1. RICS Property
JOURNAL
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RESIDENTIAL
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E ldavis@rics.org
Advisory group:
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Hibberd (RICS), Graham Ellis (Greenhouse Surveyors), Philip Santo
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Gold Solicitors), Michael Day (Integra Property Services)
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J u ne /J u ly 2 0 1 3 3
UPFRONT
Contents
COMMERCIAL
C
16
Building on a vision
Simon Williams considers how
developers go beyond physical
assets to create a sense of place
18
Surveyors among the vines
Michael Baynes looks at the unique
issues of valuing vineyards
20
Conditions of service
Jane Fielding explains the Transfer
of Undertakings (Protection of
Employment) Regulations 2006
and why they might become more
ambiguous for property managers
in the future
22
Raising the bar
Jim Ware and Paul Carder look
at how facilities managers can
play a greater strategic role in
their businesses
24
Changes for the better
David Gardiner looks at a
contentious area in landlord and
tenant relationships – the granting
of licences for alterations – and
reports on how new guidelines can
help avoid problems for both sides
26
Extending hospitality
Babette Märzheuser-Wood
explains the pitfalls and potential
of a franchise model to fire
overseas expansion
27
Taxing times
Mansion tax and de-enveloping
properties
5
Economic forecast
The challenges facing central
banks internationally
6
Update
8
Reinventing the fringe
Alister Scott examines some of the
conflicts at the heart of planning at
the rural-urban fringe
11
Beating the offsite rule
Philip Santo considers the
housing shortage and describes
a ground-breaking new
scheme that will boost mortgage
lending on innovative forms of
house construction
14
Legal Q&A
Legal experts answer common
queries
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2. RICS PROPERTY
JOURNAL
4 J U N E /J U LY 2 0 1 3
ARTSRESIDENTIAL
AR
While every reasonable effort has been made to ensure the accuracy of all
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contents
UPFRONT
CONTENTS
47
A resilient market
The annual TEFAF market report
by art market economist Dr Clare
McAndrew values the global art
market in 2012 at €43bn
49
Printing your own money
Keith Heddle gives an insight
into the investment market in
rare stamps
51
A rare and unusual business
The Antiquarian Booksellers’
Association is thriving. Lesley
Davis speaks to President
Laurence Worms to find out
why membership is growing
53
When deals are endangered
Could you spot a
restricted substance
in your saleroom? It
could be harder than
you think, warns
Milton Silverman
30
Keeping up with repair rules
In the second of their technical
briefing notes, Phil Parnham
and Stuart Smith look in detail
at property repairs and the
Building Regulations
32
Deducting deposits fairly
The Tenancy Deposit Scheme
resolves more than 10,000
disputes every year between
landlords and tenants who
disagree on how deposits should
be apportioned when tenancies
end, writes Chris Kendall
34
Valuing the
freeholder’s interest
James Wilson examines the
development of case precedent
at the Upper Tribunal on the
appropriate deferment rate to be
applied in leasehold reform cases
36
Safe as houses?
A strong regulatory framework and
sufficient inspectors to intervene
where there are hazards to health
are crucial in a private rented sector
that is an increasingly important
source of housing for vulnerable
people, argues Bob Mayho
38
A delicate balance
Jeremy Leaf outlines why he
believes that complex planning
requirements, difficulties in
obtaining finance, delays and costs
are all contributing to the UK’s
chronic housing shortage
40
How bright is the future?
David Hilton sheds some light
on solar energy in the final part of
his series on renewable energies
42
No reason for deadlock
Philip Santo describes a case
where professional opinions
differed, throwing doubt on the
original valuer’s report and causing
uncertainty for the homeowner
44
Helping ourselves
to regulation
Self-regulation of the residential
leasehold management sector is
coming, writes Michelle Banks
The Antiquarian Booksellers’
Association is thriving. Lesley
Davis speaks to President
Laurence Worms to find out
why membership is growing
When deals are endangered
Could you spot a
restricted substance
in your saleroom? It
could be harder than
you think, warns
Milton Silverman
Property Journal is the journal of the Arts & Antiques, Commercial Property, Dispute Resolution,
Facilities Management, Machinery & Business Assets, Management Consultancy, Residential
Property and Valuation Professional Groups
3. J u ne /J u ly 2 0 1 3 5
RICS Property
JOURNAL
Simon Rubinsohn is
Chief Economist at RICS and
regularly provides comments
for national newspapers
including the Financial Times,
The Guardian and
The Telegraph
srubinsohn@rics.org
opinion
Breaking out
of the bubble
Simon Rubinsohn on the challenges facing central banks internationally
OPINION
MMany RICS members, I am
sure, are continuing to find
the real estate world a
challenging place despite
some signs that banks are
finally beginning to take a
slightly less restrictive
approach to providing finance
for the sector. Yet as some
chinks of light begin to be
visible in parts of the UK
property sector, a wider
debate is taking place,
particularly in the US, over
the risks central banks are
running in pursuing the
current unconventional
approach to monetary
management.
The one-time budget
director under Ronald
Reagan, David Stockman, has
been vigorous in stating his
view that the US economy is
in a bubble inflated by ‘phoney
money’. But he is not alone in
making the point, with some
others highlighting the sharp
turnaround in the US housing
market as being indicative of a
more narrowly focused asset
price bubble. Indeed, the Bank
for International Settlements
has done likewise in the
recent past, drawing attention
to the narrowing in yield
spreads between higher risk
classes of debt and safer
government issuance.
Unfortunately, this is not
some esoteric discussion
among theoretical, some
might say heretical,
economists with little
relevance to those of you
practising in the UK. On the
contrary, it is part of a wider
debate about how to adjust
to the realities of the new
world order post credit
crunch, in which emerging
economies such as China are
finding it almost as difficult
as many western economies
to strike the right balance
on policy, and for that matter,
the appropriate regulatory
framework. In the case of
China, the explosion in
unregulated lending
associated with the shadow
banking sector is a particular
issue with which the country’s
new leadership is currently
struggling to grapple.
It is perhaps not entirely
surprising that after the
experiences of the past
decade there is tendency to
see ‘bubbles’ all too readily. It
is also predictable that real
estate will attract particular
attention given the role of
sub-prime in triggering the
subsequent credit crunch.
Central banks clearly are
caught in a difficult place. The
lost decades experienced by
Japan following its own credit
implosion in the late 1980s
casts a haunting shadow over
their actions. Too little easing
and we threaten to repeat that
experience. Too much and the
wrong signals will be sent
both to asset markets and
price setters more generally.
To some extent, that
dilemma is currently playing
out at the Bank of England,
albeit in a more measured
way. While some members
of the Monetary Policy
Committee believe more
needs to be done to revive the
British economy, others take
the view that there is a very
real risk of an inflation episode
if any more liquidity is thrown
at the problem and that time
is the real healer. That conflict
ultimately looks likely to be
won by the former group with
the incoming governor, Mark
Carney, set to push more
aggressively for further action
and, arguably, having more of
a mandate to do so reading
between the lines of George
Osborne’s Budget comments.
Further monetary
accommodation will, in all
probability, have ramifications
for real estate; prime end
properties, whether residential
or commercial, will continue
to attract significant interest
and I would bet that this
will ripple out to the wider
market. That is, after all, how
monetary policy is meant to
work. And as this unfolds,
some of that discussion
currently taking place in the
US about ‘bubbles’ may be
replicated in the UK.
It would, of course, be
helpful if we could identify
when a particular market
is in ‘bubble territory’.
Fundamentals, so the saying
goes, should provide the
answer but if only it were so
simple. Prime London real
estate already seems pretty
much at the upper end of
what could be described as
fair value. However, if new
sources of finance from
overseas continue to seek out
property in the centre of the
capital, who is to say what the
fundamentals imply?
That said, no one should
be in any doubt that at some
point in the future interest
rates will need to be raised;
the base rate cannot remain
at 0.5% for ever. When this
happens, real estate analysis
will need to be recalibrated
to reflect an environment in
which borrowing costs are
heading upwards. This need
not result in lower real estate
prices and certainly does not
imply a crash. However, it
would be foolish to rule out
the possibility that as some
of the abundant liquidity
begins to be reined in, the
real estate sector won’t take
some of the strain. C
5. J u ne /J u ly 2 0 1 3 7
UPFRONT
update
In brief...
Consultations
RICS welcomes responses from members on the following
consultations open this summer
Surveyors acting as independent experts in commercial
property rent reviews guidance note
3June–1July
This ninth edition will be split into Surveyors acting as arbitrators
in commercial property rent reviews, already accessible on
RICS’ website, and Surveyors acting as independent experts
in commercial property rent reviews, now publicly available for
comment in its draft form. The latter will assist members appointed
to act as independent experts by making them aware of the
procedures likely to be followed.
Mundic guidance note
6June–4July
The third edition of this guidance note is intended to equip
chartered surveyors, structural engineers and petrographers with
the knowledge to evaluate and assess concrete-built properties in
Cornwall and Devon that may contain ‘mundic’ and introduces a
modified process to reflect increased understanding of the science
behind the problem. The guidance will also aim to give some
certainty to mortgage lenders in this region. You are welcome to
share your views on the draft guidance about this niche yet crucial
issue to Cornwall and Devon.
Surveyors acting as expert witnesses guidance note and
practice statement
12July–9August
This review of the note’s third edition and its accompanying client
guide aim to ensure that the guidance is up to date with current
case law, current practices such as ‘hot tubbing’ and the Civil
Procedure Rules and any relevant practice directions. RICS
members involved in dispute resolution are welcome to comment
on this draft updated version.
Selling personal property at auction guidance note
ScheduledtoopenendofJune
This is the second edition of a guidance note originally published
in 2006. It brings the guidance note up to date and its scope has
been widened to be relevant not just in the UK, but globally. It
provides guidance covering all stages of the process from before
the sale through to the post-auction activities. Publication is
expected in November.
Surveys of residential property guidance note
ScheduledtoopenmidJune
This is the second edition of a guidance note originally published
in 2004, Building surveys of residential property. It updates the
content and will provide protection and guidance for members
who do not yet exclusively use all RICS Home Buyer Products.
This note will provide general advice on issues such as fee setting,
terms and conditions and how to identify the appropriate survey.
It is expected to publish at the end of October.
For the latest consultations, visit
http://consultations.rics.org/consult.ti/
system/listConsultations
‘Forward thinking, future proofing’ is the theme for the
RICS National Residential Conference at the Kensington
Close Hotel, London to be held on 16 July.
Delivered through a mix of technical insight and
strategic level debate, this conference will critically
assess the barriers to growth in the residential market.
In attending, members will gain insight into Housing
Commission reforms and understand the impact that
the National Planning Policy Framework, the Community
Infrastructure Levy and section 106 are having on market
value, helping to maintain their competitive edge.
This annual flagship RICS event is a must-attend to
find out what RICS is doing to safeguard members,
helping them to avoid the law courts through case law
updates ensuring that they are compliant and offering the
best advice to their clients. STOP PRESS: Housing
Minister Mark Prisk confirmed as speaker.
n See www.rics.org/residentialconference
RICS Research has
evaluated how and to
what extent real estate
courses equip graduates
with commercial
awareness. The research
gathered the views
of UK academics,
practitioners and students.
For students to be
commercially aware, the
research suggested that
critical thinking and
problem-solving skills
were essential and that
students also needed to
be self-motivated and
willing to update their
professional knowledge.
The research found
that commercial
awareness has been
embedded into the RICS
real estate curriculum
as a whole rather than
as a standalone unit and
that students do not
think their courses
have sufficiently helped
them to develop their
commercial awareness.
The answer to this, the
research puts forward,
could be problem-based
learning and more
practical experience
such as placements
or internships.
Amanprit Johal, RICS
Global Research and
Policy, said: “Commercial
awareness is an important
element of employability
and is identified as one of
the competencies required
to be globally competitive.
The research looks at how
to embed commercial
awareness into real estate
courses more effectively.”
Paul Bagust, RICS
Valuation and Commercial
Professional Groups,
added: “This report
highlights the fact that
rather than simply
providing traditional
technical skills, surveyors
are becoming increasingly
commercially aware and
are looked at to provide
leadership. A flexible and
strategic approach to
business and problem-
solving together with a
detailed understanding of
financial management will
be essential skills for those
wishing to progress.”
n See www.rics.org/uk/
knowledge/research
Commercial
awareness research
Residential conference
7. UPFRONT
planning
J u ne /J u ly 2 0 1 3 9
This would necessitate joining
up agricultural-based
payments for environmental
and social goods and services
from the EU with urban and
localism-based planning
approaches for community
food growing. The resultant
land use conforms neither to
current urban or rural land use
protocols, so is effectively
‘out of order’ and is unlikely to
proceed despite its obvious
value to all parties concerned.
The contemporary policy
landscape can be seen as
being disintegrated along this
urban-rural divide with major
disconnects. So, for example,
within the countryside we
have seen the creation of
Local Nature Partnerships and
Nature Improvement Areas, all
operating at the landscape
scale with support from the
Department for Environment
Food and Rural Affairs family
of agencies. Similarly, within
the urban centres we have
seen the rise of Local
Enterprise Partnerships
(LEPs) and Enterprise Zones
operating at local and
neighbourhood scales
supported by the Department
for Communities and Local
Government and the
Department for Business,
Innovation and Skills. These
separate institutions, each
with their own geographies,
strategies, tools and
disciplinary champions
may fuel conflict as policy
positions are developed
in isolation, leading to
multi-scalar and sectoral
clashes later on in the
planning process. Different
strategies and action plans
emerge piecemeal rather than
being integrated at the early
stages as most participative
processes now recommend.
Given that the RUF is within
the zone where this policy
disintegration is at its most
pervasive, conflict and
protests are now endemic
in the process. Building
consensual or shared visions
through up-front investment
would be more productive in
the long term.
Thus, we need to better
understand the pieces of
this complex jigsaw and
how they fit together across
scales (global, European,
national, regional, local and
neighbourhood) and sectors
(e.g. housing, transport,
environment, community and
economy). This demands
working at the most
appropriate scale and unit, but
ensuring that this decision is
informed by evidence rather
than politics. The principal
delivery vehicle to achieve this
is an effective partnership that
cuts across these scales and
sectors. However, in practice
this is rarely achieved.
Strategic vacuum
Unfortunately, there is no
spatial plan or vision for
England within which strategic
priorities can be translated
into plans at regional and
local scales. Indeed, strategic
planning has become
weakened by the hasty
‘pickling’ of regional scrutiny
with policies championing
localism. The result has
been many local authorities
becoming reluctant to
accommodate neighbouring
authorities’ housing
requirements, particularly
where green belt extensions
are deemed necessary. Thus
new housing proposals are
significantly below what is
needed, with no strategic
oversight to identify optimum
sites or cross-boundary
solutions for development.
The new duty to cooperate
within the NPPF attempts to
plug this gap, but it generates
ad hoc activity predicated on
interaction between individual
local authorities rather than
any substantive strategic
consideration involving all
relevant stakeholders, and
with little recognition of the
legal status of cooperation.
Authorities struggle to work
with this arrangement, and
planning inspectors are failing
to draft local plans as a recent
Coventry City Council
decision shows – the
inspector failed the plan
due to a perceived failure in
cooperation4
. Lord Heseltine’s
review on growth5
seeks to
position the newly-created
LEPs in this role, but this
‘back-door’ approach to
strategic planning is
problematic given that not all
areas of England are covered
and LEPs do not equate with
conventional travel-to-work
patterns or natural regions
such as water catchments,
which arguably offer more
logical strategic oversight
for effective planning and
development matters.
Furthermore, the failure of
52% of all local authorities to
meet the NPPF target to have
an approved local plan in
place by April this year is likely
to result in opportunistic
applications in the RUF,
seeking approvals based
on meeting sustainable
development arguments
alone. This counters good
planning practice, which uses
agreed plans as the basis for
making long-term decisions
for areas in the public interest.
New ways of thinking
Since the launch of the NPPF
in March 2012 there have
been many incremental
add-ons, most notably the
Taylor review of planning
guidance after the launch of
the NPPF. Within the Growth
and Infrastructure Act new
planning provisions include
permitted development to
housing extensions up to
8m (subject to neighbour
consultations), taking some
planning decisions away from
local authority control, and
reducing affordable housing
quotas and community
infrastructure on viability
grounds. There are also
separate proposals to allow
conversion from business
to residential use. Together
these signal a government
lacking a clear strategy and
ill at ease with the NPPF and
localism as the prime tools
to kick-start growth.
Cumulatively this risks
creating a short-term
investment landscape
dominated by uncertainty and
conflict. Far from speeding
up decisions, the reforms are
likely to embroil the planning
system in legal appeals and
challenges, especially when
combined with a lack of
planning staff and inspectors. n
10. Offsite message heads to India
>
Western Europe and Scandinavia have established housing
markets with successful high-performing offsite products.
North America has an offsite housebuilding market operating
at scale, but not primarily providing high-performing
products. The Japanese offsite housing market is very well
developed with the potential for high performance and has
established strong housing brands that are pursuing export
opportunities, for example in Australia.
The challenge posed by the UK housing market is modest
in comparison with developing countries. In India, the
determination to address the problem also provides great
opportunities for UK companies. The importance of the
Indian market recently saw the Prime Minister, accompanied
by one of the largest UK trade delegations ever assembled,
visit the country in support of collaboration and trade.
RICS has recognised India as a priority market for the UK
construction industry and has established a strong presence
there. The current Indian Five Year Plan, for example,
calls for a construction spend in the region of $1.5 trillion
and everywhere there is hard evidence of investment in
essential infrastructure including new transport hubs, a
rapidly expanding motorway system, utilities and new
commercial districts.
The pace of Indian urbanisation will continue to increase
with a migration to the cities, in turn requiring the delivery of
a 21st-century infrastructure. The immediate challenge is to
deliver tens of millions of new homes to support the pace
of urbanisation, and India will not settle for yesterday’s
construction technologies and processes. The construction
industry in India is looking to adopt cutting edge techniques
and is already using innovative methods, such as offsite
construction, to deliver new infrastructure. This includes new
communities of up to 20,000 homes being built using offsite
construction manufacturing.
While the Prime Minister was in India, a delegation from
the Buildoffsite organisation met local companies and
organisations looking to adopt innovative offsite
construction practices. The delegation included
representatives from design, manufacturing, contracting
and service interests. Says Richard Ogden, Chairman of
Buildoffsite: “A professional presence on the ground is
essential if any business is going to make progress in this
huge market, but the job can be made just that bit easier
through the actions of RICS and others to act as a focal
point to bring together those people and organisations
who have shared interests.”
Highly educated and astute industrial managers and
government policy-makers in India are looking to do business
with overseas partners who can offer the best solutions
and help to inform the decision-making that the country will
demand. UK leadership in design, exploitation of Building
Information Modelling, developments in offsite construction
solutions and project management means there is much
to offer. An additional advantage is that many Indian
professionals and senior managers have studied in the
UK and have an excellent understanding of UK practices,
technical standards and the excellence of our consultants
and constructors.
1 2 J u ne /J u ly 2 0 1 3
RICS property
JOURNAL
UPFRONT
BOPAS
improve the thermal
performance of new homes
will challenge this position
by progressively raising the
requirements. Builders are
likely to find it more difficult
and therefore more expensive
to meet the prescribed
levels with traditional forms
of construction. Offsite
solutions then offer a
means of providing the
necessary quality.
Assuring lenders
Increasingly then, surveyors
and valuers are likely to be
confronted with non-traditional
forms of construction.
Whether acting for lenders,
housing associations or
institutional clients, the
professional challenge will
be to advise whether these
non-traditional forms are
sufficiently durable and
adequate in all respects to
meet the necessary standards
for funding. Private purchaser
clients will want reassurance
about properties during their
own occupation and also that
mortgage funding will be
available to prospective buyers
when they come to sell.
Historically, the provision
of such advice in respect
of properties built with
non-traditional methods has
proved a sticking point in
the sales process. Lenders
understandably have
been unwilling to commit
themselves without valuer
reassurance and valuers have
been professionally unable to
provide it within the limited
remit of the standard
mortgage valuation process.
In parallel, manufacturers of
offsite systems – often with
extensive track records of
provision to non-residential
clients – have found it
exceptionally difficult to
obtain confirmation from
lenders that their particular
system would be accepted
for lending purposes.
Recognising these
difficulties, RICS has worked
with Buildoffsite, Lloyd’s
Register and Building
LifePlans in consultation with
the Council of Mortgage
Lenders and the Building
Societies Association to
develop a scheme to provide
assurance to the lending
community that innovatively
constructed properties will
be sufficiently durable to be
readily saleable for a minimum
of 60 years.
The resulting Buildoffsite
Property Assurance Scheme
(BOPAS) comprises a
rigorous durability and
maintenance assessment
and process accreditation,
supported by a web-enabled
database giving access to
details of assessed building
systems, registered sites and
individual properties that have
been warranted under the
scheme. This will not only
apply to first sales after
construction but will be
accessible for the life of
a property, allowing all
subsequent sales to be
similarly checked against
the database.
Forthefirsttime,valuerswillbe
abletoreceiveindependent
confirmationthataparticular
constructiontechnologyhas
beenapprovedinprinciple
forlendingpurposes
“
n
12. RICS Property
JOURNAL
1 4 J u ne /J u ly 2 0 1 3
+info
Q&A
PROPERTY
JOURNAL
Legal
+info
V is for service of applications
Q I have received a Notice of Disclaimer from the liquidator
of a tenant, stating that the lease has been disclaimed.
According to the company’s most recent accounts it is not
insolvent. Can it do this?
> Ed John
A A company can resolve to put itself into liquidation either when
it is solvent (i.e. can pay its debts – a ‘Members Voluntary
Liquidation’) or insolvent (i.e. cannot pay its debts – a ‘Creditors
Voluntary Liquidation’). In this case, unless you have been given
notice of a creditors’ meeting, it is likely to be the former.
If a liquidator regards a lease held by the company as ‘onerous
property’, they are able to ‘disclaim’ it. A disclaimer operates to
determine the interests of the tenant in the disclaimed lease, but
the rights and liabilities of third parties such as guarantors and
original tenants under pre-1996 leases will generally remain in
place as if the lease continued in existence.
If the landlord cannot recover the rent from a guarantor or
former tenant, they are able to recover their losses caused by
the disclaimer (including the loss of rent and other sums for
which the tenant is liable under the lease) as a creditor in the
tenant’s liquidation. In principle, the landlord should be no worse
off as a result of the disclaimer, however the amount payable in
each case depends on several factors, including the landlord’s
ability to re-let.
W is for Without Prejudice
Q I am negotiating a rent review with a tenant. The tenant
has sent a letter marked ‘Without Prejudice’; what does
this mean?
>Lucinda Hutton
A If a letter is marked as being ‘Without Prejudice’ this would
generally prevent any statement or concession made within
the letter being used in court or arbitration as evidence against
the party that sent the letter.
The without prejudice rule is an exception to the rule that
where a party admits or concedes something against their own
interest it can be used against them in court. The without
prejudice rule encourages parties (or potential parties) to
litigation to settle their disputes out of court. If parties believe
that their admissions cannot be used against them in court
should settlement discussions break down, they are willing
to speak more freely in order to reach a settlement.
However, if a letter is marked ‘Without Prejudice’ and in
substance it is not a genuine attempt to settle an existing
dispute, it will not be protected by without prejudice privilege.
Indeed, a letter need not contain the words ‘Without Prejudice’ in
order to benefit from the without prejudice privilege, as long as
in substance it is a genuine attempt to reach a settlement.
X is for eXperts
Q The rent review on one of my properties was subject to
expert determination. The expert sided wholly with the
other side and I believe may have made some serious errors
of judgment or miscalculations in arriving at the rental figure.
Is there anything I can do?
> Ed John
A In this case, the lease will probably provide that the rent
will be determined by an independent expert if not agreed.
If the parties agree the expert who determines the rent, that
determination is binding between the landlord and tenant, even if
the valuation was negligent. It can only be ‘set aside’ (determined
by the court to have no contractual effect) if the expert has:
bb failed to do what was required of them (e.g. valued the wrong
property)
bb acted fraudulently
bb colluded with one of the parties.
An expert appointed to determine a rent review has a contract
with each party to the lease. They owe both parties a
contractual duty of care and will be open to a claim in negligence
by the party that has lost out as a consequence of their mistake.
So, if the expert has undervalued the rent as a result of a
negligent mistake, the landlord can recover damages comprising
the shortfall between the rent as determined and the rent it
would have been had they done their job correctly. C
UPFRONT
Legal Q & A
V + X Ed John
Senior Associate
Solicitor,
Hogan Lovells
International LLP
ed.john@hoganlovells.
com
W Lucinda Hutton
Trainee Solicitor,
Hogan Lovells
International LLP
lucinda.hutton@
hoganlovells.com
+info
14. Image:Batterseapowerstation RICS property
JOURNAL
1 6 J u ne /J u ly 2 0 1 3
C
Simon Williams considers how developers go
beyond physical assets to create a sense of place
Building on a vision
CoMMERCIAL
Place-making
In recent years, real estate
businesses and developers have
started using the expression
‘place-making’. Witness the
large-scale developments
underway at Paddington and
King’s Cross or the proposals for
development at Earls Court and Battersea Power Station – they
all have one thing in common. They are more than just a series
of buildings with the developers keen to create a sense of
place – dynamic urban settings where people can comfortably
live, relax, shop and work.
Although the expression is new, the concept is not. London,
perhaps uniquely among world cities, has large estates with
landowners such as Grosvenor, Howard de Walden and the
Crown Estate exercising careful management over vast swathes
of the capital. Over the decades, this control has enabled them
to create the type of areas that the modern breed of developer
is now seeking to emulate.
If we look at the history of the Grosvenor Estate, it is clear
that it did not shape one of the most desirable places to live
and work overnight. Mayfair
and Belgravia were ‘created’
in the 17th and 18th centuries
and can be viewed as among
the earliest examples of
planned communities.
Grosvenor had a clear vision
and a consequent strategy
and continues to evolve that
vision today.
In addition to managing its
London estate, Grosvenor
decided to take its expertise
and apply it to one single
large-scale development in
Liverpool. It worked with
Liverpool City Council on the
Paradise Project, which
ultimately became the
award-winning Liverpool ONE
– the complete regeneration
of 17ha of the city centre that
subsequently spawned more
than 40ha of further
transformative development.
Any real estate or
development business that is
considering a place-making
scheme needs to have both
a clear and consistent vision
and a substantial area of
contiguous land ownership.
While the developer or
the landowner will put the
vision in place, to succeed
it has to be communicated
to everyone involved
whether through its
construction, letting or
ongoing management once
completed. It is for this
reason that knowledge of
place-making is relevant not
only to real estate companies
or developers but also to
investors, agents and banks,
as well as the future
occupiers or tenants.
Keeping your vision intact is
probably the biggest concern
and, to do this, a robust legal
framework is needed or the
long-term success of the
estates will be compromised.
The framework consists of
five factors.
Funding structure
Place-making developments
by their very nature are large
and will require significant
investment. Careful
consideration needs to be
given to the vehicle that will
ultimately hold the completed
asset. This needs to be
flexible enough to:
bb appeal to a wide variety
of different investors
I
15. J u ne /J u ly 2 0 1 3 1 7
Commercial
Place-making
Simon Williams is a Partner in
the Property team at law firm
Boodle Hatfield
swilliams@boodlehatfield.
com
n www.boodlehatfield.com
bb cater for phased
development (and funding)
bb allow easy entry into (and
out of) the investment
bb permit changes in
the future.
Currently the limited
partnership is seen as the
vehicle of choice, not least
because of its tax-transparent
nature, allowing each investor
to be taxed according to its
own circumstances.
The reality of the current
economic climate means that
funding, both equity and debt,
is becoming ever harder and
more costly to secure.
Consequently, it is more
common today for large-scale
developments to be financed
and constructed in phases
and build programmes to
extend over a number of
years or even decades. The
heady days of projects such
as Liverpool ONE, which was
funded and built in seven
years, are unlikely to be
repeated in the near future.
This requires a considered
approach to funding, which
needs to be flexible enough
to adapt to changing market
conditions and the economic
environment. A place-making
developer is clearly looking to
its long-term vision, but if it is
clear that this will need to be
adapted (or the development
altered), funding arrangements
need to permit this.
Management plan
Following completion of the
development, a long-term
management plan needs to
be established, in accordance
with the vision, governing:
bb who occupies the scheme
bb how they operate and
occupy space
bb how different occupiers
interact
bb how public realm is used.
These controls are generally
woven into the occupational
leases and licences for both
residential and commercial
occupiers and also into the
contracts agreed with
managing agents. It is crucial
that the vision is sold by the
landowner to the occupiers at
an early stage of negotiations
to ensure that they buy into it.
Occupiers need to accept the
consequent controls that the
landowner requires, such as
limitations on use or to whom
a lease could be assigned.
These may initially seem
unduly harsh to an occupier
used to having more flexibility.
But even slight deviations can
be seen as ‘the thin edge of
the wedge’ that could erode
the vision if some occupiers
observe others being released
from similar controls.
Occupiers need to be
prepared to accept service
charge costs that are
commensurate with a higher
quality development. The
landowner must demonstrate
not only the value that this
additional cost brings but that
strict financial discipline is
being brought to the levels
of expenditure.
Place-making schemes
should not be seen as being
of interest only to the property
sector. The retailers,
restaurants, coffee shops and
office tenants attracted to
such schemes have a vested
interest in ensuring that the
landowners remain true to the
vision. This will ensure that the
quality is maintained (or even
enhanced) over the years
following completion.
View as a whole
Any successful place-making
scheme needs to be run for
the benefit of its whole. Deals
should not be negotiated in
isolation on the basis that any
single deal could have serious
ramifications for the scheme
as a whole. A cohesive letting
and tenant mix policy will
assist, accompanied by
universally applicable estate
rules and regulations.
Long-term value
Well-run place-making
schemes will see capital
values (and rental returns)
steadily increase if the
vision is followed. The
original quality, both in terms
of appearance and type
of occupier, must be
maintained. Nowhere is
this more important than
in the public realm.
Landowners such as
Grosvenor have long realised
that the space between their
buildings is just as important
as the buildings themselves.
Their occupiers expect the
public realm to be managed
in a proactive way and the
newer place-making schemes
have a strong sense of
community. They want to
involve the local residents
and businesses in the use of
the public realm and public
events, street theatre and
displays of artwork are
actively encouraged.
Short-term profit
Landowners should not
succumb to the temptation of
short-term profit if this comes
at a cost to the integrity of the
vision. They may have to
settle for a lower short-term
return, which could mean:
bb exercising pre-emption
rights (and accepting voids)
to prevent less desirable
occupiers obtaining space
bb resisting the demands of
large commercial occupiers
more used to taking space
on ‘their’ terms
bb allocating the time to wait
for the right occupier when
space becomes available.
The creation of a
place-making scheme is an
immensely complex task.
Success will be measured
over decades, not months,
and the accompanying
strategy (which will need to
cover periods of economic
hardship) must be explained
to investors at the outset.
Residential property
Any place-making scheme is
likely to include a significant
amount of residential
accommodation. With the
seemingly never ending rise
in residential values in London,
developers are keen to cash
in and many schemes are
seeking to revise upwards
the number of residences
they are creating.
Successfully managing
residential accommodation
is an art in itself. When making
decisions that affect people’s
homes, landowners need
to keep in mind that an
Englishman’s home is indeed
his castle. That emotional
angle combined with the
statutory rights of long
leaseholder residential tenants
(such as the right to acquire
the freehold, to extend a lease,
challenge the service charges
or take over the management)
calls for special care and
expert legal advice should be
taken before any problems
escalate out of control.
However, provided the
strategy is carefully thought
through and properly
implemented, there are
significant advantages to
the presence of residential
property. The daily activities
of the residents can enhance
the overall feel of an area,
creating an urban bustle
that will be attractive to
workers and visitors alike.
The new ‘places’ that
are being created by modern
developers and landowners
across London have the
potential to transform the
city. However, the long-term
success of these schemes
can be realised only if
landowners are clear on
their vision and how it
will be implemented and
maintained over decades
to come. Having a legal team
that understands that from
the outset is a must. C
Related competencies include
T061, T079, T048
16. RiCs pRopeRty
JouRnal
1 8 J u N E /J u Ly 2 0 1 3
C
QMichael Baynes looks at the unique issues of valuing vineyards
COMMERCiAL
VineyaRds
Qualifying as an
investment surveyor some 27
years ago it was natural that
my attention would be drawn
to the centres of real estate
investment, above all the
City of London, where the
demand for space sees
maximum use of every
conceivable rentable corner.
But while the sophistication of
the city is interesting and fun, I
dreamt of a place where it
might be possible to work in
an investment environment
that matched the power of
the city with the tranquillity
of the countryside.
The Bordeaux vineyard
market is just such a place.
There are vineyards, not for
sale I might add, that were we
to value them would probably
start at half a billion euros.
At Maxwell-Storrie-Baynes,
we have seen sales at €4m
per hectare and offers
refused at €7m per hectare.
I speak of course of the
investment grade Premiere
Grand Cru Classé wines and
those vineyards designated
under the Bordeaux
classification of 1855.
Trading region
The city of Bordeaux became
a powerful merchant trading
area in the 14th century
thanks to its strategic
waterways and natural port
with access to the Atlantic.
By the 19th century, wine had
become its core export. But
the first known vineyards date
back about 2,000 years and
it was the Romans who most
likely identified and exploited
the natural environment and
climate so well suited to
wine growing. Bordeaux is
the world’s largest wine region
– there are approximately
126,000ha of vines there, all
pruned by hand.
Bordeaux has 57 wine
appellations (think Heinz!)
8,000 wine-producing
châteaux and 13,000 grape
growers. With an annual
production of approximately
850 million bottles, Bordeaux
produces large quantities of
everyday wine as well as
some of the most expensive
wines in the world, which
combined creates an industry
of some €14.5bn a year.
Vineyard market
yet the vineyard market is
small, discrete and, excuse
the pun, illiquid. In London,
there might be single streets
in Chelsea that see 35
transactions in a year; there
were a total of 35 vineyard
transactions in Bordeaux in
2011 and the SAFER reports
a total of 37 for 2012. This
number will increase for 2013
with the continued strong
interest from China, but at
any given time there are rarely
more than 80 chateaux
estates on the market for
sale. Furthermore, the
sales process is slow and
fraught with complications
and exceptions.
How to set a value
In February, my company
was invited to the Bordeaux
business management school,
Inseec, to lecture the Masters
of Wine students on how to
value a vineyard. I went
through a case study before
having them complete a
valuation of a hypothetical
estate themselves.
They were surprised to
learn that the income stream
from a vineyard is not valued
in the same way as many
other businesses or
commercial real estate.
With the vast majority of
businesses an exit strategy is
envisaged and the accounts
are organised to demonstrate
a steady rise in revenue to
impress the target for the exit
after a certain number of
years. But with Bordeaux
vineyards it is very rare,
particularly in the lower end
of the market under €20m, to
see a normal business/exit
strategy being pursued by
owners. The vast majority
run the vineyard as a family
business and intentionally
follow a strategy of tax
minimisation while at the same
time maximising the French
government’s financial support
for farm operations.
At university I was taught
to look at the income stream
from the real estate and then
apply a year’s purchase
capitalisation multiplier to
arrive at the valuation. But the
vineyards’ income stream is
very hard to discern from the
accounts as outlined above,
and also from the rental
stream. The ownership
structure is commonly held
in two companies, with a
commercial company renting
from an agricultural holding
company. Since the ultimate
owner is the same, the rental
agreement between the two is
not at market rates and is
purely a strategic manoeuvre.
In this way, when valuing
vineyard properties we place
no value on the investment
value or ‘goodwill’ of the
business and income stream.
We do not take the net
operating income and apply a
cap rate multiplier, instead we
value the assets only, and if
there has been a legitimate
reason for poor performance
in recent years we apply a
discount to asset value
Surveyors
among the vines
18. RICS property
JOURNAL
CoMMERCIAL
TUPE
2 0 J u ne /J u ly 2 0 1 3
Conditions
of service
C
Why is TUPE relevant?
TUPE will generally apply on entry into
and exit from an arrangement for the
management of one or more properties
in a retendering situation. This is because
the change of responsibility for the
property management services is likely
to amount to a service provision change
and, in many cases, a transfer of an
undertaking. In particular, TUPE is likely
to be relevant when:
bb a client first appoints a property
manager, having previously managed
properties in-house
bb a client terminates the contract
with a property manager with a
view to managing the property or
properties themselves
bb the property manager subcontracts
all or part of their obligations under
the property management contract, or
terminates any subcontract arrangement
bb the property manager contracts with
facilities management providers for the
relevant properties, albeit in this scenario
they should not inherit any liabilities under
TUPE because they are simply dealing
with TUPE issues as agent for the owner.
Recent case law has also looked at
when TUPE, particularly the service
provision change test, may not apply;
therefore property managers should
have a clear understanding in advance
of any property transactions.
Recent case law
Introduction of the service provision
change test in 2006 was intended to
clarify when TUPE applied. However,
T
UPE provides
protection to
employees when there
is a ‘relevant transfer’.
A relevant transfer
takes place where
(a) a business or
undertaking or part of one is transferred
or (b) where there is a service provision
change. In the case of (a), the economic
entity must retain its identity after the
transfer. In the case of (b), a service
provision change occurs when:
bb activities cease to be carried out by
an organisation on its own behalf and a
contractor is engaged to carry out the
services (contracting out or outsourcing)
bb a contract is reassigned to another
contractor (second generation
contracting or outsourcing)
bb an organisation brings the activities
back in-house (contracting in or
in-sourcing).
TUPE only transfers the employment of
employees who are ‘assigned’ to the
transferring services (e.g. property
management services) immediately before
the transfer. While there is no legal
definition of assignment, case law
suggests that employees should spend
the majority of their time on the services,
or have the services as the majority of
their responsibility, in order to be assigned.
Practically, in the case of property
management contracts, any employees
based on site will usually be assigned to
managing it. For head office staff, further
analysis will be needed to determine
whether or not they are assigned to the
transferring property management
services for the purposes of TUPE. It does
not generally apply to casual or agency
staff or to self-employed contractors.
Service provision changes
If TUPE applies to a change in property
management services, employees who are
assigned to the transferring services
immediately before the transfer
automatically become the employees of
the new property manager. The new
property manager must step into the
shoes of the old one and employ the
employees on the same terms and
conditions they enjoyed before the
transfer, save for a limited number of
exceptions. Under the current TUPE
legislation, terms and conditions may
only be varied where the variation is
unconnected with the transfer or, where
the variation is connected with the transfer
it is made for an economic, technical or
organisational reason entailing changes
in the workforce (ETO reason).
The new property manager also
inherits all liabilities that arise under
or in connection with the transferring
employees’ employment contracts, which
is potentially very costly. For this reason,
any property manager that may become
responsible for transferring employees
should carry out as much due diligence
as possible before any potential TUPE
transfer. This will help to gauge what
indemnity protection to ask for in the
tender process. It is generally unwise to
rely on the provisions of TUPE to obtain
information because employee liability
information (ELI) only has to be provided
14 days before the transfer. That is far
too late in the day for any company to
make a commercial decision on whether
or not to proceed with any transaction.
The information that has to be included
in ELI is also too limited, e.g. it does not
include information about enhanced
redundancy rights.
Jane Fielding explains the working of the Transfer
of Undertakings (Protection of Employment)
Regulations 2006 (TUPE) and why they might become
more ambiguous for property managers in the future
19. J u ne /J u ly 2 0 1 3 2 1
Jane Fielding is a Partner and Head of the
Employment Team at Wragge & Co
Commercial
TUPE
Related competencies include
TO48, T070
Thenewproperty
managermust
employthe
employeesonthe
sametermsand
conditionsthey
enjoyedbefore
thetransfer
“
recent cases have instead muddied the
waters, finding that a service provision
change will not occur when:
bb the services are not fundamentally
or essentially the same before and after
the transfer
bb the services become fragmented after
the transfer (an example in the property
management context might be where a
large property portfolio is broken up)
bb there is a fundamental difference in
‘ethos’ between the services pre- and
post-transfer (less likely to be relevant in
the context of property management)
bb employees undertaking the services
are not sufficiently organised in delivering
the service to the property owner to
constitute an ‘organised grouping’.
One case that has attracted a good deal
of attention is McCarrick v Hunter. The
Court of Appeal found that a service
provision change does not occur in
circumstances where a change in service
provider (in the case, a property
manager) occurs at the same time as a
change in client. When a property is sold
and a new manager appointed by the
new owner at the same time, TUPE will
therefore only apply if there is a transfer
of a business or an undertaking.
The facts of the case are complex
but can be summarised as follows:
bb Mr McCarrick worked for a property
management company (PM1). In 2009, a
winding up petition was lodged against
PM1. On the same day, a contract was
signed to transfer control of PM1 to a
second property management company
(PM2). McCarrick’s employment
transferred to PM2.
bb The mortgagee of the properties
now managed by PM2 appointed
LPA receivers to take control of the
properties, who at the same time
appointed a third property management
company (PM3). (At this point, the
mortgagee and/or the receivers became
the client for whom the property
management services were performed.)
bb Mr Hunter, managing director of PM1,
wanted to maintain good relations with
the mortgagee and the owner of PM2. As
a result, at the point PM3 was appointed,
he began paying McCarrick to continue
assisting with the management of the
properties. This was at no cost to the
LPA receivers.
bb When, in 2010, McCarrick was
dismissed, he brought a claim against
Hunter for unfair dismissal alleging that
his employment had transferred to him.
The Court of Appeal dismissed his case
on the basis that there could not be a
service provision change where the client
also changed.
While the facts of the case are perhaps
unusual, it is relevant to commercial
property transactions where ownership
and management of a property changes
at the same time. Where this occurs,
the court is likely to adopt a restrictive
approach and determine that there is
no service provision change for the
purposes of TUPE.
The only other case to consider this
point, Taurus Group Ltd v Crofts, followed
the Employment Appeal Tribunal’s
decision in McCarrick. Property managers
must therefore plan for the possibility that
they may be liable for any redundancies
if they lose a contract and are unable to
continue employing certain employees,
unless there is a business transfer or
they have some contractual protection
against redundancy liabilities on exit from
the contract.
Potential changes
The government has been consulting
about proposed changes to the existing
TUPE legislation. These changes include:
bb repealing the provision that introduced
service provision changes
bb repealing the specific requirements
regarding the provision of employee
liability information
bb relaxing the restrictions on changing
terms and conditions of employment post
transfer and protection against dismissal
so that the current domestic legislation
more closely reflects the Acquired Rights
Directive (the European Directive that
TUPE implements)
bb broadening the meaning of the ETO
defence to cover changes in the location
of the workforce
bb ensuring that consultations on
collective redundancies with staff who
are due to transfer count for the purpose
of collective redundancy consultation.
The proposed changes aim to reduce the
burden on employers faced with a TUPE
situation. However, the relative stability of
knowing that TUPE will apply in most
cases of a change of property manager
may be removed, meaning that employers
will once again have to grapple with
domestic and EU case law to determine
whether or not TUPE applies.
Check the terms
When read together with the case of
McCarrick, the proposed changes do
make the TUPE picture less clear, at least
until the outcome of consultation is
determined*. Existing property managers
should check their standard terms to see
what protection they have in the event
that TUPE does not apply on exit from a
contract. It may be that, depending on
the circumstances, and particularly if
McCarrick applies, they will not be able
to pass their existing workforces onto
any new property manager if they lose
a contract. They will instead face
redundancy liabilities if they are unable
to redeploy staff onto other work. As a
result, pre-contract negotiations will
become increasingly important and
potentially lengthier.
Although there is a logic to the
McCarrick decision on one level, it does
appear to give scope to avoid the service
provision change provisions applying
simply by the timing of a decision on
when to appoint a new property manager.
However, clients who prefer to have
continuity of site staff, for example, may
want the provisions to apply. For now
though, it is a case of watch this space. C
*At the time of writing, consultation on
the proposed changes to TUPE was
continuing but due to close on 11 April.
The outcome was therefore unknown.
More information
>
The RICS information paper TUPE:
Information for property managers is
available at http://bit.ly/ZN5Vtp
20. RICS property
JOURNAL
2 2 J u ne /J u ly 2 0 1 3
C
Jim Ware and Paul Carder look at how facilities
managers can play a greater strategic role in business
Raising the bar
CoMMERCIAL
facilities management
We rarely see organisations map out a
cause-and-effect chain to guide FM
strategy, which is why heads of FM are
so often told to cut (or freeze) their
budgets without reference to the causal
chain of consequences to the workforce,
to work processes and productivity and
to the bottom line.
Without understanding the
consequences of these budget cuts, FM
has all too often become a commodity
rather than a professional skill in many
organisations, to be maintained at lowest
cost. Worse still, the FM industry does
not yet have the sophistication to be
able to analyse and report on the
consequences of lowered standards
and reduced (or lower-cost) resources.
T
here have been many
assertions over the
years that facilities
management (FM)
should be more
strategic. Recent
research provides
evidence that indeed it can and should
play a strategic role in enterprise, but
the level of influence in any particular
organisation depends entirely on the
actions taken by senior FM executives.
To be effective, FM leaders must
change their behaviours and their very
identity. We believe strongly that FM is
no longer just about managing facilities
per se; rather, it is about enabling the
workforce to be productive and engaged
and to produce value for the organisation.
In our view, and in the view of leading FM
executives, today’s workplace is nothing
less than a tool for supporting work, for
shaping the experiences of the workforce,
and for producing competitive advantage.
Our perspectives are based largely
on a survey completed by almost 400
FM professionals across six continents
in summer 2012. The research focused
specifically on how FM is currently
organised, governed and measured,
as well as on how FM professionals
interact with their peers in other
infrastructure disciplines.
Our understanding of the issues was
enriched by direct conversations with
almost three dozen senior FM and
corporate real estate (CRE) executives
in the US, the UK, Australia, and Hong
Kong, as well as with thought leaders
from academia and international
professional associations.
It is clear to us that to be effective
and to serve an organisation’s real estate
and business needs, FM leaders must
work on a number of multidisciplinary
relationships within it. They must focus
on gaining the buy-in needed to provide
coordinated workforce support from
all the infrastructure functions. The
overarching goal must be to achieve a
deep common understanding of the
strategic imperatives of the organisation
as a whole.
What stands in the way?
In our experience, the ‘Head of FM’ – a
generic title for the senior functional
executives ultimately responsible for
facilities, corporate real estate and
workplace – is often poorly led from
above. Not nearly enough thought goes
into considering business strategy and
how to translate it into tangible targets
and actions for facilities operations.
Becoming strategic
To have a strategic impact, an activity or
capability must differentiate the business
from its competitors. It is worth noting
that in some industries (retailing comes
immediately to mind) the facilities are
absolutely central to brand strategy and
to generating business revenue.
In a 1996 Harvard Business Review
article ‘What is Strategy?’1
Harvard
Business School Professor Michael
Porter identified three basic principles:
bb strategy is the creation of a unique
and valuable position, involving a different
set of activities [from competitors]
bb strategy requires you to make
trade-offs in competing—to choose
what not to do
21. J u ne /J u ly 2 0 1 3 2 3
Commercial
facilities management
Jim Ware and Paul Carder are Directors of
Occupiers Journal
bb strategy involves creating ‘fit’ among a
company’s activities.
Operations, including facilities, can
clearly help an organisation to be
competitive in the marketplace. But the
key idea is differentiation. It is not enough
just to have lower-cost facilities than
your competition.
The questions that must be asked
relate to how well your facilities/
workplace strategy contributes to
your business strategy. Is FM aligned
with the requirements of your business
units, in the locations where you
need to be? Do your facilities support
your talent recruiting and management
strategies? Are the workplace
designs consistent with the business
technology needs and strategy? Does
the facilities cost structure support the
company’s financial strategy and cash
flow requirements?
Perhaps even more importantly,
facilities managers have to ask
themselves this very basic question:
“What is the facilities function doing to
strengthen the company’s strategic
positioning with customers, with
employees (and prospective employees),
and with the communities where we are
located or want to do business?”
Summary of findings
The 2012 global survey compiled
responses from FM professionals in over
40 different countries. It revealed that:
bb facilities are increasingly being
recognised as a strategic resource
bb FM has had mixed success in
achieving strategic alignment with other
elements of business
bb large, global organisations face
dramatically different challenges to those
of smaller, more local businesses – and
they manage their facilities very differently
bb financial metrics and cost control
continue to dominate FM
bb heads of facilities are still buried
in day-to-day operational concerns
bb FM career paths are undergoing
significant change, and the FM
profession faces a potentially serious
future talent shortage.
Recommendations for action
Think strategically
It may sound simplistic, but thinking
strategically means focusing on
competitive advantage, as suggested
above. And when heads of facilities focus
on helping their companies establish
competitive advantage, they are paying
attention to – and even helping to shape
– business strategy.
Thus, our first recommendation
for action is that heads of facilities
develop a deep understanding of the
business they are supporting, its
customers and its competitors. In
addition, strategic thinking includes
understanding how to develop financial
models, how to build and analyse
alternative future scenarios, how to see
‘over the horizon’, and how to link causes
and consequences in areas as diverse as
HR, IT, finance, operations and even
marketing and procurement.
Act strategically
Strategic action begins with strategic
thinking, but thinking is only the first step.
When heads of FM behave strategically,
they are spending more time on the
future than on the present—and they
are focusing their staff’s attention on
business issues.
An effective head of FM develops and
applies measures of FM’s impact not only
on the bottom line (which of course can be
very strategic), but also on performance
outcomes such as attracting and retaining
talent, staff productivity, the ‘triple bottom
line’2
, community recognition, and even
broader metrics such as brand
recognition, market share and net profit.
Rebuild the FM role
The heads of FM must also take several
basic, short-term actions that serve to
free up their time to focus on the core
strategic issues. First among these is to
develop a strong layer of operational
management within the existing
corporate FM organisation. Recruit
subordinates with strong FM and
management experience; be willing to
bring in strong managers even if their
FM-specific experience is weak or
non-existent. The in-house (occupier)
team in an outsourced FM model requires
business and management competencies
more than technical skills.
Outsource activities
We believe that the best pathway for
making FM more strategic is to outsource
as much of the operational, routine work
Related competencies include
T019, T079
to third-party service providers as
possible. Spending less time ‘firefighting’
will free up in-house resources and
allow heads of FM and their immediate
staff to focus much more on long-term
planning and strategic challenges (both
FM-related and business-focused).
Among the organisations we interviewed,
those that were clearly operating more
strategically (and were recognised
as a strategic resource by their senior
business executives) had outsourced
far more of their operational activities
than those in which FM was struggling
to get resources and recognition.
Ask for support
One of the most critical activities
for heads of FM is to educate their
senior business executives and functional
colleagues about how to work with
FM. FM is most successful when
business leaders know how to define
their requirements, how to establish
performance goals beyond simple
financial measures, how to assess
outcomes and how to plan ahead to
ensure that their facilities do in fact
help to create strategic advantage.
Effective heads of FM do not buffer
their business counterparts from the
details of FM; just the opposite. They
take every opportunity to help their
clients to understand the strategic
role of facilities and ensure that facilities
and workplace design issues are part
of every strategic conversation. C
This is a summary of the full report
Raising the bar: Enhancing the strategic
role of facilities management, published
by RICS on 1 November 2012
More information
>
1
Porter, M (1996) ‘What is Strategy?’
Harvard Business Review, November-
December, reprint #96608, p.1. Available
from http://bit.ly/Zg2fjA
2
The ‘triple bottom line’ was first defined
in 1994 by British consultant John
Elkington. It refers to measuring
organisational performance along
three complementary dimensions:
‘people, profit, and planet’. See
‘Triple Bottom Line’, The Economist,
17 November 2009
(www.economist.com/node/14301663),
for a more complete discussion of this
important concept
22. RiCs pRopeRty
JouRnal
2 4 J u N E /J u Ly 2 0 1 3
C
COMMERCiAL
liCenCes to alteR
David Gardiner looks at a contentious area in landlord and tenant
relationships – the granting of licences for alterations – and reports
on how new guidelines can help avoid problems for both sides
Changes for the better
T
he scenarios can be
very different but
ultimately the situation
is the same: a tenant
wants to make an
alteration at their
property and needs
the landlord’s consent to do so.
Alterations can be anything from a
multinational investment bank wanting to
repurpose a trading floor in a Grade A
office building to a one-man band wanting
to put a mezzanine floor into a warehouse
or a retailer changing the signage on the
front of a shop. All of these works will
invariably be covered by provisions in the
occupational lease that require the tenant
to get the landlord’s consent before
works begin.
A question of timing
In the 2012 Property Industry Alliance
Occupier Satisfaction Survey, the
satisfaction score for the application for
consents process, which encompasses
licences for alterations, was 4.7 out of 10
– one of the lowest ratings across the
survey and below the overall satisfaction
rating of 5.1.
It is perhaps timing that is at the heart
of most aggravation caused by the
application for and granting of licences
for alterations. By definition, a tenant
would not be proposing the works if they
were not intrinsically business critical –
the altered workplace would deliver
improved operational efficiency or value.
A landlord, however, does not want
changes made that could compromise
the fabric of their property and possibly
have a negative impact on its future
operation and value.
In business situations, where one party
wants to proceed with haste and the other
needs to evaluate circumstances with
careful consideration, it is always going to
be hard to reconcile the needs of both.
Generally, larger and more sophisticated
occupiers, particularly those with their
own estates departments, will be well
aware of the procedure to obtain a licence
for alterations. However, this group does
not represent the majority of business
tenants and, unfortunately, the natural
inclination of some is to progress with
works and cross the bridge of necessary
consents when they come to it.
Sometimes this error springs from
ignorance rather than an intention to
evade the process. A not inconsiderable
proportion of tenants think that because
they have signed up to the rigours of a
full repairing and insuring lease and are
paying the rent, then the space is theirs
to do with as they see fit.
Retrospectively unpicking a situation
where the necessary licence has not
been obtained can be very bad news for
both sides. Not only may the work have to
be reversed, it is likely that remedying the
situation will incur more professional fees
than a simple grant of a licence would
have done at the outset.
New guidance
To address the growing level of conflict in
this area of landlord-tenant relationships,
RICS set up a working party to create a
new set of guidelines to assist both sides.
The result is the Licence for alterations in
commercial property guidance note,
published in January. It provides a
comprehensive guide to best practice in
dealing with applications. As with all RICS
guidance notes, surveyors following the
advice will benefit not only from the
process running more smoothly, but they
will also lessen the risk of potential
negligence claims.
When an allegation of professional
negligence is made against a surveyor, a
court or tribunal may take account of the
contents of any relevant guidance notes
published by RICS in their decision. In the
opinion of RICS, a member conforming
to the practices recommended in a
guidance note should have at least a
partial defence.
It is for each surveyor to decide on the
appropriate procedure to follow in any
professional task. However, where
members do not comply with the practice
recommended in a note, they should do
so only for a good reason.
What does it cover?
The alterations guidance note is most
relevant to surveyors dealing with tenant
applications at office and industrial
properties in England and Wales. While
it is also applicable to retail premises, a
more detailed sector-specific process
can be found in the Guide to retail
delivery, which is published by the British
Council for Shopping Centres. As
illustrated in the flow chart (see right), the
guidance covers the whole licence
process from the tenant making an
application through to the final inspection
of the completed works at the property.
The response from a landlord or their
management surveyor will be driven by
the nature of the works proposed by the
tenant: an application to undertake major
alterations at a property is likely to require
far greater consideration, including
specialist advice. Conversely, a simple
application may be dealt with swiftly and
with minimal effort. It is good practice for
the surveyor involved to re-read the lease
to ensure they are comfortable that the
proposed works are permitted and that
a formal licence is, or is not, required.
Additional issues to consider include
whether the proposed works fall fully or
partly outside a tenant’s demise. An
example of this potential grey area would
be where plant is to be installed on a
retained roof area.
It is also important to cover how the
proposed works will be assessed and