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Autumn 2010 Volume 4: Number 3
SCS
REVIEW
The paying game No paying, no gain Construction law: The devil’s in the detail Interview: Peter Stapleton speaks Auctions: Going going gone?
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President’s news
A time of change Plans for the merger with the IAVI are progressing, and the Society continues to lobby Government.
The 11th SCS Annual Conference will take place in the new Convention Centre in Dublin on Friday October 15.
It seems a long time since the members voted on the merger with the IAVI. Since then, a significant amount of work has been undertaken to prepare for the formal merger on January 1, 2011, particularly in the areas of due diligence, governance, education, regulation and policy, not to mention operational issues such as the physical move to Merrion Square, staffing, and IT infrastructure needs. That said, we have made good and positive headway with this large body of work and there has been a high level of co-operation from both members and staff. We were very pleased with the feedback from the members at the various regional meetings prior to the June EGM and have been working to resolve all the issues and concerns that were expressed. As we outlined previously, we will be consulting again with the regions and the Divisions in relation to the detailed proposals on governance, and this is planned for the early autumn.
construction industry; however, there is a real concern that the committed expenditure levels over the next 18-24 months may not be reached because of the lack of new projects being brought to tender. The Society continues to advocate for the employment of a chief adviser to co-ordinate the industry and the implementation of this capital programme. The Minister’s 2011 budget is now not too distant and we have already carried out much work in relation to our submission, which we will be making in September – thanks again to the work of a cross-divisional group. Given this increased commitment of members, we are more advanced in our considerations than in previous years. This is a trend that we will see escalating following the merger, as we increase our in-house resources in the area of policy and national affairs.
Annual Conference Working to influence policy As I prepared for my term as President, I was conscious of the importance of promoting the work of our members by issuing comment on policy matters and already we have been enormously successful. We have made representations to various departments, local authorities and others, including An Bord Pleanála, on foot of our inter-divisional report, yet to be formally launched, on our recommendations to Government and others on issues of concern to the property and construction industry. Wide-ranging position statements have been researched and agreed on matters such as local authority administration, property tax, water charges, a National Property Register, and initiatives to improve the built environment, which as a by-product will provide badly needed jobs. The SCS continues to make a large number of submissions to various Government departments and agencies, including a review of the retail planning guidelines, submissions to county councils in relation to development plans, and ongoing input on matters of concern in relation to procurement with the Department of Finance. The recent publication of the Local Authority Review Group included a number of SCS recommendations in its final report. The Society welcomes the publication of the Government’s revised capital investment programme and hopes that it will give renewed confidence to the
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As you will by now be aware, the 11th SCS Annual Conference will take place in the new Convention Centre in Dublin on Friday October 15. The theme is very appropriate – ‘A New Beginning’ – and we have a number of excellent speakers lined up already, including Professor Ed Walsh, former President of the University of Limerick, one of President Obama’s advisors, Pat Cummens, Dr Edgar Morgenroth of the ESRI, the architect Sean Harrington, who will look at sustainability, our own Tom Dunne, who will discuss the inevitability of property tax, and others. The response from sponsors has been encouraging, including Marsh, Travelers, Ordnance Survey Ireland, Deloitte, Mason Hayes + Curran, Sage, Paramount and The Irish Times. As always, should you wish to contact me, please do so at president@scs.ie.
Peter Stapleton President of the SCS
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Contents
22 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 Peter Stafford
Working in Abu Dhabi and the Arabian Gulf.
04 News
SCS promotional video/Society appoints Head of Policy and Public Affairs/Conference 2010
09
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
Construction
Advertising: Paul O’Grady
Devil in the detail
www.scs.ie
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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.
Interview
FYI: NDP, PCP, PPP. QED
Auctions
Going going gone?
Cover story
The paying game
20 We’re all agreed
European news
Update on European bodies
21 Leader of change
14 Rents
Tenants beware!
18
11 Conciliation
Dilapidations
16
10 Economic analysis
15
Legal
Property cases
22 Turnover rent – what is it?
Working abroad
The Arabian Gulf
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News
NNING A NEW BEGI
EDITORIAL
Change approaches, work continues It is evident from this autumn edition of the SCS Review that while change approaches the Society on all fronts, there is both leadership for that change and a great deal of ongoing ‘normal’ work within the Society. Our interview with SCS President, Peter Stapleton, demonstrates that there is a busy agenda for the Society while he identifies that the commercial property sector will have to deal with NAMA properties coming on the market just as some liquidity comes back to the commercial property market. In fact, if there is both order and value, he feels that might even help liquidity. John Minihane guides us on the ins and outs of turnover rent, while Gwen Wilson keeps us up to speed on the Society’s work on alternative dispute resolution. Donal Buckley’s article quantifies the market for residential property and our President has reminded us that when residential property picks up, commerical property is likely to follow.
John Oliver Costello, Honorary Editor
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RENCE2010 SCSCONFE er 15, Friday, Octob
n1 er Dock, Dubli e Dublin, Spenc ntion Centr 2010 Conve
Superb national and international speakers This year’s SCS Conference has attracted a cast of hugely influential speakers from home and abroad. It is being held at the impressive new Convention Centre on Dublin’s north quays on Friday October 15. PANEL 1: Construction and property in the Irish economy Ed Walsh, Edgar Morgenrath and Michael Mortimer
The opening panel will consider the outlook for the Irish economy and assess the fate of the construction and property sectors in 2011. The keynote speaker, Dr Edward (Ed) Walsh, has been a driver of change in Irish society and his presentation will be on the central theme of the conference: A New Beginning. Dr Walsh maintains that talent, tax and competitiveness are the three critical issues for Ireland’s recovery. Radical structural reform of public institutions and evidencebased public policy are the essential drivers. Dr Walsh is founding president of the University of Limerick. He served as first chairman of the Irish Council for Science, Technology and Innovation, the National Technological Park, and the National Council for Curriculum and Assessment. He was an Associate of the US Atomic Energy Commission Laboratory and serves on the boards of a number of organisations.
Prospects for infrastructure Leading expert on transport and infrastructure, Dr Edgar Morgenroth, Associate Research Professor at the Economic and Social Research Institute (ESRI) will make a presentation on the prospects for infrastructure development in Ireland. Dr Morgenroth is programme coordinator for research on transport and infrastructure at the ESRI. He has carried out extensive research on the formulation and evaluation of large public investment programmes and has modelled Irish commuting behaviour.
Learning from our mistakes Risk specialist Michael Mortimer, of Travelers Insurance Company, will combine his experiences of dealing with surveyor-related professional indemnity claims with his knowledge of the IT and GIS systems that are in use and being developed for property professionals. Michael has practised for 25 years as a Chartered Surveyor in both the private and public sectors, dealing with a wide variety of property-related sectors and
Ed Walsh
activities. He joined Travelers Insurance Company in 2007 to assist underwriters and claims handlers in their understanding of surveyor risks. PANEL 2: Linking urban design and the smart economy Pat Cummens, Patrick Bellew and Sean Harrington
Speakers in the second panel will discuss how new trends in building design, and policy making, are intrinsically linked.
Playing it smart Adviser to President Barrack Obama, Patricia (Pat) Cummens, is Senior Advisor on Government issues at the USA’s Environmental Science Research Institute. She will make a presentation on how geographic information systems (GIS) can be used to enable the smart economy by providing a spatial data infrastructure to allow for optimal decision making, oversight and reporting, analysing and prioritising investments and evaluating performance. Ms Cummens has been working in the GIS field for the past 28 years with experience in both the public sector and private sector. In 1998 she joined the US Environmental Science Research Institute where she works with government executives on policy and technology issues. She says: “GIS can help citizens view and understand government information in a meaningful way”.
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News
Conor Skehan
Patricia Cummens
Edgar Morgenroth
Tom Dunne
Patrick Bellew
Sean Harrington
Niamh Brennan
Michael Mortimer
Sustainable architecture
time. In his address, he will explain that to achieve this, people must understand and love their buildings and have a sense of belonging. Seán is the principal at Seán Harrington Architects. After completing his first architecture degree at the University of Edinburgh he went on to University College Dublin where he graduated with first class honours in architecture in 1987. In 2005 he set up Seán Harrington Architects, now an eight-person practice. He is a former vice president of the RIAI, a professional practice examiner and a member of the RIAI Housing Committee.
Development Authority, will present on Phase 2 – Completing the Docklands Regeneration Project. Her presentation will review the economic and social regeneration in the docklands area and will outline the strategy for completing this regeneration project. Niamh Brennan is a chartered accountant and a chartered director. She holds the Michael MacCormac Professorship of Management and is Academic Director of the Centre for Corporate Governance at UCD.
research interest in property taxes. A former President of the SCS and a former Chairman of the IPFMA, he currently serves on the Governing Council of the RICS.
Yale University lecturer Patrick Bellew will give an overview on his experiences over the past 20 years on how high performance buildings are informing the new target of zero-carbon solutions. Patrick is Founding Director of Atelier Ten and a Chartered Building Services Engineer with more than 25 years’ experience in the design of highperformance buildings and their systems. With extensive experience in the integration of environmental and building systems with architectural and structural schemes, Patrick has particular expertise in thermal mass energy storage technologies and high efficiency radiant conditioning systems. Patrick has taught the core environmental design course on the M.Arch programme at the Yale School of Architecture since 2000.
PANEL 3: Property and planning in Ireland: a new beginning Niamh Brennan, Tom Dunne and Conor Skehan
Latest trends in planning, governance and property will be discussed by the speakers.
Human factors Influential architect Sean Harrington says that to be truly sustainable, buildings must be designed well, be properly used and last for a long
Finishing the Docklands Corporate governance expert Professor Niamh Brennan, who is Chairman of the Dublin Docklands
Plucking the goose Plucking the hissing property goose is the imaginative, but slightly alarming title of the presentation to be made by Tom Dunne, Head of the School of Real Estate and Construction Economics at DIT. He will pose the questions: is it possible to tax property fairly and equitably? If property taxes are so good for the state and local government why are property taxes so unpopular? Following 10 years in practice, Tom now lectures in property valuation and has a
Planning the future Conor Skehan is a Senior Lecturer in the Department of Environment & Planning at the Dublin Institute of Technology and his forward thinking is recognised through his Fellowship of the Futures Academy. He will make a presentation entitled: Planning with purpose - making planning work for economic recovery and development, not against it. He will show that regionally distinctive and autonomous plans grounded in realities of demographics, environmental conditions and economic competitive advantage offer a way to accelerate a sustainable economic recovery. Conor is a chartered architect, landscape architect, planner and impact assessor with over 25 years’ consultancy experience.
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News
New CBRE staff
Colliers Colliers Jackson-Stops is now known as Colliers International. All Colliers branches were re-branded to Colliers International in May of this year. In addition, staff email addresses have changed to name@colliers.ie.
F. Bradley & Co. moves premises
Paul Prendergast
CBRE have two new members of staff, Paul Prendergast and Murray Osborne, who have been appointed to the Building Consultancy Department.
F. Bradley & Co. has relocated its offices from Lynnwood House, Oldenway Business Park, Ballybrit, Galway, to: The Sirius Centre, Northpoint, Tuam Road, Galway.
Michael J Broe & Associates Michael J Broe & Associates has moved. Formerly located at Abbey Moat House, Abbey Street, Naas, Co. Kildare, the firm’s new address is: Michael J Broe & Associates Chartered Quantity Surveyors & Project Managers Johnstown Business Centre Johnstown House, Johnstown, Naas, Co. Kildare T: 045-876328 F: 045-844051 M: 086-256 8742 E: info@mjbroe.ie
Murray Osborne
Hourihan & Hourihan Property Consultants
Erratum
Husband and wife team David and Nina Hourihan (pictured below) are pleased to announce the establishment of their niche practice based in Winchester, Hampshire, England.
The practice provides a professional service in commercial and residential property management on properties across England and Wales. Additional services provided include agency (sales, lettings and acquisitions) and consultancy (rent reviews, lease renewals and rates assessments) advice. Between them, Nina and David have over 20 years of experience in the commercial and residential sectors of both the Irish and UK property markets, and are particularly interested in working with Irish investors who have UK property investment holdings. Hourihan & Hourihan Property Consultants Avebury House, St Peter Street, Winchester, Hampshire SO23 8BN, England T: 0044 1962 920 220 M: 0044 7538 494 243 E: david@hourihan.eu www.hourihan.eu Follow David on LinkedIn or Twitter.
Phillip Chambers joins with John Stewart & Associates Phillip Chambers is pleased to announce that his practice – Chambers Chartered Surveyors – is to integrate with John Stewart & Associates, where Phillip will operate as a consultant and will continue to provide commercial property acquisition and relocation advice. The address is: John Stewart & Associates 20 Lower Baggot Street, Dublin 2 T: 01-634 5350 E: chambers2002@eircom.net
Watts appoints new Associates
Niamh Mansfield moves to DNG
Denis Doherty
Niamh Mansfield has moved to DNG. Her contact details are: Niamh Mansfield MIAVI MSCS MRICS Director of Valuations Douglas Newman Good 30 Leeson Park Ranelagh Dublin 6 T: 01-491 2653 F: 01-491 2629 www.dng.ie
Watts Consultancy Ltd, part of the International Watts Group, is delighted to confirm that Denis Doherty BSc MSCS MRICS and Oliver Held BSc (Hons) MSCS MRICS of Watts’ Dublin office, have accepted invitations to become Associates within the Group. Denis Doherty joined Watts in 2002. A Chartered Surveyor and a member of both the RICS and the
In the last issue of the SCS Review (Summer 2010), it was incorrectly stated that Sarah Johnson is a partner at Mason Hayes+Curran. Sarah is actually a partner at Philip Lee Solicitors. We apologise for this error. Oliver Held
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News
Society of Chartered Surveyors, he is responsible for the projects team. His expertise covers a number of areas, including defects analysis and dilapidations. Denis is also a Level 3 Conservation Surveyor after completing his studies with the Dublin Civic Trust. A Chartered Surveyor, Oliver Held joined Watts in 2007. His expertise in all areas of commercial building surveying led to his recent appointment as Chairman of the Society of Chartered Surveyors Building Surveying Division. This high profile position is in recognition of his efforts in promoting the Society and the work that building surveyors undertake. In addition, he is a member of the RICS Dilapidations Forum and, as a fluent German speaker, has assisted Watts’ offices in Germany on several large due diligence commissions.
CBRE advises on impact of EU ozone regulations The Dublin office of CB Richard Ellis Group (CBRE), the international commercial real estate firm, recently announced that it has established a specialist team to advise on complex EU regulations and the associated implications for those who own or occupy a building that has a refrigerant gasbased air-conditioning system. The specialist team, led by Tony Grant, Director and Head of CBRE’s Building Consultancy in Ireland, will advise on the implications of EU Legislation EC Reg 2037/2000 (Ozone Regulations). The main thrust of this legislation is the phasing out of hydrochlorofluorocarbon (HCFC) gases, of which the refrigerant R-
22 is the most common. R-22 is frequently used in the airconditioning systems of commercial buildings. Under this legislation, the use of new, recycled or reclaimed R22 will be completely banned after January 1, 2015. For property owners, managers and occupiers, there are potentially significant cost implications of replacing existing air-conditioning systems or implementing solutions to adhere to the new legislation. While it is not possible to accurately forecast the number of buildings affected in Ireland, most buildings that were built before the year 2000 are likely to use airconditioning systems containing R22, which, consequently, must be
updated or replaced by 2015. CBRE will assist clients in developing the most effective strategy for dealing with R-22, which may be present within existing air-conditioning systems, and it will be illegal to use R-22 in any form. Tony Grant commented: “Our specialist team is uniquely qualified to advise property owners, managers, and occupiers on the potential implications of operating or occupying a building that has a refrigerant gas-based airconditioning system. The scale of the re-fit required in the Irish market is considerable, with most buildings built before 2000 likely to be affected”.
HSS Hire Ireland invests in new training centres HSS Training, the specialist training division of HSS Hire tool and equipment hire company, has expanded operations to offer training courses throughout Ireland. HSS Training offers over 100 industry-recognised technical and safety courses, delivered in more than 20 locations around Ireland by a team of trainers. All HSS trainers are qualified experts in their fields with years of experience, so you can be sure that all courses are delivered to the highest standards. HSS Training will deliver courses in Ireland through a network of purpose-built ‘centres of excellence’ in Dublin, Cork, Limerick, Galway and Belfast. Training can also be offered on site at the customer’s location. Managing Director of HSS Hire in Ireland, Michael Killeen, adds: “At HSS, we firmly believe in doing everything we can to make hire easy for our customers, which has helped establish us as the hire company of
Chartered Building Surveyors Land Surveyors Project Managers choice in Ireland. We have maintained this customer focus despite the difficult trading conditions recently, and now this investment in our new training centres and team of trainers means we can help our customers with all aspects of health and safety and technical training, as well as continuing to offer them the best service delivery when it comes to tool and equipment hire”.
ASSESS - ASSURE - PROTECT 59 Merrion Square, Dublin 2. Tel: 01-661 0390 email: info@mcgovernsurveyors.ie www.mcgovernsurveyors.ie
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News
Day in the Life Programme
Final Assessments spring 2010
The Education Office continues to promote surveying as a career option for secondary school students considering their choice of college course. The Day in the Life Programme, which began last year, proved very successful and feedback was extremely positive. The nationwide programme involves Chartered Surveyors giving a presentation to Transition Year students, explaining the work that they do and providing an overview of surveying in general. If you are interested in taking part in this programme, which will count towards CPD, please contact the Education Office at education@scs.ie.
The spring 2010 Final Assessment interviews were conducted in April, May and June. In total, 53 candidates came forward for interview with a combined pass rate of 66%. Divisional breakdown: Division Pass rate Quantity surveyors 64% General practice 53% Building surveying 100% Minerals 50% Planning & development 0% The Education Office would like to take this opportunity to extend our thanks to the APC Chairpersons, Assessors and Monitors for their invaluable voluntary contribution.
SCS promotional video The Education Office has launched an online video highlighting and promoting surveying as a career. The video is specifically aimed at secondary school students considering their CAO options, as well as third-level students with an interest in the industry. It is intended that the video will also create an awareness of the profession in the minds of the general public by explaining the wide variety of work carried out by surveyors, the context within which they work and the career opportunities available.
address government and policy makers, as well as the wider public. “Having worked in the sector for a number of years, Peter has a thorough understanding of the challenges facing the industry at present and I know he will be a great asset to the Society. I wish him the very best in his new position,” he concluded. Dr Stafford, who is from Northumberland in North East England, has been living and working in Ireland for the last ten years. He worked with the CIF between 2005 and 2009 and during that time he was part of the task force set up by the Construction Industry Council to
explore new funding mechanisms for procuring civil engineering and public building works. Prior to joining the business sector, Dr Stafford was a postdoctoral researcher and lecturer in the Urban Institute Ireland (based at UCD) and the Geary Institute, where he wrote and lectured on the politics of urban regeneration and city governance in Ireland. He was awarded a Doctorate in Politics from the University of Manchester. He also holds a Master of Economics in Social Research Methods, also from the University of Manchester, and a Masters in Political and Public Communications from Dublin City University. He lives in Ranelagh in Dublin.
review disputes, will be calling on its members to adhere to the Code. In relation to the recommendation to establish a public database to maintain details on commercial letting agreements and rent reviews, Stapleton said that the Society of Chartered Surveyors had been advocating for maximum
transparency in the commercial property market and in this regard welcomed the intentions of the Minister to establish a national database where comprehensive and complete information on all transactions, including the terms and conditions in a lease that may form part of the transaction.
Society appoints new Head of Policy and Public Affairs The Society of Chartered Surveyors (SCS) has announced the appointment of Dr Peter Stafford as its new Head of Policy and Public Affairs. Dr Stafford, right, joins the SCS from the Construction Industry Federation (CIF), where he was head of research and policy. Welcoming his appointment, SCS President Peter Stapleton said the Society was delighted to recruit such a high calibre candidate: “It is vital that the SCS produces research and policy documents of the highest quality, and this is where Dr Stafford will play a key role. This research will be of benefit not just to SCS members but to all
stakeholders in the property and construction sector,” he said. Mr Stapleton pointed out that there was a clear need for accurate and relevant information, and that Dr Stafford’s appointment would enhance the Society’s ability to
SCS welcomes rent review report SCS President Peter Stapleton, has welcomed the recommendations of the Department of Justice Working Group on Transparency in Commercial Rent Reviews. Commenting on the two main recommendations in the Report, he said that the Rent Review Arbitration
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Code 2010 will be very beneficial to all involved in a rent review as it will ensure that all parties will have a better understanding of the procedures underlying the arbitration process. He confirmed that the Society, in its capacity as the primary appointer of arbitrators in rent
Contributors include Peter Stapleton, SCS President, and Zoë O’Connor, Head of Education, as well as a range of surveyors from a number of the Society’s divisions, including a senior cost manager, a building surveyor, an investment manager and a trainee on the APC programme. The video is available to view on the SCS website – www.scs.ie – and it is intended to produce individual videos for each of the Society’s divisions in the near future.
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Construction
Devil in the detail JOHN CURTIN says that the Construction Contracts Bill is a new departure for the construction industry in Ireland.
On July 22, Senator Feargal Quinn published a revised draft of an earlier bill, which had received its first reading in the Seanad on May 19. At a meeting in the Department of Finance on July 27, Senator Quinn outlined the purpose of the Bill as follows: 1. Certainty of the date for payment. 2. Certainty of the size of any payment. 3. An ability to enforce payment. 4. Security for payment. Senator Quinn sets about achieving his stated goals by requiring construction contracts to contain specific measures noted in the Bill or, in default of any contract failing to contain such provisions (such as, for example, verbal contracts), two schedules forming part of the Bill will be read into the construction contract. The specific provisions are as follows:
In order to provide a swift resolution of any difference between the parties, the Bill introduces a 28-day dispute resolution process – adjudication. Any adjudication award must be discharged without further debate, but may nevertheless be appealed to the courts or, as appropriate, may be referred to arbitration. If the parties agree to do so, it is possible to mediate after any award. Unlike the ‘conciliation’ process in the public works suite of contracts, there is no requirement upon the successful party to provide any security for a payment pending any appeal. The Bill sets out the procedure for the adjudication process and prevents any variance from that procedure.
1. Certainty of the date for payment
4. Security for payment
The Bill requires all construction contracts to specify the dates when “payments become due” (the date when a contractor would submit an interim application for payment) and also for a “relevant payment date”. The “relevant payment date” is defined as it is in the 2002 Late Payment in Commercial Transactions Act, and is the date when the parties would have agreed that an interim payment would fall due. While the 2002 act has a default position of 30 days in the absence of a pre-agreed time, this bill reduces this to 14 days. In order to bolster certainty, the bill prohibits any ‘pay when paid’ provisions in construction contracts, and if these are incorporated they are rendered ineffective. This overturns the established contract principle of linking the timing of payments under subcontract to the timing of payments under the main, or head, contract. If a sum due is not paid, there is a right to suspend performance under the contract.
The Bill introduces a requirement that the employer and, in the case of a subcontract, the main contractor, provide and maintain security in the sum of 10% in favour of their contracting partners. This proposal will radically change the business model of contracting in Ireland. The Bill is not unlike the UK legislation (“Housing Grants, Construction and Regeneration Act 1996” as amended by “The Local Democracy, Economic Development and Construction Act 2009”) but differs in certain respects, notably that the Bill applies to all contracts whether they are verbal or written, and indeed to all contracts with residential occupiers in excess of ¤2,000, and introduces the principle of security for payment. The revised Bill will be read in the Seanad after the Oireachtas summer recess. No doubt there will be much debate between now and then, and if the Bill is signed into law, it will mark a new and sizeable departure from existing practice within the construction industry.
main contractor from relying upon certification by an architect for any nominated subcontractor. In the absence of an employer or main contractor challenging a payment application, the amount so claimed is deemed the amount due.
3. An ability to enforce payment
2. Certainty of the size of any payment
John Curtin
The Bill requires that any payment application be challenged by the employer or, in the case of a subcontract, the main contractor, within a specified period of time. The parties are free to agree the specified period, but in default of any agreement that period is set at five days. The Bill further prevents a party relying upon any certification contained in another contract. This prevents a
John is Senior Vice President of the SCS.
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Economic analysis
FIGURE 1: Capital expenditure 1997-2016 (¤bn) – 2010-2016 forecast expenditure based on 2010 infrastructure investment priorities.
FYI: NDP, PCP, PPP. QED New SCS Head of Policy and Public Affairs, PETER STAFFORD, presents the first in a regular series on the economic situation. In 2009, the National Development Plan (NDP) was launched and had three underlying assumptions. Firstly, that economic growth would average 4-4.5% per annum over the life of the Plan; secondly, that there would be a soft landing in the housing market; and, thirdly, that there would be a benign international economic environment. Following the deterioration of the Irish and international economies and the collapse in the housing market in 2009, the Department of Finance undertook an evaluation of each department’s capital spending programme. The Minister for Finance recently produced revised ‘Infrastructure Investment Priorities 2010-2016’ – effectively a rewritten capital investment plan for the remainder of the NDP. In publishing this review, the Government has noted that because of lower tender prices and diminished need for infrastructure because of lower levels of economic activity, some projects will be cancelled, scaled back or withdrawn totally. Overall, capital investment between 2010 and 2016 will be ¤39.4 billion, of which ¤12 billion (32%) is in transport and ¤8.5 billion (22%) is in environment, heritage and local government. In terms of job creation – a central tenet of the revised capital investment plan – the Government figures tally with those of the Construction Industry Council, where ¤1m of investment can sustain between eight jobs on a civil engineering project and 12 on a public building project. The revised programme has allocated two-thirds of investment in social and economic building works over less labour-intensive economic infrastructure such as roads and other civil engineering works. Notable exceptions to this rule are Metro North and the Dart Underground, which will be massive employment creators in their own right.
Department of Environment will receive ¤8 billion, of which ¤3.4 billion will be spent on upgrading and expanding national water services infrastructure. A total of ¤4.4 billion will be spent on upgrading and regenerating social housing schemes. Since the publication of the report, there has been a great deal of public interest in the extent to which Dublin is perceived as having benefitted from the revised allocations. In the report, the Government notes the importance of building economic infrastructure to support the important economic role the capital plays in the overall Irish economy, and the social infrastructure that is more urgently needed in regional cities and towns. An update on the implementation of the National Spatial Strategy (NSS) will soon be published, which will outline the funding structures for the Hub and Gateway towns in the NSS following the rapid changes that they have seen since the recession started. The revised capital programme has re-introduced the Gateways Innovation Fund, and ¤200m has been set aside to stimulate and support innovative and locally co-funded projects in the Gateway towns. Beyond the scope of the Public Capital Programme are significant further investments from the state agencies and PPP schemes. There are currently ¤20 million of PPP works under construction, mostly in the fields of education, transport and environmental services. Commercial State investment will come from the State energy and transport companies. Both Metro North and the Dart Underground will be PPPs.
Dr Peter Stafford
Change in emphasis While all departments have seen their total allocation reduced, road transport and housing have lost the greatest share of the funding in favour of enterprise support, environmental services and public transport. The
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Peter is Head of Policy and Public Affairs for the Society of Chartered Surveyors.
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Conciliation
We’re all agreed GWEN WILSON presents an update on the Society’s work in the role of conciliation. Society’s panel of mediators and conciliators The Society has conducted its review of the President’s panel for the appointment of mediators and conciliators in respect of construction and related disputes. All members who expressed an interest in being considered for inclusion on one or both of the panels were invited to formally apply. These applications have been reviewed and successful candidates will be informed of their inclusion on the panel of mediators and conciliators in due course.
Mediation/conciliation still an option: After the introduction of statutory adjudication, parties will continue to be able to agree to mediate or conciliate their disputes. However, it will be noted that in countries where adjudication is established as a legal right, it has become the dominant ADR process and, once commenced, the parties, unless they otherwise agree, are obliged to complete the process. The process differs radically from both mediation and conciliation, in that it can enforce a binding outcome (until arbitration) regardless of the participation of one or other of the parties.
Planned autumn conciliation course The Society issued an expression of interest to its members for a planned autumn conciliation course. A very positive response was received with over 120 expressions of interest. As a result, the Society commenced its preparation work with the view to running a number of courses in 2010 and 2011 to meet this demand, with a maximum number of 20 persons per course. The aim of the working party is to ensure comprehensive mediation/conciliation training at a reasonable price. However, on foot of recent issues in alternative dispute resolution (ADR) – well advertised in the media and Seanad by Senator Feargal Quinn – the Society felt it important to bring to the attention of its members the following matters, and has since requested that members reaffirm their expression of interest to make sure that there is still a demand for such course: Statutory adjudication: The Government, in consultation with the industry and professional institutions, has indicated an intention to introduce statutory adjudication for construction disputes, along with some other statutory changes to the construction industry, some time in 2011. The Society has accepted the Government’s invitation to take part in the consultation process and will be supporting the introduction of the adjudication process, which has become established in a number of common law jurisdictions as a statutory means to resolve disputes. It is the Society’s intention to also offer training for adjudicators in late 2011/early 2012, as soon as the details of the new Construction Act are finalised and published.
Society’s continued support for mediation/conciliation The Society will continue to support mediation/conciliation ADR processes as the first step to resolve any dispute with a view to preserving relationships between parties and minimising cost, and will encourage the Government to recognise the mediation/conciliation options within the proposed statutory framework. There is a sense that some parties would still prefer to opt for mediation/conciliation in the first instance. In that light the Society still intends, subject to confirmation of continued interest from membership, to continue rolling out the conciliation course in autumn 2010/spring 2011. The course will incorporate mediation training with the drafting of recommendations for conciliation under both the private and public contracts. The Society will continue to maintain its panel of mediators/conciliators and the Society’s course on conciliation will be a recognised qualification for acceptance onto that panel.
Gwen Wilson
Gwen is SCS Arbitrations Officer.
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Interview
Leader of change It falls to Peter Stapleton to be the President who leads the SCS into a new and changed future, one merged with colleagues from the residential sector. PAUL O’GRADY spoke to him for the Review. Peter Stapleton joined Lisney straight from school in 1974 as a trainee surveyor and did his exams directly with the RICS while he worked. It’s a route to becoming a Chartered Surveyor that has not been available for the past few years, as entry level to the profession is now at Level 8 (honours degree) standard. That may be, but it definitely allowed Peter a broader working experience in his formative years than would currently be available. On his way to becoming Managing Director of Lisney, Peter worked in all the commercial departments of the company – retail, office, investment, and valuation. He has enjoyed the journey, but felt a particular attachment to the office side of the business where he served as departmental head for several years.
Dealing with the merger Peter has also had a long association with the Society, again serving in several posts before his rise to the Presidency this year (see panel ‘Professional man’). The Lisney man’s top priority for his term of office is to ensure the integration of surveyors and their kindred bodies. He says that there were understandable concerns about the merger among members. “I travelled to regional meetings of the Society where I met and talked with surveyors about their concerns, which included increased competition, standards generally, and areas of practice that new surveyors might see themselves operating in. I listened to those concerns and I am completely satisfied that we can address all of these areas to everybody’s satisfaction. On
Family man – and student of the game Peter Stapleton is married to Sarah and they have three school-going children – two boys and a girl. In his younger days sailing was his passion, but now helping his kids with their sports, and a weekly round of golf, are
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the issue of standards, there will be increased auditing of CPD activites and professional activities generally through more proactive regulation. There is a perception that residential agents who become Chartered Surveyors on foot of the merger will be able to practise outside their core area of expertise but, of course, this is not the case. All Chartered Surveyors must be conscious of their own professional competence, as well as professional indemnity cover, and should stick to their area of expertise so as to protect their exposure.” Stapleton does not envisage any difficulties with the process of merging the two bodies either. “We are being professionally advised on the matter of staffing, an area where we are looking for an early resolution of all outstanding matters. It is, of course, always a very sensitive issue but I do not foresee a huge problem. We are engaging in the process as we speak.”
Increased influence in public affairs “There was and is a hugely compelling argument for this merger and I think members will be pleasantly surprised once they see the new body in operation. The first thing that they will notice is that we will be more vocal on national policy issues,” says Peter. His second goal as President is just that – to increase the influence of surveyors on the development and implementation of national policy in areas of relevance to all surveyors. “We haven’t taken a high profile before but then the merger gives us human and financial resources that we haven’t had before either.” his spare time activities of choice. He is clearly a student of the game of golf from which he believes you can learn much about composure and strategy. Louis Oosthuizen’s win at The British Open was a source of some fascination to him when we met, particularly the South African’s mental approach.
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Interview
Professional man Peter Stapleton’s involvement with the Society of Chartered Surveyors commenced even before he had left school. A visit to Captain Brewer, then running the RICS office on Merrion Square, gave him good direction for a lifetime in the profession. He studied for the RICS exams while working with Lisney and achieved Chartered status around 1980. He is now a Fellow of
The first issue that the President will be lobbying about is the reform of the tax system – specifically, a dramatic reduction in stamp duty rates and the widening of the tax base. He says that the Society would be supportive of the concept of an annual property tax but only as a consequence of a serious reform of stamp duty. Peter believes that it is inevitable that we will see a property tax in this country. One of the consequences of proper reform of stamp duty, he says, would be a reduction in transactional taxes and increased liquidity in the property market. On the construction side, the President commented on the Society’s ongoing efforts to lobby for increased capital expenditure to address the infrastructural deficit and help restore Irish competitiveness. He said that he is pleased that the revised capital investment programme, as announced by the Government, would map the way forward for the industry in a sustainable way over the next six years. He was particularly anxious that early tendering for the various projects outlined in the programme should get underway as quickly as possible so as to take advantage of the value for money that is currently available in the industry. “The danger is that any further delays in new projects coming on stream will inevitably lead to a loss of skills and expertise within the industry, as an increasing number of young professionals are forced to seek work abroad. The level of investment required at the design phase of any capital project is only a small proportion of the overall cost and, as such, prioritisation of this phase of any capital project is an affordable way of ensuring a return on the investment made by the State in the education of our younger workforce.”
Sectoral outlook and NAMA “The current market is weak and extremely challenging and I don’t see any immediate prospect of any significant upturn in values.” That’s Peter’s frank assessment of the outlook for values. However, he is considerably more upbeat about the outlook for activity: “I think we will see increased confidence and activity in the market over the coming 12 months”. His caveat – there has to be one – is as follows: “This increased activity is dependent on four factors: the global economy; our increased competitiveness within Europe; availability of finance; and, the way NAMA acts”. On that very point, he is impressed by NAMA’s work so far: “I think NAMA is working and that it will work. It is well resourced with well qualified staff, and it has been forthright in its statements to date about the process so far. The fact that it is not pulling any punches is encouraging. I believe that it is now likely to take action to dispose of some properties more quickly than originally thought, but it will be an orderly disposal”. Peter believes that we need a flow of commercial property onto the market and commented that there had been an acute lack of supply. “Initially, there needs to be an over correction in pricing to stimulate activity and bring back confidence. There are investors waiting in the long grass. In fact, there is significant interest in prime Irish investment property from both at home and abroad. Finance is available for good quality products, and investors need to see a market re-established.”
the Society, a past member of the Commercial Board of the RICS, a past Council member of the Dublin Chamber of Commerce, and a Fellow of the Irish Auctioneers and Valuers Institute. He is a past Chairman of what was once known as the Junior Organisation of the Society and served a term of office as Honorary Secretary of the Society. He is a board member of Clanmil Ireland, a housing association and registered charity.
Peter says he has already seen a noticeable pick-up in transactional activity in the Dublin residential property market and that where vendors have realistic expectations in the ¤250,000 to ¤1m value band, and within the M50, there can be competition. He emphasises that the quoting price must be competitively pitched and he finds that the owners of the more valuable properties have more unmanageable expectations than vendors of more modest properties. He was encouraging when he said: “In my experience, when activity returns in the residental property market following a recession, commercial property tends to follow in about 18 months time”.
Economic management The Society President assesses Government performance as follows: “The Government has generally handled the crisis well. Minister Lenihan has done a superb job. He has been brave, really demonstrating a lot of courage. In a way, he has been out on his own”. And if he was given the job of Minister for Finance in relation to property and construction issues, Peter would do three things immediately: reform and reduce stamp duty and introduce a property tax; introduce a National Property Register covering residential and commercial property; and, ensure that the public capital investment plan is implemented. Having already given a rationale for a property tax, he explains the need for a National Property Register. “Such a Register would allow for considerably more transparency in the Irish property market than exists today. It should contain details of all freehold and leasehold transactions; all rent reviews; and, summary details of all properties, transactions and parties,” says Peter. He points out that there would be tremendous commercial benefits to purchasers, vendors, landlords, tenants, arbitrators and policy makers. “Everyone,” he says, “would know the facts of the market and all related business decisions could be made on a sound basis. That would give tremendous confidence to consumers and investors, especially overseas investors whom we have to attract back to our economy. Additionally, the Register could have a mapping function and would greatly assist the Department of Finance in introducing a well thought out property tax for the benefit of local authority funding.”
Unique challenge The challenge facing Peter Stapleton is unique: he must guide the Society to the point where the integration of the Society and the IAVI into SCSI is complete – and then hand over to his successor. He says the profession will see enormous and sustainable benefits.
Paul O’Grady Paul is a journalist with Think Media.
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Rents
Turnover rent – what is it? JOHN MINIHANE explains the ins and outs of this approach to commercial renting. Turnover rents are based on the theory that a turnover rent is a rent that is affordable by a tenant’s business as it changes during the terms of the lease. When turnover is up the landlord and the tenant benefit and when turnover is down the landlord and the tenant share the pain. Turnover rents are generally only used in a retail setting and are based on applying a percentage figure to the retailer’s gross turnover. The turnover rent is usually, but not always, made up of two elements: firstly the base rent, which is generally fixed at a level of probably between 70 and 90% of the market rental value of the property; and, secondly, the turnover element, a percentage of the turnover generated in the property. The percentage paid varies according to the retail use, which is concerned with higher turnover trades paying lower percentages. Given the financial and economic meltdown that Ireland has experienced in the last two and a half years, the retail letting market has moved to more flexible leasing arrangements in an attempt to incentivise tenants who are in a position to take new leases. Public pressure has resulted in ‘upward only’ rent reviews in new leases being recently (February 2010) prohibited by law. Turnover rents are becoming increasingly common in shopping centres and retail parks. Like many retail innovations, turnover rents were first established in the US. During the 1930s recession consumers were badly hit and landlords decided it was better to let shops and share the trading income produced rather than not to let the properties at all. Turnover rents are now commonplace in the US and look set to become an accepted feature of the Irish market. Tenants commonly believe that a turnover rent aligns the interests of the tenant with the landlord, who takes some limited exposure to the trading environment in which the tenant competes for business.
Mechanics The turnover rent will be based on applying a percentage figure to the retailer’s gross turnover arising in the property. Gross turnover is usually defined as the aggregate of all sums received for all goods sold at the property. It should be remembered that the focus is on turnover and not on profit. Therefore, the tenant’s expenditure is irrelevant although a number of routine deductions are usually made from turnover including VAT, any amounts allowed on returned goods or trade-ins, and staff discounts. The lease will provide for detailed accounting information to be provided regularly to the landlord. Usually there will be a provision for the submission of a turnover certificate in an agreed form. Typically the lease will also allow for audit of any information provided by the tenant by the landlord’s auditor. There are four recognised rent structures in use: 1. The tenant pays the higher of a base rent and an agreed percentage of its turnover, or 2. a base rent together with an agreed percentage of turnover, or
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3. a base rent together with a turnover percentage but subject to the tenant first reaching an agreed threshold turnover, or 4. the entire rent is based on turnover. Historically, the turnover percentage used in the US varies from 1 to 15%. Common turnover percentages in the fashion trade in Ireland vary between 8 and 12%. In more sophisticated environments the turnover figure can be obtained directly from tills linked by networks to the landlord’s agent’s office. Generally the tenant would be obliged to provide all necessary information to the landlord in respect of the specific property. Tenants in multiple units throughout the country will resist providing any information with regard to trading levels generally in relation to other units and/or the breakdown of stock within a particular location. Clearly, such information has competitive advantage implications.
Practical issues The fact that leases of shorter terms are prevalent in the US market avoids many of the issues raised by the use of turnover rents in the Irish context. This may explain the lack of standard lease terms in respect of turnover rents. The tenant will usually have to accept an unqualified obligation to trade, which is an onerous obligation that the tenant might otherwise successfully resist. The basis on which rent is to be reviewed arises as an issue where a base rent is payable. An agreed proportion of open market rent may be one option. The agreed percentage of turnover will become an issue where the tenant wishes to sub-let or assign its interest. Any permitted change of use may also have a material impact. Our legislation has not materially ventured into any form of guidance or regulation in the area and turnover lease provisions have not had the benefit of interpretation by the courts. Clearly there are increased management costs and also difficult valuation implications for landlords. There are security implications for funding banks. Banks usually require at least an agreed base rent for obvious reasons. Notwithstanding the issues, turnover rents are an established element of the current retail market and can only be seen in a positive light as they are allowing deals to be done where otherwise they might not be!
John Minihane MSCS MRICS
John is a partner, specialising in real estate, with Mason Hayes+Curran.
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Dilapidations
Tenants beware! OLIVER HELD outlines some important factors for tenants to bear in mind when considering breaking a lease.
Payment of a rental sum/penalty The second condition is where the landlord will seek a lump sum rental payment or penalty from the tenant. The purpose of this sum is to give the landlord a level of financial security while the property remains unlet. Please note that this rental penalty is not to be confused with a financial settlement that may be agreed between the two parties in lieu of dilapidations work that should have been completed by the tenant.
Service of notice A tenant’s ability to exercise a break in their lease can be a useful tool in the present economic climate; however, they must ensure that they comply with the various conditions of the ‘break option’ or ‘option to terminate’ clause, as it is sometimes known. In this brief article, I will look at the three most prevalent conditions: 1. Compliance with covenant. 2. Payment of a rental sum/penalty. 3. Service of notice to the correct landlord entity, and any other bodies that may be referenced in the break option clause, within the specified time period.
Compliance with covenant Firstly, with regard to compliance with covenant, a number of recent UK court cases have dealt with this issue, namely, Commercial Union Life Assurance Co Ltd v Label Ink Limited (2001) L&TR 29, and also Fitzroy House, Epworth Street (No. 1) Ltd. & Anr v The Financial Times Limited (2005) EWHC 2391 (TCC), and the appeal case ((2006) EWCA Civ 329) that followed the latter case. In these cases the concept of material compliance with the various lease covenants was examined. The appeal court following the Fitzroy House case held that material compliance can only be accepted by the landlord if he is able to re-let or sell the property without delay or additional expenditure. In other words, any breaches by the tenant must not render the property difficult to let. As can be seen by this ruling, it is important that a tenant can prove material compliance with the lease covenants, such as the yield up clause, which generally dictates how the demise is to be left at the termination date. Failure to comply with covenant, even materially, can result in the break option not being executed and the tenant remaining tied into the lease until the next break or the natural lease expiry date.
Thirdly, but equally important, the tenant must ensure that notice is served on the correct landlord entity, which is sometimes ignored to the tenant’s detriment, as can be illustrated by a recent case in the UK courts. In the case Hot Group plc v the Royal Bank of Scotland plc 2010 All ER (D) 280, the lease required the tenant (Hot Group) not only to serve notice on the landlord entity, but also on the property manager. While the notice was served in sufficient time on the landlord (in this case “not less than nine months” prior to the lease termination date), a notice was not served on the property manager until after the last day for exercise of the break. It was found that the tenant had not exercised their break in accordance with the lease and therefore was required to see out the remainder of the lease term. As was seen by this case, where there is a clear requirement on the tenant to serve notice of their intention to break (the lease) within a specific time period, failure to notify the correct landlord entity equals a failure to comply with the conditions that were agreed at the start of the lease. The importance of completing a thorough review of the lease cannot be underestimated and this review should be completed as soon as a break is being considered.
Oliver Held BSc (Hons) MSCS MRICS Oliver is an Associate with Watts Consultancy Ltd, and Chairman of the Society of Chartered Surveyors Building Surveying Division.
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Auctions
AMV ¤1,200,000
0 €1,460,00
AMV ¤299,000
00 0 , 0 0 €4
Going going gone? What is happening at auctions? DONAL BUCKLEY looks at the current situation and its implications. Some recent auction results where houses have sold for over the advised minimum values (AMVs) have raised hopes among prospective vendors, while for buyers it revives the old concern as to the usefulness of AMVs. Among the houses to sell for well above their AMVs was a four-bedroom bungalow known as Sunnyside in Greystones, Co. Wicklow. Lisney achieved ¤910,000 or 40% above its ¤650,000 AMV because of its development potential, as it had a 0.3 acre site in the sought-after Burnaby area. In Dublin, 29 Lombard St, off the South Circular Road in Dublin 8, sold for ¤330,000, or 47% above its AMV. The agents, Gunne, had guided ¤225,000 for the two-bedroom, terraced, redbrick artisan’s house. Nearby, another twobedroom terraced house at 5a Pleasant Lane sold for ¤280,000 – almost double its ¤155,000 guide price. This Savills auction saw five bidders competing with 28 bids. The same week in May, Savills sold a two-bedroom cottage known as 8 Beattys Avenue for around ¤400,000 – 35% above its ¤299,000 AMV, and it went prior to auction. In Ranelagh, Dublin 6, another house, Glenwirra, 28 Albany Rd, exceeded its AMV by 22% when sold through Bergins for ¤1.46m. This was the second highest Dublin price at auction this year, but at the market peak the house might have fetched as much as ¤3m. Its attractions also included the development potential of its 950sqm site backing onto the select Gonzaga College. Auctioneers Bergins received as many as 32 bids from six different bidders.
A cynical exercise? It would be unfair to claim that the gap between the AMV and the selling price reflects a cynical marketing exercise. The reality in the current market is that agents need to give extremely attractive AMVs to entice bidders to an auction and the low AMVs and low reserve prices are necessary as a clear statement of intent to sell. As one agent said, you need only one bidder to sell by private treaty but you need at least two to sell at auction and preferably more.
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This willingness to sell for close to the AMV was reflected in the prices of two other Dublin house auctions. Dinard, 52 St Kevin’s Park, in the much sought-after Dartry area of Dublin 6, was sold at a Lisney auction for ¤1.55m or only 3% above its AMV. Another Lisney auction achieved ¤975,000, or only 8.3% above its AMV, for a four-bedroom semi-detached house, 22 Glenvar Park, Blackrock, Co. Dublin.
A new environment At the market peak auctions were dominated by sought-after properties. This year agents, especially those outside Dublin, have used auctions to generate activity at a time when buyers are slow to buy because of the expectation of further price falls. Consequently, many of the properties coming to the market this year are fairly ordinary; indeed, many of them are in need of refurbishment, or on plots of land with potential for extensions. Many of the buyers seem to have cash or need relatively low borrowings, and this is also reflected in their preferences for properties to which they can add value by replacement or the addition of an extra house. At the peak of the boom some buyers detested auctions after they had spent time and money on surveys and paperwork only to be completely outbid as sale prices far exceeded AMVs. Even worse, in many cases, despite bidding over the guide prices, the properties were withdrawn as the vendors sought even higher offers. Considering that experience, it seems ironic that some buyers now regard auctions as being a more transparent and efficient method of buying. But it is understandable at a time of falling prices, market uncertainty and a lack of timely and authoritative price data, that both vendors and buyers should favour auction transparency. Auctions provide a degree of assurance of a fair price and some buyers prefer them to the more prolonged private treaty process.
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Auctions
AMV ¤1,5 00
,000
€1,550,000
AMV ¤650,000
John O’Sullivan of Lisney explains: “After one of our recent auctions one of the under bidders expressed relief that despite not being successful at the auction, they knew the outcome within a reasonable timescale and they could quickly move on and look for alternatives”.
00 0 , 0 1 €9
AMV ¤225,000
€330,000
houses failed to sell at auction. For instance, Bennets withdrew 59 Dartmouth Sq, a two storey over basement redbrick house, at ¤1.075m. After a few weeks of negotiations a price close to the ¤1.2m AMV was agreed.
More regional sales Approvals keeping numbers down Nevertheless, there have been relatively few auctions in Dublin this year because of the tardiness of bank mortgage approvals. Simon Ensor of Sherry FitzGerald says that this factor is also one of the reasons why his firm, which had been one of the most active auctioneering practices in Dublin, has not had one auction this year. “Auctions present a very limited window (three or four weeks usually) for buyers and only those who need little or no finance, or have full loan approval, can bid. But auctions can work if the AMV is very attractive and is close to the reserve,” he adds. This narrow AMV to reserve gap has also been seen at regional auctions. For instance, Galway agent O’Donnellan Joyce auctioned 20 properties in the first six months of this year: 10 properties sold in the room, six immediately afterwards and four were under active negotiation at the time of going to press. Director Colm O’Donnellan says that, on average, the sale price is about 10% over or under the AMV and the marketing campaign extends to six weeks. Its auction prices ranged from ¤178,000 for 49 McDara Road, Shantalla, Galway, a one-bedroom bungalow for which the AMV had been ¤165,000, to as much as ¤635,000 for 31 The Maples, Salthill, a fivebedroom detached house with a ¤595,000 AMV. The biggest auction this year was the bumper Real Estate Alliance event. Of the 57 properties presented on the day, only six sold, although five had sold prior and a further five sold soon afterwards. The cheapest house to sell at the REA auction was a four-bedroom detached house on its own grounds at Gortinty, Drumsna, Co. Leitrim, which sold for ¤135,000 – ¤15,000 less than the ¤160,000 AMV. The best price at the REA auction was the ¤500,000 achieved for Mill House, Mill Road, Gowran, Co. Kilkenny, a four-bedroom period house on 12 acres sold for exactly its AMV. REA considered it a success and are planning another on November 9, at which they expect that the banks will sell some distressed properties. But despite the low AMVs not all auctions are successful. A few other large
Co. Kildare and areas close by were also active areas for agents such as Coonans and Sherry Fitzgerald O’Reilly. One of the highest prices achieved in the county was when Goffs Country sold Broadfield Stud on 147 acres near Naas for more than ¤2.75m to an Irish businessman. This was 10% above its AMV. Goffs also sold a four-bedroom bungalow at Clonlyon, Kilcock, on 16 acres, which was bought by a local farmer for around ¤390,000 – 4% above its AMV. Farmers were among the most active buyers during the year and agents frequently opted for small lots of land at more affordable prices to appeal to more bidders. The few larger farms to sell are believed to have been bought by farmers who had funds from the sale of land to developers or to the Government for infrastructural projects. A 72-acre north Dublin farm sold for ¤1.46m in April to a local farmer through auctioneer Liam Reilly. The price of around ¤20,100 per acre was close to the ¤1.5m guide. In June two properties near Kilcullen in Co. Kildare sold for a combined price in excess of ¤1.29m. One of the lots, known as Brigade Lodge, on 33 acres, sold at auction for ¤640,000 – 42% over its guide price. The agents Jordans sold the other lot, consisting of 79 acres with a derelict farmhouse, prior to auction for in excess of its ¤650,000 guide price. In Carbury, Co. Kildare, Knight Frank achieved ¤1.12m or about 28% over its guide for Collinstown, a 136-acre tillage farm with a derelict house.
Donal Buckley
Donal is Commercial Property Editor of the Irish Independent.
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Project management
The paying game CASSANDRA BYRNE and JARLETH HENEGHAN offer advice on the best way to manage cashflow in construction contracts. It takes astute playing of the payment game to conserve cashflow, reduce financial exposure and manage payment risks in construction contracts. Where payment issues arise, employers, contractors and sub-contractors each have their own positions to stand over. The current financial climate has created breaks in the cashflow chain from funders to employers, tapering down to contractors and sub-contractors, and has led parties to carefully review their respective development and construction contracts. With continuing market uncertainty, exploring options ranging from project suspension, termination and dispute resolution (for contractors, subcontractors and employers), to re-scoping and declaration of projects (for employers and contractors), can enable parties to determine the best suit to lead to trump in the payment game.
Suspension – holding your cards Suspension stops the clock on financial and risk exposure. Incorporating clear
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suspension clauses can reduce risks, giving parties the chance to ‘wait and see’ before deciding to resume or terminate a project. Most standard form construction contracts in Ireland (e.g., GCCC and IEI) and the UK (e.g., JCT, NEC and ICE), as well as many bespoke agreements, expressly grant employers a general ‘no questions asked’ right to suspend all or part of projects for any reason. Typically, contractors cannot suspend for no reason, but may be able to suspend for non-payment. There are also limited common law rights to support contractors’ right to suspend (CJ Elvin Building Services Ltd v Noble [2003] EWHC 837 (TCC)). Calls to introduce a statutory framework similar to that in England and Wales (the Housing Grants, Construction and Regeneration Act 1996 [HGCRA]), to address non-payment of contractors through the mechanism of suspension and referral to adjudication, have found favourable support in Ireland through the presentation to the Seanad of the Construction Contracts Bill 2010.
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Project management
Termination – folding your hand Termination of a project aims to bring finality and certainty on costs and risks, and where relationships between the parties have soured. Most standard form Irish and UK construction contracts do not allow for projects to be cancelled without reason, but instead rely on certain grounds including insolvency and breach of obligations. Contractors may also be entitled to terminate after a pre-agreed period for suspension is exceeded. Employers should consider including no fault termination provisions to minimise risk. In drafting clear and weighted termination clauses, lawyers should also address loss of profit or loss of expectation for contractors and parties should be aware of the consequences before agreeing them. However, even with such clauses, persuasive case law may support contractors’ rights to claim loss of profit for uncompleted works, e.g., Abbey Developments Limited v PP Brickwork Limited [2003] EHWC 1987 (TCC). In certain circumstances, termination may be the best option so that projects can be re-scoped in light of changed circumstances and with both parties acting in good faith.
The HGCRA is due for update by the Local Democracy, Economic Development and Construction Act 2009 once commenced, which it is anticipated may occur in March/April 2011. It will introduce amendments to the adjudication, suspension and payment provision within the HGCRA. The 2009 Act envisages a payment regime that is solely triggered by the issue of payment notice(s). The Act also sets out standalone optional payer or payee payment notice regimes. It remains to be seen if this approach will be followed in Ireland. Section 145 of the 2009 Act further introduces an interesting twist on suspension whereby, rather than suspending all works on a project, an unpaid party can suspend only that part of its involvement in the project that relates directly to the non-payment. The 2009 Act allows an extension of time and loss and expense (including legal expenses) reasonably incurred for the period of suspension and other periods of delay arising from the suspension. It will be interesting to see how or if the Construction Contracts Bill 2010 addresses such issues.
Playing the best hand in the money game – practical tips Other cards in the deck In lieu of suspension or termination, and to better manage cashflow, employers can instruct deceleration, re-phasing or re-scoping of projects or parts of projects. In an uncertain market, agreeing project deceleration or rescoping is very much dependant upon the parties’ relationships. Notices of suspension or termination may also trigger other third-party rights, such as step-in or novation, putting others into the shoes of either employers and/or contractors. ‘Paid when paid’ or conditional payment clauses allow one party to defer payment unless or until the other party has been paid. Such provisions are generally passed down to other parties, notably sub-contractors and/or suppliers, in the project contract chain. Given the implications on the payee, clear and unequivocal wording is required in the relevant clause for it to work. Such clauses, together with other conditional payment and avoidance/payment deferring clauses in construction contracts, have been successfully challenged through the courts of England & Wales, e.g., William Hare Limited v Shepherd Construction Limited [2010] EWCA Civ 283 and Yuanda (UK) v WW Gear Construction Limited [2010] EWHC 720 (TCC). Such clauses are, in any event, to be outlawed in England and Wales when/if the Local Democracy, Economic Development and Construction Act 2009 comes into force. Parties can also enforce the contract dispute resolution options specified (such as litigation or arbitration). To this end, their advisors will need to carefully review such provisions.
Adjudication – another chip in the game? In the absence of adequate contractual mechanisms to quickly and decisively deal with payment issues, parties in Ireland may also be able to look to statutory remedies, such as adjudication as proposed under the Construction Contracts Bill 2010. Adjudication is generally viewed in the UK as the most popular means of resolving payment issues by an independent third party during the course of a project. It is typically viewed as quicker and cheaper than litigation or arbitration. Under the Construction Contracts Bill 2010, adjudication decisions are to be reached within 28 days of referral, or 42 days with the referring party’s consent.
Practical considerations when dealing with payment and cashflow issues depend on a party’s role in the game. Employers should give realistic advance notice of suspension or termination to enable contractors and sub-contractors/suppliers to wind down activities on and off site and mitigate losses. Similarly, contractors should give adequate notice and all parties should strictly follow agreed suspension or cancellation contractual provisions as appropriate. Notice will then provide the springboard for claims submission and replacement of contractors/subcontractors. On suspension, the site, onsite materials and plant machinery need to be secured and employers may wish to consider securing offsite materials, possibly through vesting certificates. Fluctuation on suspension is important to consider, particularly if previously excluded from the contract. Here contractors need to be mindful of future rises in construction costs. In respect of termination, employers typically pay for completed works, material purchases and possible compensation for loss of profits in accordance with the contract terms. Contractors need to clear the site and hand over documents and materials purchased prior to termination. Security and property documents, performance bonds and insurances should be examined to see how these are affected by suspension or termination.
The winning game Skill, appropriate contractual mechanisms for suspension and termination, and working towards the same endgame, combined with some good luck in the current market, will help involved parties to best manage cashflow and risk. Knowing the aces from the joker and working within contractual and legislative parameters will guide the winning hand in playing the construction contracts payment game.
Cassandra Byrne and Jarleth Heneghan Cassandra, MCIArb, is an Associate and Jarleth, FRICS, FSCS, FCIArb, MCIOB, is a Partner in the Projects & Construction Department at William Fry.
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European news
The AEEBC ROBERT PATTERSON presents an update on the work of the AEEBC. The AEEBC (Expert Européen du Bâtiment et de la Construction) was established in 1990 and represents building surveyors and construction experts who are professionally qualified in the technological and management processes by which buildings are designed, constructed, renewed and repaired in accordance with the national legislation of individual countries. To date it has 17 organisations from 14 member countries, which range from Finland in the north to Italy in the south. It is estimated that each country and its representative organisations represent an overall membership close to 350,000 across Europe. The SCS was a founder member of the AEEBC and is represented in all policy and innovations within the organisation.
and training (VET). Projects range from those giving individuals the chance to improve their competences, knowledge and skills through a period abroad, to Europe-wide co-operation between training organisations. The AEEBC has participated in the development of a successful LdV bid for funding, which focused on the creation of manuals promoting common platforms of managerial qualifications in the field of construction called The Construction Manager Library, and consisted of seven books which are available in the SCS library for perusal. Finally, the AEEBC meets twice a year for general assembly, which all members attend, and twice a year for its officers. The AEEBC is currently looking for affiliate members to join the organisation. For further information please go to http://www.aeebc.org/. Robert Patterson FSCS MRICS Building Surveying Robert is Honorary Treasurer AEEBC, and Society of Chartered Surveyors Rep – rob@pconcepts.ie
AEEBC current objectives Currently, the AEEBC is developing a professional card (EurBE) leading to a common platform for the recognition of its members to work in member European states. In theory, this card would facilitate migration between EU member states by waiving compensation measures, where possible, within the defined profession and role. The card is currently being piloted and will be issued in late 2010.
Leonardo da Vinci programme The AEEBC is also completing a second Leonardo da Vinci (LdV) project. The LdV programme links policy to practice in the field of vocational education
International Valuation Standards Council JOHN STEWART offers an update on the work of this organisation. The proposed 9th edition of the International Valuation Standards (IVS) has resulted in major changes to the scope and presentation of the Standards. The Standards apply to assets and liabilities and the new edition is organised under three main groupings. The ‘100 Series’ refers to general standards and IVS 101 to 105, and specifically includes: general concepts and principals; valuation approaches; basis of value; scope of work; and, valuation reporting. The ‘200 Series’ refers to application standards and includes six headings: fair value for IFRS; valuations for depreciation; valuations for lease accounting; valuations for impairment testing; valuation for property, plant and equipment in the public sector; and, the property interest for secured lending. The final section refers to the ‘300 Series’ and is concerned with asset standards. The 11 sections refer to: valuations of businesses and business
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The CEEC At the recent General Assembly Meeting of Conseil European des Economistes de la Construction (The Council of European Construction Economists or CEEC) held in Helsinki in May, a new board was elected. The outgoing board comprised: the President from Ireland, Gerard O Sullivan, SCS; General Secretary from the UK, John Papworth, RICS; and, two Vice Presidents – from Holland Peter Van der Pjil, NVBK, and from France Jacques Philippe Charpy, UNTEC President. These were replaced by Peter Van der Pjil, NVBK, as President, from Ireland Micheál O’Connor, Chairperson of the Quantity Surveying Division of the SCS, as General Secretary, and from France Pascal Asselin, UNTEC, as Vice President. The current Irish delegates to the CEEC are Conor Hogan, Richard O’Carroll and Gerard O’Sullivan. The next General Assembly Meeting will take place in Budapest in November. To find out more about the CEEC in general or any projects being undertaken by the CEEC, please visit www.ceecorg.eu or contact the SCS. interests; valuations of intangible interests; valuations of plant and equipment; property interests; valuations of historic property; valuations of investment under construction; valuations of trade-related property; valuations of financial instruments; reserved for future standard on valuing non-financial liabilities; reserved for future standard for biological assets; and, for extractive industry. The IVS set out a framework to explain principles and terminology to assist valuers to achieve consistency in reporting, as well as providing clients/end users with understandable valuation reports. This current edition does not include instructions to valuers on how to estimate values or educational material on valuation that may have been part of previous ones. However, the IVSC is presently developing technical information papers that will update and expand on some of the material excluded from the 9th edition. The closing date for the consultation is September 2 and it is anticipated that the standards will be finalised at the November IVSC meeting. Publication is anticipated on January 1, 2011. The entire document can be viewed on the IVSC website – www.ivsc.org. John Stewart FSCS FRICS MCI Arb John Stewart & Associates
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Legal
Property cases Margaret Maguire (Applicant) -and- Bray Town Council (Respondent) -and- Morris Mortell (Notice Party) The High Court Judicial Review [2003 No. 397 JR] This case involved the Applicant seeking a default permission pursuant to the provisions of Section 34(8)(f) of the Planning and Development Act 2000. The Applicant sought an order quashing a decision of Bray Town Council to refuse planning permission for a residential development comprising a bungalow and entrance fronting Sidmonton Court, Bray, Co. Wicklow. She also sought a declaration that she was entitled to a default planning permission in respect of that application. The Applicant alleged that Bray Town Council issued a refusal of her application for planning permission on April 11, 2003, but that the last date for the making of that decision was April 10, 2003. As the decision was out of time she claimed an entitlement to a default permission. Interpreting Section 34(8)(f), the Court stated that it must bear in mind that the right of a developer to permission by default should be strictly construed and the fact that the decision in this case was notified to the Applicant one day beyond the period of eight weeks does not mean that the decision was not made or decided prior to that date or within that time. The Court acknowledged ambiguity in the wording of Section 34(8)(f) but, notwithstanding that, it was of the view that the time limit for making the decision was April 10, 2003, and the decision was not made until April 11, 2003, and was therefore out of time. Bray Town Council had submitted that the proposed development was in material contravention of the Development Plan. The Court accepted the evidence of the planning inspector’s report and found that the proposed development was in material contravention of the Development Plan. The Court found that as it would not have been possible for any valid grant of planning permission to be made in this case in the first place, then it was not possible for the Court to declare the existence of a default permission. Mr Justice Eamon De Valera stated that “an impossible permission cannot ultimately be rendered possible simply through the lapse of time”.
Dublin Docklands Development Authority (Plaintiff) -andJermyn Street Limited -and- Blacktie Limited (Defendants) The High Court [2009] No. 1298 S This case involved the CHQ Building at the International Financial Services Centre in Dublin. This development comprises a significant number of retail units. Jermyn Street took a lease of two units from March 7, 2008. Blacktie provided a guarantee in relation to the obligations of Jermyn Street under the Lease. No rent had been paid on foot of the lease by Jermyn Street to the DDDA. The DDDA sought recovery of rent and other charges against Jermyn Street and, pursuant to the guarantee, against Blacktie. Two principle issues arose in respect of proceedings. Jermyn Street and Blacktie argued that they had the right under the lease to refer disputes to arbitration. If this were the case then the proceedings would be stayed pending the result of that arbitration. The Court found in favour of Jermyn Street, holding that the arbitration clause was applicable. It also went on to find, in view of the particular way in which the guarantee was drafted, that Blacktie was a party to the lease and therefore benefited from the same provision. The DDDA also argued that both Jermyn Street and Blacktie had taken steps
in the proceedings that had disqualified both of them from relying on the arbitration clause. After the proceedings had been served the DDDA brought a motion for summary judgment in the usual way. A replying affidavit was provided on behalf of the Defendants, which made reference to the arbitration clause and expressly stated that the replying affidavit was being made without prejudice to the right to refer the matter to arbitration. Relying on earlier authority Mr Justice Clarke restated the test to be: “Has the defendant unequivocally represented that there would be no reference to arbitration, and has the plaintiff conducted his affairs on the basis that the matter will be determined by the court, in reliance on that representation”. Applying the test the Court found that the filing of the replying affidavit in this case did not itself amount to a step in the proceedings when that affidavit itself contained a reservation of the right to refer to arbitration. The DDDA also contested whether in fact a dispute existed between the parties capable of referral to arbitration. The Court agreed that it is only where there is a dispute that a matter can be stayed pending arbitration. There was a side agreement to the lease, which dealt with rental phasing. The Court examined this in some detail and found that the combined effect of three clauses within the side agreement was ambiguous. The Court was more than satisfied that an issue had arisen as to whether the appropriate amount of rent was 50% or 75% of the annual rent. Jermyn Street also argued that the Plaintiff could not maintain a claim in the proceedings for continuing arrears of rent and other charges. Reciting existing authority, Jermyn Street accepted that continuing interest could be claimed in summary summons proceedings where interest is provided for and ascertainable under the terms of the relevant contract. The Court was of the view that there was no reason in principle why continuing rent cannot be claimed on the same basis. The Court found that other than the dispute concerning the proper calculation of the reduced rent, it was not satisfied that any dispute as to the rent due had been evidenced. In the circumstances, the Court found it appropriate that the DDDA be given liberty to enter judgment as against Jermyn Street for all the sums claimed as of the date of the hearing, save that a reduction of the amount of rent claimed must be made to reflect the bona fide dispute as to whether the rent should have been 50% as opposed to 75% of the full amount. The Court ordered that the claim in respect of the difference between the rent claimed and the sum to be determined by an arbitrator would be stayed pending that determination. The Court found that by virtue of the terms of the lease Blacktie could only be made liable in respect of one year’s rent. It therefore found that it followed as Blacktie had a bona fide defence in respect of the question as to whether one year’s rent should be calculated at 75% or 50% of the rent amount.
John Minihane MSCS MRICS
John is a partner, specialising in real estate, with Mason Hayes+Curran.
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Working abroad
The Arabian Gulf TOM WREN has lived and worked in the Arabian Gulf for 11 years over the past three decades. In this article he attempts to provide some assistance to members who may be considering relocating to that region. A decision to work in the Arabian Peninsula entails far more than just work experience; a complete change of lifestyle and cultural surroundings awaits. It is not all easy going and one must be prepared to give it time. For those who are contemplating such a move, the good news is that opportunities exist in the Gulf. But one needs to be discerning as to which country to target and what type of potential employer to pursue.
How to apply Conglomerate recruitment websites, such as www.go4constructionjobs.com and www.bayt.com, are possibly the best starting point. At the initial search stage, be prepared to fit in to a ‘tick box’ mindset until positive feedback results. Most websites make plain that much time can be wasted in applying for jobs beyond one’s qualifications and experience level.
Where to go Of the six Gulf Co-operation Council (GCC) states, Saudi Arabia is the most challenging, followed by Kuwait. Both of these countries have many opportunities but living and working conditions are moderate to severe. Both need to be seriously considered before accepting an offer. Remuneration should be at a higher level than in the other GCC states but that is not always the case. On a bachelor basis, three paid holiday periods a year would be a must. Some expatriates hold positions in Saudi’s eastern provinces and commute across the causeway from Bahrain, an arrangement made easier now that most senior construction jobs in the Gulf include a two-day weekend. In the Emirates, Abu Dhabi is now, and for the foreseeable future will remain, the most financially secure, since Dubai shot its bolt following a decade of excess. In Abu Dhabi, however, housing and schooling for expatriates are currently problematic. The other Emirates states, Sharjah, Al Ain, Fujairah,
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Ajmean and Ra’s Al Khaymah, have fewer opportunities and some are bacon free and ‘dry’. Bahrain, if one can find a position there, has a relaxed regime that anyone from Ireland would appreciate. The social aspect is great, especially for families, and a thriving Irish community exists. If a complaint could be raised, it is that, being a relatively small island, it presents a village-like existence. A drawback for families is that there is only one school worth considering at secondary level and places are not always easily found. Oman is opening up, with a number of new airports under construction to capitalise on its tourist potential. Separated geographically and psychologically from Saudi by the Hadramaut Mountains, it is the most beautiful of all the GCC states. It is a station well suited to those who are keen on the great outdoors (to be treated with respect during the rainy season). Middle of the road in terms of regime is Qatar. It is a country on the move. In addition to significant oil deposits, Qatar has natural gas reserves for an estimated 150 years at current levels of production. Doha, its capital, is a virtual construction site and the country is currently engaged on a massive development programme. Unlike what occurred in Dubai, its forward-thinking government first considered a master development plan, including a substantial commitment to education. Leading projects in the pipeline include motorways, light rail in Doha, heavy rail linked to other GCC states and a 40km bridge to Bahrain.
What you need to know The following are some of the issues you will need to consider. The list is not exhaustive and, depending upon which GCC state you are relocating to, emphasis will differ:
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Working abroad
Prospective employer: The usual trade-off exists between the public and private sectors. Some private companies may not be as financially secure as they would have you believe. For those with family decisions to consider, it is worthwhile to visit the location for final interview. The larger employers require this in any event.
from the worst practices of the 80 to 90 different nationalities that reside in most GCC states. A company car should be seriously considered if it is on offer, as all the paperwork, which can be considerable, will be looked after by your employer. Most GCC states have a zero tolerance policy for drink driving and, unlike Ireland, it means what it says. If you are going for a drink, take a taxi; they are relatively cheap.
Employment contract: This must be provided to you in writing before you travel. Needless to say, it requires careful attention and you need to consider the entire package of emoluments. Beware of unscrupulous employers. I knew of a case where a person was asked to sign a document after his arrival, written in Arabic, allegedly to secure his work permit; what he signed was a new contract agreeing to lesser terms.
Visa and work permit: This is the employer’s responsibility. Some GCC states require the worker to briefly leave the country and re-enter as part of a ‘no objection’ process. You should not be asked to contribute anything relating to visas and permits, with the possible exception of a driving licence and, for those GCC states that control the sale of alcohol, a liquor licence.
Accommodation: If an offer includes accommodation, it should be carefully considered. It could save a lot of stress in a new country where you will be starting from scratch. It underscores the benefit of an advance visit. If allowance is provided in lieu, beware that the expatriate housing market is a form of local wealth transfer. A two-bed apartment could start from ¤24k per annum. A moderate three-bed villa begins at ¤35k per annum. Landlords typically demand 12 post-dated cheques up front. On top are deposits to utilities authorities and household goods if it is not a furnished accommodation. Work and local customs: Be prepared for a very different approach. Top management is invariably local. Familial relationships are commonplace in the local business ethos, so before you step on the toes of the architect or the engineer, better check he is not a cousin or brother-in-law of the managing director, or local sheikh!
Holidays: The long hot summers (up to 50˚C) demand generous holidays. At a minimum, you should seek 25 to 30 working days a year with pay and air tickets. Schools: Most require a debenture, which can be ¤2,000 or more per child, and fees can start from ¤7,000 per annum depending on the grade and the school. Schooling up to third level is typically included in an expatriate emoluments package.
Medical: Facilities are generally good and most good employers provide insurance cover comparable with Irish private health insurers. Sport: Throughout the GCC the facilities are good. Rugby and soccer clubs abound and one can find a wide range of sporting and social activities to suit personal taste. The above is only an outline. Information throughout the GCC comes at a premium and is not readily available. Some expatriate websites are helpful. In your first year abroad, you will do well financially if you stand still. While you can expect to form good friendships, be prepared for a turnover that, on average, is two to three years.
Tom Wren BCL LLM FSCS MCIArb
Cars and driving: Cars are cheap relative to Ireland. Despite the best efforts of the GCC governments, the standard of driving is atrocious, as it draws
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