membership as a whole, we are delighted to announce that we have recently launched a discussion board in the members’ section of our website. This forum will give members the opportunity to post comments on various topics of interest.

To access the discussion board, please click on the following link and register: http://www.scsforum.ie/ucp.php?mode=register.

Please note that in order to view and post comments, you must first register as a user on the discussion board. The registration process only takes two minutes to complete.

SCSREVIEW 23