Property Journal

April/May 2013
rics.org/journals
ARTS
A sense of tradition
What is driving Russias
re-emerging art market?
PG. 49
RESIDENTIAL
Lofty ideals
Applying Building Regulations
to residential loft conversions
PG. 30
COMMERCIAL
Capital connection
How Crossrails efect will
be felt along the route
PG. 10
I NCORPORATI NG THE COMMERCI AL PROPERTY JOURNAL,
RESI DENTI AL PROPERTY JOURNAL AND THE ARTS SURVEYOR
Management challenges
for the unwary
PG. 12
ECONOMIC
FORECAST
LEGAL
Q&A
TAXING
TIMES
Mixed-use
development
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contents
A P R I L / MAY 3
16
Destination sustainability
With green buildings emerging
as a global trend, do they give
organisations a competitive edge?
Paul Anderson considers the
question both from an Australian
and a UK perspective
20
Recovery role
Whether there has been a tidal
wave or a steady trickle of
insolvencies, Fergus Jack looks
at the receivers Water Board
and explains what they do
5
Economic forecast
What will the Bank of England
do next?
6
Update
Introducing the new-look journal
8
Is your business compliant?
David Hart outlines what the latest
trading and marketing laws mean to
property sales businesses
22
Running on empty
Richard Dennery outlines initiatives
underway to assess and reverse
shop vacancy rates in the UK
24
A welcome change?
Oliver Wright explains some of the
implications of recent adjustments
to the planning system
26
A new approach
Iain Macfarlane outlines Land
Registry practice on disposals
by receivers
28
Taxing times
A change to VAT policy
UPFRONT
10
Capital connection
Property development is crucial
to funding of Crossrail, says Ian
Lindsay, and its efect will be felt
all along its route
12
Mixed-use mineeld?
Peter Forrester on the less obvious
challenges of mixed-use schemes
14
Legal Q&A
Our panel of experts respond to
common queries
RI CS PROPERTY
JOURNAL
UPFRONT
CONTENTS
CONTACTS
ARTS
Editor: Lesley Davis T +44 (0)1243 784054
E ldavis@rics.org
Editorial advisor: John Anderson
RESI DENTI AL
Editor: Libby Peacock T +44 (0)20 7695 1657
E lpeacock@rics.org
Advisory group:
Peter Bolton King (RICS), Andrew Bulmer (Bulmer Estates), Georgiana
Hibberd (RICS), Graham Ellis (Greenhouse Surveyors), Philip Santo
(Philip Santo & Co), Tony Bowron (Bromford Housing), Paul Cutbill
(Countrywide), Chris Rispin (BlueBox Partners), David Smith (Anthony
Gold Solicitors), Michael Day (Integra Property Services)
COMMERCI AL
Editor: Laura Barton T +44 (0)20 7695 1533
E lbarton@rics.org
Advisory group:
John Anderson (RICS), Paul Bagust (RICS), Nicholas Chefngs (Hogan
Lovells), Johnny Dunford (RICS), Martin Francis (BNP Paribas), Simon
Hooper (Edward Symmons), Vivien King (Malcolm Hollis)
Journals
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Published by: The Royal Institution of Chartered Surveyors,
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ISSN: ISSN 1469-5421 (Print) ISSN 1759-3379 (Online)
COMMERCI AL
C
ARTS RESI DENTI AL
A R
contents
While every reasonable efort has been made to ensure the accuracy of all
content in the journal, RICS will have no responsibility for any errors or
omissions in the content. The views expressed in the journal are not
necessarily those of RICS. RICS cannot accept any liability for any loss or
damage sufered by any person as a result of the content and the opinions
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4 A P R I L / MAY
RI CS PROPERTY
JOURNAL
Front cover:
Brian Clift / Flickr
Creative Commons
Property Journal
April/May 2013
rics.org/journals
ARTS
A sense of tradition
What is driving Russias
re-emerging art market?
PG. 49
RESIDENTIAL
Loftyideals
Applying Building Regulations
toresidential loft conversions
PG. 30
COMMERCIAL
Capital connection
How Crossrails efect will
befelt along theroute
PG. 10
I NCORPORATI NG THE COMMERCI AL PROPERTY JOURNAL, RESI DENTI AL PROPERTY JOURNAL AND THE ARTS SURVEYOR
Management challenges
for theunwary
PG. 12
ECONOMIC
FORECAST
LEGAL
Q&A
TAXING
TIMES
Mixed-use
development
UPFRONT
CONTENTS
30
Lofty ideals
Phil Parnham and Stuart Smith
look at loft conversions in homes
33
Call for action
The key to investment growth
in the build-to-let sector is
getting the Montague Reviews
recommendations on planning
right, says Ian Fletcher
34
Considering all factors
James Wilson examines the
Upper Tribunals adoption of the
comparable method of valuation
in leasehold reform
36
Trees under siege
The rst conrmed UK cases of
ash dieback disease highlighted
how vulnerable our native trees
are to threats from beyond our
shores. Jeremy Barrell reviews the
measures surveyors can take to
bufer the adverse impacts
38
A burning question
The technology, design application
and safety awareness of biomass
fuels have progressed signicantly
in the past few years, explains
David Hilton
40
Suitable for mortgage?
Philip Santo considers an unusual
residential property where the
difering views of valuers on its
suitability for mortgage lending
raised questions
42
Home truths
Natasha Rees looks at interesting
legal appeals in the world of
enfranchisement over the past year,
including the prominent Hosebay
decision and its implications
44
Reasonable protection
While regular business rivalry is
healthy, restrictive covenants for
employees can help companies
ensure that competition takes
place on a level playing eld, says
Clare Kelly
48
A global success story
Chartered art and antiques
surveyors are found working in
every sector of the arts market,
where sales of ne art at auction in
2012 achieved more than $9bn
49
Sense of tradition
A renewed interest in heritage is a
major force driving the re-emerging
art market in Russia
51
Pieces of history
How do you value antique jewellery?
This simple question has a complex
answer and forms the daily activity
of the Jewellery department at
Fellows Auctioneers in Birmingham
52
Keeping it in the family
Personal service, well-attended
local auctions and international
specialist sales have ensured
that Hartleys continues to thrive
despite the downturn
54
Reinforcing international
standards
Valuer Registration has been
extended to include person
property valuations, explains
Rachel Atkinson
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
copy
PROPERTY
JOURNAL
5 A P R I L / MAY
Header
T
UPFRONT
SI MON RUBI NSOHN
OPINION
A P R I L / MAY 5
RI CS PROPERTY
JOURNAL
I
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
It may seem an odd thing
to be warning about at this
point, but concerns over a
surge in asset prices was
uppermost in the mind of
Mervyn King as he presented
the latest Ination Report
from the Bank of England.
With the economy atlining
at best and much of the
property sector still struggling
to shrug of the legacy of the
last boom, many RICS
members may nd this fear
very much at odds with their
own daily experiences.
To be fair, the governor was
careful not to mention real
estate in his analysis,
highlighting instead the impact
that stimulus measures such as
quantitative easing are having
on nancial markets. But his
broad conclusion was that
there is a limit as to the extent
monetary policy can have in
boosting the economy in the
current environment.
This may sound a rather
pessimistic assessment
of the ability of policy-makers
to inuence the macro picture
for the better, and indeed it is.
However, Kings days at the
helm are numbered and his
replacement is far less
convinced that the central
bank has run out of
ammunition. The current
governor of the Bank of
Canada, Mark Carney, will
move to Threadneedle Street
on 1 July and, in recent
evidence given to the
Treasury Select Committee,
outlined some the options he
will consider.
Potential options
A key issue raised was the
possibility of providing a
commitment to keep interest
rates at a certain level for a
xed period of time. This is a
strategy Carney implemented
in his current role back in 2009
and is something that the
Federal Reserve in the US is
also now running with, albeit
linked to changes in macro
variables rather than time.
Alongside this, consideration
is also likely to be given to
whether an ination target is
any longer the appropriate
focus for monetary policy.
While it could be rightly argued
that the Bank of England is
already taking a more exible
position by allowing the
Consumer Price Index to run
ahead of its 2% objective,
Carney may view a move to
using what is known as nominal
GDP targeting as providing
even more scope to do what
is necessary.
Enough of this theoretical
economics stuf. In practice,
all of this means that interest
rates are set to remain at
historic lows for some time to
come and further monetary
easing by the Bank of England
is highly probable in the
absence of a material pick-up
in activity over the coming
months. I would imagine that
for many readers, this is a
rather comforting prospect.
But going back to where I
started in this article, it is hard
to believe that there will not be
further implications for asset
prices from this approach. Of
course, in many parts of the
country real estate prices
are languishing and anything
that gives them a lift is likely
to be viewed in a positive light.
However, the impact in London
and some other parts of the
South East may be a little
more worrisome.
Land Registry data shows
residential prices in the capital
to be at an all-time high with
prices in boroughs such as
Kensington and Chelsea
almost a quarter above the
pre-recession peak. Meanwhile,
on the commercial side the
picture is not dissimilar, with
prime West End ofces
changing hands at, on average,
some 10% higher values
than in 2007. It is convenient
to point to the key role of
overseas investors in these
markets and argue that they
are detached from wider real
estate world.
There is some truth in this,
but I still nd it hard to believe
that a clear commitment to
keep the cost of money low
while attempting to boost
liquidity will not result in further
upward pressure on prices in
these markets.
Simon Rubinsohn on potential options open to the new Bank of England governor
Economic
Forecast
Striking a balance
Whether that matters
rather depends on where
one is positioned in the real
estate market. From a
macroprudential point of view,
it does at the very least justify
close monitoring. It would be a
leap of imagination to presume
that either or both markets
could currently be viewed as
bubbles, given the demand-
supply imbalance that exists.
But if prices continue to head
upwards, this may at some
point be viewed as more of a
reality. All of which highlights
the very real challenge the new
governor will have in balancing
the conicting objectives of
managing both the real
economy and asset markets.
Hopefully, we will look back
at the end of Carneys ve-year
term and conclude that he got
the balance just right. However,
it would be complacent not be
mindful of the risks that could
manifest themselves either in
the form of higher ination or
an asset price bubble followed
by a bust. C
UPFRONT
UPDATE

Johnny Dunford is
Global Commercial
Director
Peter Bolton King is
Global Residential
Director
UPDATE
6 A P R I L / MAY
RI CS PROPERTY
JOURNAL
Free online
ethics module
Help to map
Japanese
Knotweed
The RICS Information Paper Japanese
Knotweed and Residential Property
continues to benet the residential
property market. Now surveyors and
Welcome to the rst issue of
the RICS Property Journal.
This new publication brings
together the former
Commercial Property Journal,
Residential Property Journal
and The Arts Surveyor in a
combined format. It contains
all the usual high-quality
technical material that you will
be used to from the previous
RICS journals in clearly dened
sections, as well as some
material that crosses
professional groups in order to
reach a wider audience. We
recognise that it is useful for
property professionals who
specialise in one area to keep
Introducing the
new-look journal


an eye on what is happening in
others and hope that readers
will dip into other sections as
well as the one most relevant
to them, making the new
journal an invaluable resource.
You will also notice that the
journal has beneted from a
redesign that is intended to
make it more user-friendly and
visually appealing. Property
Journal will be published six
times a year and is also
available online at www.rics.
org/journals. We hope that you
will enjoy your new journal and
welcome your feedback.
Contact journals@rics.org




valuers can play a signicant part in
helping to map the national extent of the
invasive plant.
PlantTracker (downloadable at
http://planttracker.naturelocator.org) is a
smartphone app put together by the
University of Bristols Nature Locator team,
the Environment Agency, the Centre for
Ecology and Hydrology and the GB
Non-Native Species Secretariat. Its aim is
to use crowd-sourcing techniques to map
some of the UKs most problematic
non-native plant species. The app includes
photos and information to help on-site
identication and it is hoped it will
signicantly add to records of the extent of
invasive weeds in the UK, which could help
combat their spread and allow their
management to be more efective. The
data collected through PlantTracker is
available through the website and can also
be accessed via the Biological Record
Centre online iRecord system.
Visit www.brc.ac.uk/irecord
RICS Home Surveys
The addition of the RICS Building
Survey to the RICS Condition Report
and RICS HomeBuyer Report now
allows members to ofer a choice of
three benchmarked levels of survey
services to suit homebuyers difering
requirements. The new agship
service will satisfy prospective
clients looking for premium advice on
all properties, especially those of
unusual character and those needing
obvious repair and improvement. The
other two services provide equally
valuable, but concise, information for
buyers and, in practice, are more
suited to conventional properties
that appear to be in better condition.
The Condition Report, in particular,
enables members to ofer services
to sellers as well as owners, market
sectors that have until now
been neglected.
UPFRONT
UPDATE

A P R I L / MAY 7

RICS has launched a
free online tool to help
members work through
the global professional
ethical standards and
meet the ethics
requirement of the new
CPD policy. This module
walks members through
RICSs Global Professional
and Ethical Standards
(launched in March 2012),
takes about an hour to
complete and counts
towards formal CPD hours.
Visit training.rics.org/
course/view.php?id=342
Valuation guidance
Measurement standard in our sights
RICS Regulation has
produced new guidance
for members on key
risks and liabilities in
valuation for secured
lending purposes.
Valuation is central to
risk management in
property lending, but is
becoming increasingly
challenging as clients seek
to recover losses by
transferring the risk to
valuers. This, in turn,
pushes up the cost and
availability of Professional
Indemnity Insurance (PII).
Valuation as a service
is only viable if valuers
are able to obtain PII
at a commercially
acceptable cost.
The guidance provides
information on key legal
concepts and areas of risk
to help members develop
terms of engagement that
are fair and reasonable for
all parties involved to help
mitigate these risks.
Visit www.rics.org/
valuationriskmanagement
When measuring property,
many standards means no
standard. Currently, codes
and standards of measuring
property vary from rm to
rm, company to company
and country to country.
With so many diferent
standards, how does one
trust that two 4,000m
2
buildings are the same size?
This has a negative impact
not only on investors
seeking to make logical
business decisions and
valuers producing
comparable valuations,
but on public condence in
our profession.
Measurement is
fundamental to RICS; it is
mentioned multiple times in
its Royal Charter and is vital
to the functioning of the
global economy.
Inconsistent measurements
can lead to inconsistent
valuations, which also
afects nancial reporting.
Measurements made by
a geomatics professional
and a quantity surveyor
might both inform a
valuation, but the basic
principles each professional
is using might be diferent.
The denition of carpet
area varies from market to
market; there is also
inconsistency between
measurements of net
carpet area, gross carpet
area and net net carpet
area. In some countries
property is measured
including only usable space,
but not in all markets.
Standard practice of some
professionals is to include
space not included in other
markets, such as parking,
swimming pools, eaves, and
atrium space.
Shared international
measurement standards
do not exist, although the
International Valuation
Standards make numerous
references to measurement
thanks to the engagement
of the International
Valuation Standards
Council. We must work with
other professional bodies
and stakeholders to set a
single international standard
of property measurement.
We have now conrmed
collaboration with Building
Owners and Managers
Association International
and International Facility
Managers Association and
will meet at the World Bank
in Washington DC on 1-2
May. We aim not only to
produce an international
property measurement
standard with the global
profession, but to share
the motivation and
responsibility to implement
the standard by working
with others. The resulting
standard will be one that all
participating professional
bodies, governments and
other stakeholders can
trust and support.
Our goal is to have a
truly international standard
that will be sustainable,
appropriate for government
adoption and directly
connected to International
Valuation Standards. Not
only will this will be in the
public interest, it will also
assist the globalisation
strategy and market
positioning of the real
estate industry in general.
In brief... In brief...
Web classes
RICS web classes ofer a convenient,
afordable way for members to stay
abreast of CPD requirements.
Upcoming residential-focused
courses, costing 35 and running
from 9am-11.30am, include:
b Japanese Knotweed 11 April
b Inspecting Conservatories
14 May
b RICS Home Survey Series:
Home Surveys Explained
21 May
b Party Wall Disputes and
Procedure 4 June
b Comparable Evidence and
Residential Property 11 June
b RICS Home Survey Series:
Energy Efciency Assessment
for RICS Home Surveys
20 June
b Home Survey Series: Building
Survey section K: Energy
Efciency 26 June.
Upcoming commercial-focused
courses, costing between 25
and 35 and running from
9am-10.30am, include:
b Valuation reports: A lenders
point of view 17 April
b Introduction to stress testing
rental cash ows using an
excel-based cash ow model
23 April
b Valuation principles for
Compulsory Acquisition of Land
17 May
b Demonstrating Valuation
Competency 7 June
For more details, visit
rics.org/webclass
Ken Creighton is Director
of Professional Standards
RI CS PROPERTY
JOURNAL
8 A P R I L / MAY
UPFRONT
REGULATI ONS
T
The Consumer Protection from
Unfair Trading Regulations
(CPRs) and the Business
Protection from Misleading
Marketing Regulations (BPRs),
which came into force in May
2008, seem to have caught
much of the property sales
industry unawares. However,
with the Ofce of Fair Trading
(OFT) publishing industry
guidance in September 2012
and professional bodies such
as RICS hitting the road to
educate their members, the
message is hopefully sinking in:
these laws apply to property
sales businesses and place
important duties on them.
If further encouragement is
needed to brush up on the
new regulations, the industry
need look no further than the
expected repeal this autumn of
the Property Misdescriptions
Act (PMA) 1991. In future,
enforcers are likely to take
action against property
misdescriptions under the
CPRs and BPRs. So what do
businesses need to know?
First, it is important to grasp
that the CPRs and BPRs
impose much broader
requirements than the PMA.
David Hart outlines what the latest trading and marketing
laws mean to the duties of property sales businesses
Is your business
compliant?
They place duties across
customer-facing activities,
for example when canvassing
for new business, giving
pre-agreement advice to
clients, interacting with
potential buyers and handling
consumer complaints. And the
duties are owed not just to
clients but to potential clients,
viewers and buyers, actual
buyers and business
competitors.
Secondly, the regulations,
especially the CPRs, introduce
a number of important
concepts, such as average
consumer and transactional
decision, which a business will
need to understand fully in
order to comply.
The CPRs dene the
average consumer as a
reasonably well-informed,
observant and circumspect
person the OFT guidance
ofers some thoughts on how
such a person might be
expected to act in relation to
property sales. A transactional
decision is dened widely, so it
is not just a client deciding
whether or not to use a
businesss services or a
consumer deciding whether or
not to buy or sell. It could
include, for example, a decision
to end an agreement, to make
or accept an ofer (and on what
terms), to view a property, or to
instruct a solicitor or a surveyor.
Unfair practice
The CPRs protect consumers
from the unfair commercial
practices of businesses.
Unfairness may arise from:
b giving false or misleading
information to consumers
(misleading actions)
b hiding or failing to provide
material information to
consumers (misleading
omissions)
b exerting undue pressure
on consumers (aggressive
practices)
b not acting with the
standard of special care
and skill in accordance with
honest market practice
and the general principle of
good faith (failing to show
professional diligence)
b engaging in one of
31 banned practices
(although only a few are
expected to apply to the
property sales industry).
Businesses familiar with
the PMA will recognise
how misleading actions
deal with the concept of
unfairness. The CPRs
requirements here are similar
to the PMAs prohibition on
making false or misleading
statements but set out slightly
diferent requirements for
the efects of the misleading
action. To be in breach,
the businesss action must
mislead and cause, or be
likely to cause, the average
consumer to take a diferent
transactional decision.
Misleading omissions
represent more of a step
change for the property sales
industry and so particular care
may need to be taken to ensure
compliance. Under the PMA, an
omission ofence may arise
because of something left
unsaid in a statement, for
example where an agent
describes a property as having
views over open country but
omits to mention the cement
works next door. The CPRs,
however, include pure
omissions: whether the agent
makes a statement or not,
leaving information out may
Image Alamy
A P R I L / MAY 9
UPFRONT
REGULATI ONS
Further information

If you require more advice on

the CPRs or BPRs, contact
your local authority Trading
Standards Service or your
professional body, or seek
independent legal advice.
Consumer advice is available
at www.oft.gov.uk/OFTwork/
estate-agents
constitute a breach, as may
hiding information, giving it at
the wrong time or in a way that
is unclear or cannot properly
be understood.
This duty not to mislead
by omission should not be
overstated, though. First, it
relates only to material
information, meaning the
information that the average
consumer needs, according
to the context, to take an
informed transactional
decision. Second, as with
misleading actions, there is an
efects test: the omission must
cause or be likely to cause the
average consumer to take a
diferent transactional decision.
What, then, is likely to count
as material information? In its
guidance, the OFT ofers its
view in three situations: before
the client enters into an
agreement with a property
sales business, before
someone commits to view a
property, and further on in the
buying process.
There has been some
anxiety about details that must
be supplied to prospective
buyers given that if a business
does not know a piece of
material information, it could
still be a misleading omission if
undisclosed. However, some
reassurance can be taken from
the phrase according to the
context in the denition of
material information. It means
that, in determining liability, the
circumstances and context of
the commercial practice will be
taken into account, for example
what the business actually
knew and, importantly, what it
might be expected to know.
What a business ought to
know will depend on what
services it is providing. An
estate agent, for example,
would be expected to gather
the information required to
serve its client faithfully
and to market a property
professionally and in good faith.
It would not be expected to do
the work of a surveyor or a
conveyancer (unless it had led
consumers to believe
otherwise). If, however, the
agent became aware of (say)
a structural defect or a
problem with title, then the
factual circumstances and the
context will have changed.
The new information cannot
be ignored: if it is material
information for example if it
is something that the average
prospective buyer would
need to know to make an
informed decision on whether
to submit an ofer, what price
to ofer, and/or what sort of
survey to commission then
it must be disclosed.
Misleading marketing
When a rms commercial
practice afects another
business, rather than a
consumer, then the BPRs
apply. These prohibit
businesses from engaging
in misleading activities in
their dealings with other
businesses, for example when
advertising services to
potential clients or marketing
property for sale. The BPRs
also set out conditions under
which rms can make
comparisons with business
competitors, whether
marketing to businesses,
consumers or both.
Avoiding breaches
Businesses must decide for
themselves how to keep on
the right side of the law.
However, in its guidance, the
OFT sets out the practical
steps that it considers would
help a property sales business
demonstrate compliance with
the CPRs and BPRs.
Here are two things to
keep in mind (although the
OFT guidance, of course, has
much more detail on how to
approach compliance). First,
there is a due diligence defence
to some criminal ofences
under the CPRs and BPRs.
Businesses that are familiar
with the PMA should recognise
the sorts of requirements that
lead on from this, although
there are more circumstances
permitted under the CPRs
and BPRs.
For example, a business
might have a defence if it can
show: (a) that it relied on
information supplied by another
person, and (b) that it took all
reasonable precautions and
exercised all due diligence to
avoid committing an ofence,
for example that it asked the
right questions at the right time.
Reasonable precautions
would include operating an
efective and appropriate
system to check the accuracy
and credibility of information
supplied. Exercising all due
diligence means having a
proper system in place and
taking appropriate steps to
make that system work.
Second, information should
be kept under review. Where
the property sales business
learns, or is put on notice,
that something has changed,
for example where new
information comes to light
about the sales chain or the
property being marketed, then
it must consider whether
previous advice to its client
needs to be revised and/or its
existing marketing materials
(or statements) updated.
In such circumstances,
the business should use its
professional judgement to
assess the new information,
for example how credible it is,
whether it needs exploring
or further corroboration.
The business should take
proportionate and reasonable
steps to check information.
Where there is strong enough
evidence to satisfy the
business that there is
material information, it must,
as a matter of course, disclose
that information.
More advice
The CPRs and BPRs should
hold no fears for honest
diligent businesses. However,
the OFT advises all property
sales businesses to read its
guidance to make sure they
are doing all they should to
comply with the regulations.
The guidance will help them to
consider how the CPRs and
BPRs apply to their business
and to determine what
changes (if any) need to be
made to their business
practices and what staf
training is required.
The OFT guidance can
be found at www.oft.gov.uk/
shared_oft/estate-agents/
OFT1364.pdf. The OFT website
also has a short overview of the
guidance and advice sheets for
home buyers and sellers.
Although these advice sheets
have been written to raise
consumers awareness of the
CPRs, sales staf in property
sales businesses may also nd
them a useful introduction.
The CPRs and BPRs apply to
lettings too. An OFT report on
the lettings market, which
announces plans for CPRs and
BPRs guidance, was published
in February. C
David Hart is a project leader
at the Oce of Fair Trading
david.hart@oft.gsi.gov.uk
C
Related competencies
include M003, T083
Further +info
1 0 A P R I L / MAY
RI CS PROPERTY
JOURNAL
Capital
connection
UPFRONT
CROSSRAI L
T
The Crossrail project is no stranger to
facts, gures and superlatives. The
biggest construction project in Europe, a
14.8bn investment to deliver 118km of
new railway, eight world-class new central
London stations, hugely reduced journey
times and a 10% increase in rail capacity
for London each headline statistic helps
to paint the picture about how Crossrail
will transform transport in London and the
South East. But Crossrail is much more
than just a transport project and towards
the end of last year, we received our most
detailed ndings to date on the impact it
will have on the property sector.
Through new research by independent
commercial property consultant GVA we
published the Crossrail Property Impact
Study, which delivered a raft of new facts
and gures to throw into the mix. Whether
it be residential or commercial, central or
suburbia, the report throws up key ndings
across all parts of the London property
market. That a huge transport project
should go hand-in-hand with an impact on
property should come as no surprise you
only have to look at a Monopoly board to
see that railways and property have always
been inextricably linked.
Crossrail is the rst rail project in the
UK that must generate prots from
property development as part of our core
funding with around 500m of the total
delivery budget predicated on receipts
Property development is crucial to funding of Crossrail, says
Ian Lindsay, and its efect will be felt all along its route
from property development, it is essential
that we maximise the huge property
opportunities presented.
We are probably the rst transport
project in the UK where world-class
stations, agship over-site developments
and integrated urban realm have been
designed together as one package. It is this
marriage of delivering new transport
capacity and creating quality places at the
same time that I believe is the key to
making Crossrail a real driver for the future
development of London.
So the pressure is on and it is for this
reason that the key ndings of the Crossrail
Property Impact Study are so encouraging.
The highlights are:
Impact on property
investment decisions
Through the new transport links created,
and improved frequency and capacity of
services throughout the route, the GVA
report found that Crossrail is already
having a positive impact on investment
decisions. Property developers are
identifying the links long-term benets as
an enabler for new development or as a
means of accelerating the delivery of
existing schemes. One of the UKs leading
property developers, Land Securities,
commented that Crossrail has already
changed our views on development
investment and property acquisitions in
areas along the route. It will reinforce
London as a place to invest.
Potential to increase
property values
The report found that Crossrail will have
a major impact on the property market
in terms of delivery rates, occupier
demand and the value of all forms of
oorspace the cumulative impact of this
would help to create an overall uplift of
5.5bn in terms of property value over and
above the projected baseline market
movement. This will include existing
high-performing areas around Crossrail
stations in central London, commercial
ofce values will increase by 10% over the
next decade, and residential capital values
will increase by 25%, both above the
already rising baseline. The uplift will also
be felt in weaker areas with Crossrail
helping to create new areas of demand
at stations further out along the route,
residential capital values are projected to
increase by 20% in the suburbs, again
above a rising baseline projection.
A town the size of Ipswich
and 26 Shards
The report also drew on existing data
about commercial and residential
capacity along the Crossrail route. There
is existing capacity for a development
pipeline of some 57,000 new residential
units within 1km of Crossrail stations, as
well as plans for some 3.25 million square
metres of commercial development.
This equates to a new town the size of
Ipswich and around 26 Shards worth
of development, all of which would be
supported by the long-term benets
Crossrail will deliver.
The places to watch
The report also picks out a number of
areas as places to watch. These are the
places that will be transformed as a result
of Crossrail. Understandably, these include
central locations such as Tottenham Court
Road, Farringdon, Canary Wharf and
Whitechapel. However, more tellingly,
areas further along the route are also
highlighted including Custom House,
Abbey Wood and Woolwich on Crossrails
south-east branch; Ilford, Seven Kings,
Goodmayes and Romford in the east; and
Ealing Broadway, Slough and Southall in
the west.
A P R I L / MAY 1 1
UPFRONT
CROSSRAI L
The heart of new
developments
So, the GVA report ofers an encouraging
look at the impact Crossrail will have
on the property market and shows the
power of this huge project as a catalyst
for wider regeneration. But this is not to
forget our own property developments
already underway in key areas of the
route. Across around a dozen key
locations, we will be using our stations
and other assets as the foundations for
high-quality new developments that will
deliver at least 2.5 million square feet of
ofce retail and residential space the
equivalent of ve Gherkins or 32 football
pitches worth of development.
Our over-station developments draw
on the tradition of putting stations at the
heart of new developments something
the Victorians started by building hotels
at major stations around the UK, and
which has returned with the recent
redevelopment of St Pancras and Kings
Cross stations. Crossrail will continue
this theme and the development potential
for each new station is huge the new
station box at Paddington alone is
the same size as Canary Wharf tower
lying on its side. Despite the scale though,
our stations will display real care in
their design, providing light, spacious
and easy-to-use facilities born out of
collaboration between a range of leading
architects and engineers.
Below ground, the approach is to create
a high-quality but uniform experience so
that you will always know you are on a
Crossrail platform. However, it is above
ground that the theme of place-making
will really come to the fore with the creation
of destinations not just stations with
theatres, restaurants, shops and public
spaces that people will want to spend time
in rather than just hurry through on their
way to and from work.
With Crossrails central London stations
located in some of the capitals most
prestigious locations (Bond Street,
Paddington, the City and Canary Wharf),
the over-site development potential is
enormous. These locations will become
the shop window for the Crossrail project.
Our plans are well underway and we
are working with some of the biggest
and best developers in the business.
Tottenham Court Road provides a
once-in-a-generation opportunity to
revitalise the eastern end of Oxford Street
and we are working with Derwent London
to deliver No.1 Oxford Street a scheme
where we have planning consent to deliver
some 380,000sq ft of new ofces and
retail in two new buildings, including
Londons rst new West End theatre in a
generation at the former Astoria site.
New schemes at other prime locations,
including Bond Street, Liverpool Street and
Farringdon, are also at various stages of
planning and delivery, but this is just the tip
of the iceberg and the year ahead will see
plenty of other development opportunities
across the route where we will be looking
for partners. It is an area I would encourage
colleagues across the sector to keep a
watching eye on and I look forward to
engaging with many more of you on
delivering these opportunities.
C
Related competencies include
T061
Further +info
Ian Lindsay is Land & Property Director
at Crossrail
ianlindsay@crossrail.co.uk
Urban integration
Finally, with each new station being
stitched into existing local communities
and landscapes, urban integration
also has to be at the forefront of our
property plans, creating vibrant new
spaces for commuters, residents
and visitors to enjoy. On this area in
particular, we have been deliberately
ambitious not only are we designing
for a wider public realm area than is
actually in our remit, we are also
completing this design work ve years
ahead of Crossrail opening.
This afords us the time to consider the
wider context of the areas in which our
stations sit and to design and integrate the
public realm accordingly. Secondly, being
ahead of the curve is allowing us to engage
with local authorities and developers well in
advance, encouraging their input and the
further investment needed to eventually
deliver the plans. It is a case of designing
the carrot now to dangle in front of
potential investors, rather than seeking
ideas and investment only once the new
stations open when we would then risk
the surrounding public realm being an
expensive and poorly planned afterthought.
All this puts the property sector at the
forefront of the Crossrail project by
delivering 2.5 million square feet of our
own property developments, as well as
helping create 5.5bn of increased
property value along the route, the sector
has a crucial role to play. We have an
exciting few years ahead on the project
and with our vast tunnelling machines
ploughing their way towards successful
delivery in 2014, the attention will turn more
and more towards what we are designing
and delivering above ground. I hope all of
the property sector will join us in driving
forward this fantastic project and in
meeting the huge challenges and even
bigger opportunities ahead. C
1 2 A P R I L / MAY
RI CS PROPERTY
JOURNAL
Mixed-use
mineeld?
UPFRONT
SERVI CE CHARGES
O
ver recent years there has been signicant
growth in mixed-use developments driven
by government planning policy. All mixed-use
sites are unique and this in itself raises
a number of issues, but the mixture of
commercial and residential uses, in
management terms, presents further
challenges for landlords. It is against this background that
RICS has published a new guidance note on Managing
Mixed-Use Developments.
While many aspects of managing residential and commercial
property are similar, the statutory protection aforded to
residential tenants makes recovering service charges a mineeld
for those with no or limited experience of the process. Meanwhile,
the lack of statutory regulation of service charges for commercial
property can present a diferent set of issues for the unwary.
The new Mixed-Use guidance note focuses on many of the
diferent aspects of managing residential and commercial
service charges. It largely follows the headings in the second
edition of the RICS Code of Practice: Service Charges in
Commercial Property and relies heavily on many of the best
practice principles set down in the Commercial Code on matters
such as service provision, value for money and transparency.
The residential/commercial dichotomy
Even owners of commercial premises with only a relatively
small residential element cannot ignore the statutory regulations
or risk incurring shortfalls in the service charge recovery.
Surveyors more used to dealing with commercial premises
therefore need to quickly come up to speed on those that afect
residential service charges, while those with mainly residential
experience must learn how to deal with the more idiosyncratic
nature of commercial premises.
A signicant diference between residential and commercial
premises is the average length of the lease. Residential leases
of 99 years and longer are typical and developers generally
have little vested interest in the future management of the
building once completed. In contrast, landlords of commercial
premises usually take a far greater interest in day-to-day
management to maximise opportunities for capital and rental
growth. Leases are considerably shorter recent research
suggests that the average length of new leases currently being
granted is approximately six years.
Residential purchasers of long leasehold interests want
certainty and look for xed service-charge apportionments,
whereas the much shorter lease lengths for commercial means
that far greater exibility is needed in the arrangements to meet
changing circumstances. Therefore residential leases within a
mixed-use development also need to be more exible, and
landlords will need to clearly demonstrate that the basis of
apportioning the service charge is fair and reasonable to ensure
that individual occupiers bear an appropriate proportion of costs
that reect the availability, benet and use of services.
The question of VAT
Another issue that many residential managers may not have
come across relates to VAT. Supplies of land and building are
exempt from VAT and therefore rents received by landlords that
include service charges are not generally subject to VAT. No
VAT is added to the sum demanded for rent and no input VAT
is recoverable on expenditure. Following changes under the
Finance Act 1989, a landlord who is registered for VAT is able
to make a once-and-for-all election to waive the exemption on
commercial rents and service charges. Known also as an option
to tax, the waiver means that rent and service charge demands
become liable to VAT at standard rate.
Where tenants have the right to recover VAT, the position will
not be jeopardised. However, the landlord will be able to recover
VAT incurred in providing the services, which results in an
improved position for the tenant because they can then recover
input VAT that would otherwise have been recharged on a gross
basis. A concession available from HM Revenue & Customs
exempts charges paid by occupants of residential property,
which continue to operate as an exempt supply.
It follows that where diferent VAT regimes apply, separate
accounts will be required for the residential and commercial
elements of the scheme. Wherever possible, therefore, costs for
each type of occupancy should be allocated to separate
schedules and apportioned to those that benet from the services.
Value for money
Section 19 of the Landlord and Tenant Act (LTA) 1985 provides
that costs may only be recovered from residential tenants if they
are reasonably incurred and works or services performed to a
reasonable standard. Unless the lease specically provides,
there is no such legal requirement for landlords of commercial
property, although case law suggests that, with what is in efect
tenant money, spending cannot be unreasonable or proigate.
Nevertheless, the Commercial Code takes a diferent and some
might say a more far-reaching view in that it requires landlords to
demonstrate that the service charge represents value for money
dened simply as Paying no more for no less than is required.
Peter Forrester guides the way
through some of the less obvious
challenges of mixed-use schemes
Images

1 Brian Clift / Flickr Creative Commons
2 SuperStock
A P R I L / MAY 1 3
UPFRONT
SERVI CE CHARGES
While the residential code recommends that the cost
efectiveness of services should be routinely monitored, aiming
always to maintain services and provide value for money, the
Commercial Code requires that costs be kept under review and
contracts competitively re-tendered not less frequently than
every three years. Where formal re-tendering would not be cost
efective or practical, the manager should benchmark the
service standards and pricing to conrm that value for money is
still being achieved. The Mixed-Use guidance note recommends
as best practice that routine monitoring and regular reviews are
carried out to ensure efective service standards are being
delivered and value for money is being obtained.
Provision for future expenditure
Given the typical long length of residential leases, it is reasonable
to expect that major items of plant and equipment (e.g. lifts) or
elements of fabric (e.g. roofs) will need to be replaced more than
once during the terms. Commercial tenants under a traditional
25-year lease would also reasonably expect to be responsible for
the cost of carrying out major repair or replacement of signicant
items of plant, equipment or fabric during the term.
To the extent that such costs can be foreseen, it often makes
sense to spread the cost over a number of years by setting up a
sinking fund or reserve fund rather than charging the whole cost
to the current occupiers in the year in which the equipment is
replaced or other signicant expenditure required.
However, given the tendency towards ever shorter leases for
commercial premises, say ve years, many items managed under
the service charge will have a life expectancy longer than the
leases being granted. A tenant would have no interest in the
replacement of a boiler that might have a life expectancy far
beyond the term of their lease.
Furthermore, while there is little need to distinguish between
a sinking fund and a reserve fund for residential leases, for
commercial property allocating costs to a sinking fund for the
replacement of a wasting asset or a reserve fund to meet the
cost of anticipated future maintenance and upkeep to avoid
uctuations each year or a large one-of increase in the service
charge payable (even over a relatively short lease) has far more
relevance. While common in residential property, sinking and
reserve funds have fallen out of favour with many major
commercial landlords due mainly to the perceived problems of
tax and trust implications. But there is evidence that landlords
are reconsidering use of such funds not only to even out the
burden of major expenditure over a succession of short-term
leases but also to be consistent with residential practice.
Improvements
Section 18 of the LTA denes a service charge as an amount
payable by a tenant of a dwelling as part of or in addition to the
rent (a) which is payable directly or indirectly for services, repairs,
maintenance, improvements or insurance or the landlords costs
of management and (b) the whole or part of which varies or may
vary according to the relevant costs.
The key issue is that the statutory denition for service
charges in residential property includes improvements, whereas
the Commercial Code specically states that the service charge
should not include, among other things, the cost of improvement
above the costs of normal maintenance, repair or replacement.
The Commercial Code does envisage recovery of the cost of
enhancement of fabric, plant and equipment, but only where
such expenditure can be justied following analysis of
reasonable options and alternatives and having regard to a cost
benet analysis over the term of the occupational leases.
It is again the difering lease lengths that give rise to the
contrasting positions for residential and commercial property. A
tenant occupying under a long lease particularly of 999 years
cannot expect, nor would they want, the building to remain in
stasis throughout the whole term and may actively encourage
and be prepared to pay for improvements. However, with shorter
leases and regular rent reviews, commercial tenants are averse
to paying for improvement works to the landlords asset through
the service charge and again through increased rents.
Dealing with disputes
In broad terms, residential leaseholders can dispute their
service charges if they are said to be unreasonable in some way
and ask a leasehold valuation tribunal (LVT) to determine the
matter. Unless the lease specically provides for some form of
alternative dispute resolution process (ADR), the only recourse
historically available to tenants of commercial premises has
been to pursue their case through the courts with the result that
disputes involving relatively small sums are often not formally
raised due to the potentially prohibitive cost of litigation.
However, the attitude of the courts is that litigation should be
used as a last resort and parties are encouraged to use ADR
as a quicker and cheaper route through early neutral evaluation,
mediation, independent expert determination or arbitration.
The Mixed-Use guidance note points out that all these options
are relevant to both residential and commercial premises and
represent best practice for mixed-use developments with an
application to an LVT as an option only if ADR cannot be agreed
or mediation is unsuccessful.
Service charges are one of the most frequently cited causes
of friction in the landlord and tenant relationship. Service charge
arrangements for mixed-use schemes pose particular
challenges and careful consideration is needed from an early
stage of any development to facilitate proper set up and to
ensure that leases are granted on terms that foster rather than
frustrate the implementation of industry best practice. C
C
Related competencies
include TO48, T070
Further +info
Peter Forrester FRICS is Director Service Charges Consultancy,
Savills UK
pforrester@savills.com
+info
Q&A
PROPERTY
JOURNAL
Legal
S Eleanor Marsh
Associate,
Hogan Lovells
eleanor.marsh@
hoganlovells.com
T Shanna Davison
Associate,
Hogan Lovells
shanna.davison@
hoganlovells.com
UAilsa Davies
Trainee Solicitor,
Hogan Lovells
ailsa.davies@
hoganlovells.com
S

is for service of applications
Q
My tenant has sent me an application for consent to
assign its lease by email. Has the application been
correctly served and how long do I have to respond?
Eleanor Marsh
A
You need to check the terms of the lease. Acceptable forms
of service will be detailed in the notice provisions, either
explicitly or by reference to statute. The time that a landlord can take
to respond depends on whether or not the application complies with
those provisions.
Where a tenant covenants not to assign without the landlords
consent (not to be unreasonably withheld), section 1(3) of the Landlord
and Tenant Act 1988 imposes a duty on the landlord not unreasonably
to delay responding to a tenants application. This duty is only triggered
where a written application is served in accordance with the lease.
If, unusually, the lease provides for service by email, you will need to
respond to the application within a reasonable time (usually three
weeks). If, however, it does not, then recent case law suggests that the
application will not have been properly served and the duty will not have
been triggered. In those circumstances, if there is no express
requirement in the lease, while the landlord may not do anything
tantamount to unreasonably withholding consent, it has no duty to
respond within a reasonable time.
Further information: E.ON UK plc v Gilesports Ltd [2012] EWHC 2172
T

is for Tenancy Deposit Schemes
Q
I am a landlord of residential property. I recently granted a
new tenancy and took a security deposit from the tenant,
which I have since protected with a registered Tenancy Deposit
Scheme. Is there anything else I need to do regarding the deposit?
Shanna Davison
A
Yes. It is not sufcient for a landlord who takes a security
deposit from a tenant of residential premises under an
assured shorthold tenancy (which is probably what you have granted if
the annual rent is between 250 and 100,000) just to protect the
deposit with one of the three government-approved schemes. They
must also provide the tenant with certain information about how their
deposit is held and how to reclaim it at the end of the tenancy. The
scheme with which you protected the deposit will have a template for
you to complete with the required information.
Both of these steps must be completed within 30 days of
taking the deposit. If you fail to do so, you will be liable to
pay a penalty of between one and three times the amount
of the deposit to the tenant. The exact amount of the
penalty will be determined by the court but, take heed, the
court recently ordered a landlord to pay the maximum
penalty for failing to provide the required information, even
though the deposit was protected. In addition, until the
position has been remedied, you will not be able to serve
notice to recover possession at the end of the tenancy.
Further information: Ayannuga v Swindells (unreported)
U

is for utilities
Q
Our tenant has vacated and we are now
receiving gas and electricity bills for the
property. Without a written contract with the supplier,
do we have to pay?
Ailsa Davies
A
Under the Gas Act 1986 and the Electricity Act
1989, where gas or electricity is supplied
otherwise than under an express contract, a contract
with the supplier is deemed to exist.
Deemed contracts can arise where property is vacated
by the tenant but the supply of utilities continues. Whether
a landlord is deemed to have entered into a contract with
the utility supplier will depend on the circumstances. The
Gas Act provides that a deemed contract will arise with the
consumer, dened as anyone who is supplied. Conversely,
the Electricity Act provides that a deemed contract will
arise with the occupier or, failing that, the owner of the
property. If the lease is continuing then it is likely that the
tenant remains the occupier, even though they have
vacated. If it has ended then the contract is likely to be with
the landlord as owner. Ofgem suggests that there must be
actual consumption for a deemed gas or electricity
contract to be created, but that is guidance only. Tarifs
under a deemed contract can be higher than those under
express contracts. Negotiating an express contract may be
advisable. Suppliers are required to take all reasonable
steps to ensure that the terms of deemed contracts are not
unduly onerous and Ofgem can investigate and take
enforcement action if they are. C
+info
RI CS PROPERTY
JOURNAL
UPFRONT
LEGAL Q&A
1 4 A P R I L / MAY
RI CS PROPERTY
JOURNAL
com
mer
cial
S E CT I ON
C
A P R I L / MAY 1 5
1 6 A P R I L / MAY
C
F
RI CS PROPERTY
JOURNAL
COMMERCI AL
SUSTAI NABI LI TY
For the past 12 months I have travelled
across the UK and Australia in an attempt
to determine whether green buildings
can create competitive advantage for
organisations. I have attended green
building conferences, listened to
speakers from international green building
councils and visited some of the best
examples. This article shares some of
my ndings from my personal journey
to destination sustainability.
Green revolution
The UK and Australia have been exposed
to very distinct economic and political
factors in recent years. The Australian
economy, with its strong growth in the
minerals and resources sector and its
robust nancial regulatory regime, has
been somewhat protected from the harsh
efects of the global nancial crisis that
has brought the UK to the brink of a triple
dip recession. While the UK government
has been embroiled in internal political
wrangling in its attempts to implement a
set of meaningful environmental policies,
Australia has advanced to the forefront.
The country recently implemented the
highly political tax on carbon emissions, a
policy that will have a signicant impact
on business activities there, raising the
prole of the green agenda.
Carbon Tax
The Carbon Tax in Australia will ensure
that the measurement of carbon
emissions will become as important for
corporate boards as the liability to pay
corporate taxes.
There is no doubt that the UK
government and others will be keen
observers of this tax and its impact on the
Australian economy. Even though
commercial real estate forms the structural
aesthetic of our cities, it is so often taken
for granted by organisations. Buildings are
frequently taken as a given without further
consideration of the value that real estate
can add to an organisations worth.
In both the UK and Australia, the
increased political pressure on reducing
greenhouse gas emissions and the wider
emphasis on environmental concerns
have raised the green agenda and the
focus on green real estate.
Competitive advantage
Strategic management and the focus on
competitive advantage form the staple
diet for reputable MBA and executive
management courses across the globe.
The traditional approach to business
strategy, which most MBA students and
executives will learn, is that competitive
advantage is attained from a focus on
either a position of cost leadership or
diferentiation. However, critics have
long argued the relevance and impact
of broader macro factors such as
environmental considerations, which
are now beginning to inuence the way
that organisations conduct their
business activities.
The shift towards green real estate
presents nancial and symbolic benets
from a strategic cost leadership and
a diferentiation perspective, which
organisations can exploit to their benet.
In their international bestseller Blue
Ocean Strategy, W Chan Kim and
Rene Mauborgne
1
identify the
reconstructionist approach as an
alternative route to competitive
advantage. The basis of the strategy is
the alignment of three propositions:
1 a value proposition that attracts
buyers
2 a prot proposition that enables the
company to make money out of the value
proposition
3 a people proposition that motivates
those working for the company to
execute the strategy.
Kim and Mauborgne present the rationale
that high performance is
achieved when all three strategy
propositions target both diferentiation
and low cost. There is an argument to
suggest that the reconstructionist
approach provides organisations with a
more exible approach to the attainment
of competitive advantage, in contrast to
the rigidity that exists in traditional
strategies.
In addition, it could be argued that a
failing of the traditional approach
to strategy is the lack of consideration
towards a people proposition. The
reconstructionist approach, in contrast,
focuses on the motivational characteristics
of the employee in addition to the
needs of customers. Employee
engagement in green buildings can have
a signicant impact on productivity and
collaborative engagement.
Making a diference
Based on the ndings of the Organisation
for Economic Co-operation and
Development
2
, people spend 90% of their
As green buildings emerge as a global trend,
do they give organisations a competitive edge?
Paul Anderson considers the question both
from an Australian and UK perspective
Destination
sustainability
Image Image Source
A P R I L / MAY 1 7
COMMERCI AL
SUSTAI NABI LI TY
lives in buildings on average,
a large proportion of which is
at their place of work. There
is therefore a valid
proposition to suggest a link
between the quality of the
working environment and the
relationship to employee performance. A
compelling argument in support of green
buildings is that they provide a superior
working environment to non-green
buildings and as a result both generate
more productive and satised employees
and provide building occupiers with
added value.
Recent research, however, carried out
by Bond Universitys Institute of
Sustainable Development and
Architecture in association with the
Green Building Council of Australia
3
,
provides an interesting analysis between
the difering views of employers and
employees occupying green buildings.
This research found that while 89% of
employers considered that green
buildings had a positive
impact on productivity and
health, fewer than 50% of
employees agreed with this
view. This suggests some
disparity between the value
of employer and employee
perceptions of green buildings and
illustrates that an organisational state of
readiness for change is required to
ensure high levels of employee
engagement. The transition for an
employee working in a non-green building
to a green building should be managed
as an important change management
project within an organisation to ensure
that premium employee engagement and
performance is attained.
There is also enormous symbolic
value for organisations that occupy green
real estate. Traditional oil companies
such as Royal Dutch Shell have
successfully incorporated green real
estate within a corporate image and
brand transformation. In Perth, Western
Australia, its subsidiary company Shell
Australia occupies the acclaimed 6 Star
Green Star rated building Victoria Avenue,
developed by Stockland. This example is
not exclusive and big businesses are
recognising the signicance of corporate
and business strategy that aligns with
green real estate. While once just for
government departments and the public
sector, green real estate is going
mainstream globally and the trend is
catching on quickly.
Evidence of a benecial green
premium has emerged from research
carried out for the recent Australian
Property Institute Building Better Returns
report
4
, which showed that rental returns
were uplifted for green buildings. While
8% and 4% green premiums were
determined in the Sydney suburban and
CBD mainstream markets respectively,
a noteworthy 21% green premium was
observed in the Canberra ofce market.
Canberra is home to Australias major
federal government departments, which
are bound by accommodation strategies
that value high green building ratings.
One explanation for the higher green
premiums in the Canberra ofce market is
that green building owners are operating
in an environment where tenants value
high green building ratings.
The immediate impact of occupying
a green building can be even more
signicant for an organisation in the
services sector seeking to reduce its
carbon emissions, where the use of its
commercial property facilities may be
its primary source of carbon emissions.
Therefore, where environmental
considerations are important to an
organisation, green buildings can
assist in a business strategy to attain
competitive advantage.
Question of attitude
A key part of my journey has been to
understand the approach and attitudes
of property professionals, building owners
and tenants in the UK and Australia
towards green real estate. While there
are some ne examples of green
buildings in the UK, it is in Australia
that building owners, developers and
consultants are really pushing the
boundaries. This pioneering approach
to real estate in Australia is, in turn,
captivating the imagination of both large
corporate and SME occupiers.
The increasing availability of green
buildings in Australia has also stimulated
both building owner and occupiers
towards a more equitable type of lease
arrangement, referred to as the green
People spend
90%
of their lives
in buildings

1 8 A P R I L / MAY
Paul Anderson is a qualied property
consultant providing property,
infrastructure and sustainable business
solutions to organisations in the UK,
Europe, Asia, Australia and New Zealand
and has an MBA from Manchester
Business School. He is the founder of
leasegreenbuildings.com and a director
of CRE Verdigris
info@paulanderson.com
lease. The key benet
of the green lease is
that it goes a long way
to transforming the
behaviours of both
building owners and
occupiers towards a
more collaborative
approach to property
asset management.
In contrast, green lease awareness
appears to be very low in the UK and
heavy reliance is made on more traditional
arrangements, which incorporate
inequitable obligations and wasteful
practices on tenants. One such practice
is lease expiry dilapidations, whereby
occupiers are requested to strip out
internal t out that could often be reused
by a new occupier. Often unnecessarily,
ceiling, plasterboard and carpet waste
ends up in landll. This is generally
perceived as an unjust cost to a business
occupier and an even higher cost to the
environment. Again, more equitable
approaches to property leasing such as
Green Dilapidations should be considered
and agreed at the outset of a lease.
Due to the poor economic climate in
the UK, it is clear that business survival
has taken priority above other factors
and has caused organisations to look
internally rather than to the external
environment. From my journey, the
unexpected view appears to be that
green buildings will become relevant,
but at some point in the future. This
should be a cause for concern for the
UK government and construction industry
leaders, when organisations in Australia
are using green real estate and green
technologies to attain competitive
advantage now.
Green benets
In summary, businesses in Australia are
far ahead of businesses in the UK in
recognising that green buildings can
assist in achieving competitive advantage
for owners and occupiers alike.
Businesses in Australia are realising the
nancial benets of cost savings and
enhanced diferentiated value through
reconstructionist strategic approaches.
These benets are evidenced through
green premiums, which are enhanced
even further when the operating
environment is focused towards the
green agenda, such as that seen in the
Canberra ofce market.
It is clear that the operating environment
C
RI CS PROPERTY
JOURNAL
COMMERCI AL
SUSTAI NABI LI TY
How can we aford
not to occupy a
green building?

in the UK is currently
very diferent to its
Antipodean
counterpart.
Economic and political
demands are without
doubt outplaying
environmental
pressures, which is
having an impact on
the inuence of the green agenda in the
marketplace. While green buildings
undoubtedly enable cost savings and can
contribute towards a cost leadership
strategy, it is more difcult to see how, in
the current economic and political
environment in the UK, green buildings can
achieve competitive advantage through a
traditionalist diferentiation strategy.
There is, however, a very strong
proposition to suggest that building
owners and occupiers in the UK have
the opportunity to achieve superior
competitive advantage to exceed that
even currently being witnessed in
Australia. That opportunity arises from
the ability to apply a reconstructionist
approach and to obtain rst mover
advantage by ofering a value proposition
through green buildings. The value
proposition not only attracts buyers
through its symbolic value, putting the
organisation at the forefront of corporate
social responsibility, it also enables the
organisation to make money by
facilitating signicant cost savings, and
provides a people proposition to enhance
employee engagement and motivate the
workforce to execute the strategy.
Sustainability vision
From my experience in Australia and
the UK there is compelling evidence to
suggest that green buildings as
sustainable solutions in corporate real
estate, can provide organisations with
competitive advantage.
The Green movement shares the same
set of principles and vision to reduce
wasteful practices as did the Lean
movement pioneers that emerged in
Japan last century. In 2012, however, the
gospel of sustainability appeals equally
to organisations that seek to reduce
operating costs by eliminating waste and
to governments worldwide seeking
reductions in carbon emissions. There
is no doubt that the green real estate
revolution is upon us and the physical
presence of green buildings can play
both a tangible and symbolic role in
underpinning an organisations corporate
and business strategy. The essential
question in seeking competitive
advantage is: How can we aford not
to occupy a green building? C

1
Kim, WC and Mauborgne, R
(2005). Blue Ocean Strategy
How to create uncontested
market space and make
competition irrelevant. Harvard
Business School Publishing
Corporation, USA
2
Organisation for Economic
Co-operation and Development
(2003). Environmentally
Sustainable Buildings: Challenges
and Policies. Paris, France
3
Institute of Sustainable
Development and Architecture,
Bond University, in association
with Green Building Council of
Australia (2010). Performance and
Perceptions of Green Buildings
A study based on the experiences
of working, renting and owning
Green Star certied buildings.
4
Australian Property Institute
and Property Funds Association
(2011). Building Better Returns
A Study of the Financial
Performance of Green Ofce
Buildings in Australia
References

C
Related competencies include
M009, T019
Further +info
To adverti se contact l uci e I nns +44(0)20 7871 2906 or l uci e@sundaypubl i shi ng. com
RI CS PROPERTY
JOURNAL
A P R I L / MAY 1 9
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COMMERCI AL
RECEI VERS
The recession has led to a steady trickle of insolvencies.
Fergus Jack explains the receivers Water Board and what it does
W
Recovery
role
While the majority of property professionals have been rather
down in the dumps of late (to put it politely) you would be
forgiven for thinking that the receivers among us have been
rubbing our hands with glee and doing quite nicely from it all.
Not so, it seems. The recession has seen a slow and steady
trickle of insolvencies and while some predicted a tidal wave in
2009, low interest rates and government pressures to support
lenders have allowed many non-performing loans to be kicked
down the road in the hope of future yield compression and more
optimistic occupational markets.
In short, notwithstanding last years disastrous summer and
supremely wet winter, the Thames Barrier has been relatively
inactive for the past two years, and the equally stormy economic
conditions have failed to deliver the tidal wave of receiverships
that everyone forecast.
Who are receivers and what do they do?
The Law of Property Act Receiver (LPAR) is a remedy for
secured lending problems; either loan covenant breach (usually
loan to value or cash cover) or failure to maintain interest
payments in England and Wales. Instructing a LPAR allows a
creditor (subject to having the correct powers and security)
to take control of an asset and dispose of it to realise funds to
set against debt.
A lenders security is usually contained within the xed charge
that ensures that they have priority over other creditors if the
borrowers assets are insufcient to meet all claims made
against it. The xed charge will be agreed by all parties at the
time the loan was written and details will be registered within
the loan documentation, at the Land Registry and at Companies
House for UK companies and for overseas companies where
the charge was created prior
to 1 October 2011.
Certain security, such as
debentures, gives the lender
the power to appoint or
block the appointment of
receivers and administrators.
The xed charge gives the
lender the power to appoint
a Fixed Charge Receiver
or LPAR.
Why we need them
The role of the LPAR is to
act as the last resort for
lenders where they are
looking to exit their position
through taking control of the
asset. They act as practice
professionals providing
detailed real estate advice in
the capacity as agent for the
borrower, preventing the
lender from acting as
Mortgagee in Possession.
A LPAR can be appointed
over any asset to which the
creditor holds a xed charge,
but caution must be exercised
around trading assets
because chattels will not
feature in the xed charge.
Under the Law of Property
Act 1925 anyone can be
appointed as a Receiver,
however it is generally
accepted that surveyors and
insolvency professionals are
best placed to undertake
appointments. The Act itself
provides very limited powers
to a Receiver, namely the
power to collect rents. The
key to additional powers are
held within the mortgage
deed, which usually includes
the power of sale and power
to lease; in efect giving the
Receiver the power to fully
manage the assets to ensure
maximum realisation for the
creditors, acting as agent
for the borrower.
Company Voluntary
Agreement and Individual
Voluntary Arrangement
b A binding agreement
between a company (CVA)
or an individual (IVA) and its
unsecured creditors, which
allows the individual to settle
outstanding unsecured debts
by paying a proportion of the
amount owed to creditors
or to come to some other
arrangement with creditors as
to the payment of debts.
b A CVA or IVA does not
bind secured or preferential
creditors unless they agree
to its terms.
b Insolvency practitioners
are appointed as supervisors
of CVAs.
b CVAs and IVAs are not
commonly used to deal with
secured debts.
Bankruptcy
b The appointment of a
trustee by the court to collect
and realise debtors assets
for distribution to creditors.
This is only made over
individuals, not companies.
b Insolvency practitioners
are appointed as trustees.
Compulsory and Voluntary
Liquidation
b In the case of a
compulsory liquidation, a
creditor or debtor will issue
a winding-up petition. The
court will then decide whether
an order is appropriate and,
if it is satised that it is, will
appoint a liquidator.
b In the case of a creditors
voluntary liquidation where
a company is insolvent, the
members of the company
will pass a special resolution
for its winding-up and a
meeting of creditors will be
convened. At that meeting,
A P R I L / MAY 2 1
COMMERCI AL
RECEI VERS
the creditors vote to appoint
a liquidator
b In both cases the
liquidators duty is to collect
and realise company assets
for distribution to the creditors.
b Liquidation is the
formal shutting down of the
company. All assets
are disposed of until
eventually the company
name is removed from
Companies House.
Administration
b Administrators are
appointed with the aim
of saving the company,
achieving a better result
for the creditors as a whole
than if it were wound up, or
realising some or all of the
companys property to make
a distribution to secured or
preferential creditors.
FOR THE LENDER
HOW? SOME WORDS OF ADVI CE
I denti f y an event of defaul t, e. g. LTV, cash cover or fai l ure to
pay i nterest as demanded
Conduct a securi ty revi ew to determi ne i f a LPAR can be
appoi nted
Accel erate the l oan and make a demand
Execute appoi ntment
Pri or to pursui ng any enforcement acti on, ensure that your
records and asset data i s present and up to date as the borrower
may not be as forthcomi ng af ter the appoi ntment of the LPAR
Ti mi ng of an appoi ntment shoul d, i f possi bl e, al l ow the LPAR to
contact al l the tenants pri or to the next quarter day. Thi s al l ows
rent to be di verted di rectl y to accounts control l ed by the LPAR
The borrower may wel l have a number of other credi tors who
are al so owed moni es i n rel ati on to the asset. Under the Act,
unsecured credi tors remai n the responsi bi l i ty of the borrower;
however, a pragmati c approach shoul d be taken to ensure the
best workout strategy
FOR THE BORROWER
HOW? SOME WORDS OF ADVI CE
The borrower wi l l be i n di scussi ons wi th l ender and, i f requi red
under the l oan documentati on, wi l l recei ve a formal demand
noti ce aski ng for remai ni ng f unds outstandi ng to be cl eared
The borrower wi l l be i nformed by the Recei ver of thei r
appoi ntment and asked to assi st i n passi ng across control
of the asset under any Duty of Care agreement si gned on
commencement of the l oan
I t i s mutual l y benef i ci al to work wi th the Recei ver. Your
outstandi ng debt to the l ender wi l l remai n af ter the asset has
been sol d and i f you have any cross col l ateral guarantees the
l evel of real i sati on wi l l i mpact di rectl y on the sums that you
wi l l be asked to repay
You wi l l have a better knowl edge of the assets than anyone
el se; hel p the LPAR by provi di ng them wi th the rel evant property
i nformati on and detai l s of ongoi ng acti ons
FOR TENANTS
HOW? SOME WORDS OF ADVI CE
The LPAR wi l l take the rol e of the borrower (your l andl ord)
He/she wi l l demand rent and ser vi ce charge (i f appl i cabl e) i n
the same manner as the borrower
The appoi ntment of the LPAR does not gi ve ri se to any reason
to defer payment, for fei t the l ease or renegoti ate l ease terms
The LPAR can enter i nto di scussi ons about renegoti ati ng l eases
and re-geari ng l eases, but broadl y speaki ng has the same
moti vati on as the borrower to maxi mi se revenue f rom the asset
Make sure that when you are i nformed of an appoi ntment of
LPARs you contact the Recei vers to conf i rm thei r appoi ntment
Amend any standi ng orders to ensure that you pay rent to the
LPAR and not the borrower. Funds transferred to the borrower
may not be treated as bei ng pai d and you may end up payi ng
your rent twi ce
b Insolvency practitioners
are appointed by court or
through an out-of court
appointment over all of the
property of the company.
b Duty to act in the best
interests of creditors as a
whole with wide powers to
trade and administer and
to dispose of the business
or assets.
b Provides a moratorium
or stay on creditor actions
allowing the company to
continue to trade.
b Realisation funds
distributed to creditors
either by the administrator
or a subsequent liquidator in
accordance with a statutory
order of priority.
While many restructuring
options exist as outlined
above, the LPAR is the only
Fergus Jack is Director and
Head of Corporate Recovery
and Restructuring London and
South East at DTZ
fergus.jack@dtz.com
property professional who
can deal with distressed
real estate in isolation. They
are appointed by the lender
with no need to go to court
and owe their primary duties
to the xed charge holder
with the borrower remaining
liable for all other unsecured
claims. The LPAR can deal
with VAT, does not pay
non-domestic business rates
and can borrow money to
fund works if deemed
strategically benecial to
maximise the realisation.
The Water Board
equivalent of LPAR regulation
is the Association of Property
and Fixed Charge Receivers
(NARA), championing best
practice and providing training
to professionals in association
with RICS. Members who have
undertaken formal training
A LPAR can
be appointed
over any asset
to which the
creditor holds
a xed charge

C
Related competencies include
T020
Further +info
and examinations are able
to use the designation
Registered Property Receiver
(RPR) or Fellow of NARA
(FNARA). RICS works with the
Insolvency Practitioners
Association to provide a
voluntary monitoring service
to ensure best practice across
all registered rms. C
Richard Dennery outlines initiatives
underway to assess and reverse
shop vacancy rates in the UK
Running
on empty
The number of empty shops
in local high streets and
shopping centres across the
country, and the implications
for consumers, retailers,
property owners and agents,
created huge interest as well
as governmental responses
in 2012. But interest has not
necessarily generated positive
results and the vicious circle
of empties begetting empties
could well continue
throughout 2013 and beyond.
More retailers have gone bust
following a mixed Christmas
shopping season, on top of a
6% increase in bankruptcies
in 2012 over 2011 and up 18%
from 2010, according to
accountants Deloitte.
The Centre for Retail
Research estimates that more
than 48,000 employees were
afected by the 52 medium
or large retailers that went
out of business last year. If,
as is thought, too many
retailers have too many
physical stores, more closures
and job losses are to come.
The growth of online and
smartphone shopping
exacerbates the problem,
with digital sales of lms,
music and games alone up
11.4% from 2011, topping 1bn
for the rst time, according
to Kim Bayley, Director
General of the Entertainment
Retailers Association.
While disc sales of CDs,
DVDs, Blu-ray and video
games still account for just
over three-quarters of the
entertainment market, sales
have fallen by 17.6%
compared with 2011. Says
Bayley: Despite digitals
seemingly inexorable growth,
the CD, the DVD and the
physical games disc show
incredible resilience.
It is nearly nine years since
iTunes launched in the UK, yet
over 60% of music sales are
still accounted for by physical
formats. It is
clearly way
too soon to
write of the
CD and in
video, digital
barely gets a
look in.
Smart solutions
There have been some
positive and imaginative
responses to these problems.
Last July, PopUp Britain set
up outlets for entrepreneurs
in a former estate agents
premises that had been
empty for more than a year
on Kew Road in Richmond,
south-west London. The
approach is now backed by
Richmond Council, which is
ofering start-up grants of
2,000. PopUp set up another
shop in the DCLG ofces in
Victoria at the governments
invitationjust before
Christmas, aiming to provide
spaces to 150 start-ups over
a 12-month period.
Emma Jones, co-founder
of StartUp Britain, says: The
PopUp Britain model gives
retail entrepreneurs an
afordable opportunity to
scale their businesses and
become a part of their own
high street.
Were seeing record
numbers of people setting
up businesses, and they are
starting out small and online.
They are the driving force of
the economy. This initiative
ofers them a chance to
physically test out new
markets as well as get
their products in front of
consumers and big buyers in
a way that has never been
available to them before.
By actively encouraging
local authorities to give
start-ups access to empty
shops, we
hope to help
accelerate
British
enterprise as
well as to
provide a
vibrant addition
to the local shopping
experience. She expects
about 20 pop-ups to be open
and trading by mid-year.
Other eforts aim to
transform retail locations into
ofces, residences and leisure
outlets, or to disguise empty
shops through the clever use
of graphics in place of the
window displays that once
advertised the business
inside. One example of this
is City Dressings Smart
Windows, where interactive
graphics use QR codes and
intelligent graphics to bridge
the gaps between tenanted
and non-tenanted property as
well as between the internet
and the High Street.
The government has very
publicly given more than
300 Town Teams across
England 10,000 each,
plus a package of support
coordinated since last autumn
by the Association of Town &
City Management (ATCM). It
has also provided 100,000 to
each of 100 local authorities
(some of whom have adopted
a slow approach to actually
spending the money), close to
100,000 to each of two
dozen Portas Pilots (plus three
more funded by the Mayor of
London) and pockets of money
to other initiatives.
But at the time of writing,
the government had not
reversed plans to further
increase business rates
by 2.6% in April, piling an
estimated 175m cost on
retailers on top of the 500m
that has already been paid
by the sector in the past two
years. These amounts far
outweigh the amount given to
ofset the growth in vacancies
and the British Retail
Consortium (BRC) has been
leading a charge to reverse
those increases. Nor has the
government dealt directly
with the vexatious issues
surrounding parking charges,
leaving that to local
authorities whose government
grants have also been cut.
In addition, according to
ATCM chief executive Martin
More retailers have
gone bust following a
mixed Christmas
shopping season
T
2 2 A P R I L / MAY
RI CS PROPERTY
JOURNAL
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COMMERCI AL
VACANCY RATES
Image (above) Getty
Blackwell, another perfect
storm is on the horizon. Local
authorities are set to retain a
portion of business rate
increases they gather on
behalf of the government, and
increases are much easier
and cheaper to generate
through development of
untouched or barely
touched edge-of-town
and out-of-town sites than
through regeneration of town
and city centre properties.
As a result, says Blackwell,
the governments carrot could
well turn into a stick to further
harm the retail and social
cores of our urban areas.
Bigger issues
So, while there are lots of
positive micro eforts, many
towns and city areas face
much deeper
problems that
require serious
investment and
policy focus.
Where does one
start? How do
you, as a surveyor, property
owner or adviser, decide
where to make these
investments? If you belong to
the school of thought that
says, if you cant measure
something, you cant manage
it, then you may well be
starting with vacancy rates.
Three UK companies
measure these rates:
Experian Marketing Services,
Springboard UK and the
Local Data Company (LDC).
Experians vacancy rate
information is compiled from
its Goad data, which looks
at around 3,000 retail
destinations throughout the
UK and Republic of Ireland.
Surveyors visit around 140 to
150 high streets, retail parks
and neighbourhood retail
destinations each month,
collating details such as
fascia, retail category, oor
space and vacant premises.
Says Mark Carlyon,
Location Intelligence
Consultant, Data & Analytics,
Experian Marketing Services:
Counts of vacant premises
per centre can then be used
to calculate the vacancy rate.
Experian Goad has historical
information in this format
going back 12 years, which
also enables us to examine
centre trends over time.
Springboard has a diferent
approach. Research and
Marketing Director Diane
Wehrle says the company
harvests the quarterly counts
taken on the ground by local
councils or Town Centre
Managers to produce its
national pictures. Town and
city centre boundaries are
determined locally and
updated to reect more new
or proposed development.
She is critical of other
approaches that stick with
wider boundary lines mapped
in the 1990s, regardless of
what has happened since. As
she points out, this can lead
to secondary and tertiary
locations being counted as
part of the town centre,
resulting in quite high vacancy
rates reported for some
towns and cities when, in fact,
the actual cores are doing
much better.
She also notes that vacancy
rates are not necessarily the
best indicator of economic
health and should not be
relied on by themselves for
decision-making.
Some people, for example,
continue trading unprotably
because they cannot get out
of their leases, she says, and
some landlords may hold out
from lling a unit in order to
achieve higher rents.
The third group, LDC, uses
data which, for a variety of
reasons, caused a lot of
furore around the country
last year. The company visits
more than 2,700 towns and
cities (retail centres and
government-dened retail
cores), retail parks and
shopping centres, conducting
the visits on six to 12 month
cycles and releasing the data
about three months later,
says senior account executive
Neel Pattni.
Comparison, convenience
and service use properties
are recorded as occupied,
vacant or demolished, with
vacant units counted as those
that were not trading at the
time visited. But according to
one local authority ofcer, it
appeared LDC did not count
leisure uses, including pubs
and restaurants, in the total
number of premises that
were trading last year, but
did appear to count them as
empty if these evening and
late-night establishments
were not trading when the
daytime counting took place.
As the evening and
late-night economy is worth
more than 60bn per year
and employs 1.2 million
people, according to the
MAKE/TBR Night-Mix Index,
this apparent gap is, if
accurate, a signicant miss
in this method of determining
town and city centre vitality.
Whether in response or
not, LDC is now expanding
its approach to include all
retail, leisure and shopping
centres. Previously, Pattni
says, if a shop became a
leisure use, LDC simply
registered a decrease in the
overall number of units. In
addition, LDC is introducing
Valuation Ofce Agency
oorspace data into its
analytics tools so it can report
not only the numbers of
empties but the amount of
oorspace represented.
LDCs headline index itself
is based on the shop vacancy
rates of the top 650 town
centres but uses a denition
of retail core that was last
updated in 2004. Many town
and city centres have
changed enormously since
then, leading ATCMs
Blackwell to call the LDC
gures fatally awed.
Now, however, approaches
are being rened, with a
number of proposals on the
table to update the way
boundaries are dened and
set, shops classied and
counts taken. Some
improvements could be
underway by the time this
article appears, giving more
certainty to the gures.
Even so, what is most
important is for desk-based
analysts, forecasters and
decision-makers to rely
on backward looking
statistics only up to a
point. Management of the
future is a lot more than
measurement of the past. C
Richard Dennery is Principal at
RDA Communications Strategy
richard.dennery@gmail.com
A P R I L / MAY 2 3
COMMERCI AL
VACANCY RATES
In February, LDC and British Retail
Consortium /Springboard released
quarterly gures. LDCs showed a
14.2% UK vacancy rate while the
BRC/Springboard weighted by
spend gure was 10.9%.
Springboard notes that the overall
UK average doesnt move a huge
amount from quarter to quarter, but
where movement is important is in
individual regions. The rate in Wales
increased from 15.1% in October to
17% in January and the principality
saw a 10.1% drop in footfall.
In Northern Ireland the vacancy
rate fell from 20% to 17.2%, and the
decrease in footfall was only 6.5%.
+info
C
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include TO48, T070
Further +info
Portas Pilots map
Details of the town
centres across the
country that have been
selected to be Portas Pilots

2 4 A P R I L / MAY
RI CS PROPERTY
JOURNAL
C
COMMERCI AL
PLANNI NG
Oliver Wright explains some of the implications
of recent adjustments to the planning system
A welcome change?
I
In a potentially signicant move in
time and cost, the UK government
has reduced the detail required for an
outline planning application. Scale
and layout, although matters that
could be reserved for future
determination under the outline
procedure, nevertheless involved the
submission of quite considerable detail.
These requirements were, however,
deleted under a Statutory Instrument
that came into force on 31 January.
Outline planning applications, a feature
of the system for many years, enable
developers of larger sites to obtain
planning permission for the principles of
development, leaving the design of details
until a later stage when future occupiers
emerge and a strategy evolves.
Not just a red line
In the past, an outline application meant
little more than a red line around an
application site, a specied quantum of
development and proposed use classes,
and potentially key access points.
This common practice was called into
question in 2000 in the context of
applications that required environmental
impact assessment. In the well-known
Rochdale series of cases, the courts held
that providing the bare minimum of details
was insufcient to undertake a credible
judgement about the likely signicant
efects of the proposed scheme on the
receiving environment.
In 2006, the then government extended
the new post-Rochdale approach to all
outline applications. The result was a
considerably greater level of detail
required at outline stage.
In the case of scale, for instance,
regulations required the submission of
the upper and lower limit for the height,
width and length of each building
included in the development proposed
(Article 4(4) of the Development
Management Procedure Order (DMPO)).
In the case of layout, an outline
submission needed to provide details of
the approximate location of buildings,
routes and open spaces included in the
development proposed (Article 4(3)).
Quite understandably, these
requirements led many developers and
architects to complain that as much, if
not more, design thinking needed to take
place to comply with (in the case of
scale) the parameter requirement than
the nal design of an actual building. On
schemes such as Wood Wharf and other
large redevelopment applications where
scale was applied for in outline, there was
no easy way of presenting upper and
lower limits for three-dimensional
buildings, where so many buildings were
interacting with one another. The natural
conclusion was that the outline scale and
layout requirements were defeating the
whole purpose of the outline system.
Fast track?
As readers will be aware, Communities
Secretary Eric Pickles and his
department have come under increasing
heavyweight pressure to fast-track
planning applications through the system
to get Britain building again. Statistics
published by the DCLG tend to suggest
that a large number of applications are
being held up due both to delay in
preparation and local authority cutbacks.
Many measures are emerging or
have taken hold in the past six months
designed to address this problem.
The Growth and Infrastructure Bill, for
instance, contains several notable
provisions, including: (1) the ability for
Pickles to designate certain local
authorities underperforming, and
thereby to give developers the option to
apply directly to the Secretary of State
for planning permission, avoiding the
local authority in question altogether;
(2) a complete rebalancing of the
much-debated town and village green
system, which will make it much more
difcult to register development land as
greens (the efect of which was to stymie
all development); and (3) the ability to
seek to renegotiate onerous section
106 afordable housing requirements
immediately rather than waiting for the
current statutory ve years. So, also, in
July 2012, the government consulted on
the removal of the 2006 requirements
for scale, layout and access.
A mixed response
The response to the consultation
issued by DCLG last December hardly
demonstrates unequivocal support for
the proposals. As a percentage of all
respondents, 44% expressly did not
agree with the proposal to remove
the outline requirements for layout,
while 41% did not agree with the
proposed removal of the outline
requirements for scale. Never letting
democracy get in the way of good
decisions, however, the department has
pressed ahead undaunted.
Perhaps surprisingly, with 87% support
for the proposal, the government has
decided not to proceed with the removal
of the outline application requirements
for access.
Filling the vacuum
What requirements will ll the vacuum left
by the deletion of scale and layout outline
requirements? In the case of Environmental
A P R I L / MAY 2 5
Impact
Assessment
(EIA) planning
applications (those
which exceed the various
thresholds set out in the EIA
regulations), it would seem that
the Rochdale jurisprudence is to
return to the fore. Frustratingly for
developers seeking EIA permissions, the
courts suggested approach has strong
similarities to the inexible 2006
approach, seeking clearly dened
parameters, and a level of detail to enable
a robust and credible environmental
assessment to be undertaken.
Taken optimistically, however, these
recommendations do not have the
prescription of statute and are explicitly to
be applied on a case-by-case basis by the
local authority having in mind the specic
development proposal and potentially
afected environment at hand. One can
surmise: the more environmentally sensitive
the surrounding area, and perhaps the
more environmentally damaging the
proposal in question, the more detail will
be required so that appropriate and
specic mitigation measures can be
incorporated into any permission.
In cases where no EIA is required,
however, the outline requirements appear
less clear and potentially more open.
Reference is made to the need to deliver
documents that address the relevant
authoritys local list (a list that local
planning authorities must now keep up
to date specifying what documentation
must accompany the various sorts of
applications), but these would be unlikely
to specify detailed requirements for the
substance of the documents themselves,
and arguably that would go beyond the
statutory provision in any event.
Cause for concern?
There are three matters of ongoing
concern about the proposed
amendments. First, there is a legal
inconsistency in the current amendment
Statutory Instrument, which could lead to
the current stringent outline requirements
prevailing. Article 4(4) of the DMPO,
setting out that applications reserving
scale for later determination must
include
upper
and lower
limit
parameters for all
buildings proposed,
has been deleted no
question. However, the
denition of reserved matters
(in article 2) remains untouched.
That sets out that a reserved matter,
in relation to an outline planning
permission means any of the following
matters in respect of which details have not
been given in the application (e) scale,
within the upper and lower limit for the
height, width and length of each building
stated in the application for planning
permission in accordance with article 4(4).
Without deleting that latter wording, there
is the risk that scale parameters could
persist by the back door.
Second, there is no stated intention
on behalf of DCLG to amend or update
Circular 01/06, which set out in more
detail how the 2006 outline requirements
were to be implemented and construed
by developers. Further, it discusses how
those requirements are to feed into
the preparation of Design and Access
Statements, a mandatory document
for most application submissions that
remains so after these amendments.
How Circular 01/06 will afect
applications in the future, therefore,
remains to be seen.
Finally, on a lighter note,
the amending Statutory
Instrument achieving the
deletion of scale and layout
requirements was intended to allow
a six-month period for local authorities
to revise and update their local list. So
far so good. Unfortunately the six-month
period, commencing on 31 January,
ends on 31 June, a date known only to
ction. The errant date has since been
consigned to the history books with a
further amending piece of legislation.
Overall, therefore, commercial
developers will be pleased with the
proposed deletion of the onerous 2006
parameter requirements. It should entail
less cost in drawing up the necessary
outline application documents, and
greater exibility with any permission
achieved. Caution in the initial bedding-in
period is recommended, however: how
well local authorities revert back to the
Rochdale world will doubtlessly follow
some peaks and troughs. C
Oliver Wright is a Solicitor in the Planning
Group at Forsters LLP
oliver.wright@forsters.co.uk
C
Related competencies include
T061
Further +info
2 6 A P R I L / MAY
RI CS PROPERTY
JOURNAL
C
COMMERCI AL
DI SPOSALS
Iain Macfarlane on Land Registry
practice on disposals by receivers
A new
approach
Recent changes to Land Registry policy and procedures will
make it easier in future for xed charge or LPA receivers to
execute transfers of property in England and Wales that
would not previously have been accepted for registration. As
well as beneting the receivership and insolvency community,
these changes introduce greater clarity and certainty for
investors looking to buy distressed assets from receivers.
On 19 September 2012, the Land Registry published a new
practice guide on dispositions (whether by freehold transfer,
assignment or grant of a new lease) of registered land by
LPA receivers. The term LPA receivers is intended to cover
all receivers, whether appointed by the lender under the
provisions of a xed charge by way of legal mortgage, or
receivers appointed under the relevant provisions of the Law
of Property Act 1925. The new practice guide provides a new
approach to what has often been a troublesome process.
In particular, receivers have encountered difculty when the
charged property is held jointly by two individuals, and in those
circumstances it has usually been necessary to procure a
transfer executed by the mortgagee under its power of sale.
For investors with little familiarity with insolvency processes,
the Land Registrys new guidance usefully identies in a single
place the principles applicable to LPA receivership transactions.
The need to involve the mortgagee to complete the sale
appears to be a problem of the past.
Background
The starting point is to analyse the nature of a receivers
powers. Save for the limited powers arising under statute, which
do not include a power of sale, these derive from the mortgage
deed itself. The mortgage will routinely contain a power of
attorney in favour of a
receiver appointed by a
mortgagee, and the Land
Registrys former position
was that receivers executing
a transfer in the name of
individuals were acting
under a power of attorney,
whether or not that was
expressed to be the case in
the relevant transfer.
In any application afecting
registered land, the Land
Registrys only concern is in
relation to the legal interest
held by the owners and
any underlying benecial
interests play no part in the
process. Where two or more
owners hold land jointly, they
hold their legal interest as
trustees. It is important to
a purchaser to know that
they will acquire title to the
property free of any
underlying benecial interests
and the Law of Property Act
1925 provides for such
interests to be overreached
where property is conveyed
by two or more trustees,
thus ensuring that the
purchaser acquires a clean
title free of claims by any
trust beneciaries.
Powers of attorney
While a disposal of the
property by joint owners
acting together is
straightforward, problems
arise where another party
is acting on behalf of the
owners. The reason is that
the Trustee Delegation Act
1999 places limitations on
what the donee of a power
of attorney can do in the
exercise of a trustee function
in relation to land; the relevant
trustees (the joint owners)
must each have a benecial
interest in that land at the
date of transfer, and an
appropriate statement
certifying the existence of the
benecial interests is required.
The Land Registrys former
approach was that a receiver
acts as the donee of a power
of attorney, which made the
1999 Act an insuperable
R
A P R I L / MAY 2 7
COMMERCI AL
DI SPOSALS
obstacle for receivers in many
cases they will simply not
have sufcient information or
control to certify the trustees
respective benecial interests.
Wrongful certication could
constitute perjury.
Until September 2012, the
Land Registry has strictly
followed the application of the
1999 Act and where a transfer
of land by a receiver held by
joint tenants was produced
for registration, it required
sight of the appropriate
statement conrming the
benecial interests held
and for the transfer to be
executed by two receivers.
Since 1 March 2000,
when the 1999 Act came into
force, this requirement has
caused many issues for
both receivers and their
solicitors. Receivership sales
typically exclude all seller
representations, warranties
and title guarantee, placing
all transactional risk on the
buyer, which can be daunting
for purchasers (or their
solicitors) who are unfamiliar
with the principles of
receivership. Therefore, if
the receivers solicitor
overlooked a problem with
execution of a transfer and
the purchasers solicitor did
not spot it, the problem often
only came to light when the
Land Registry rejected the
application for registration.
In practice, the approach
taken by the receivers, the
appointing bank and their
solicitors has been to require
the bank to execute the
transfer in favour of a
purchaser. Although often
seen only as an administrative
headache, in reality this
workaround detracts from
the benet of appointing a
receiver in the rst place
the ability for the appointing
bank to take a step back from
the transaction.
Agency analysis
It is now accepted that, if the
mortgage confers a specic
right to sell or otherwise
dispose of the mortgaged
property, there is a general
power of agency in favour
of the receiver, who may
simply execute the transfer
on behalf of the joint owners
rather than as attorney.
The receivers normal ability
to act as agent of the owner,
or under a power of attorney
arising under the mortgage,
does not survive winding-up
or bankruptcy. However, it was
accepted previously by the
Land Registry (as a result of
the decision in Barrows v
Chief Land Registrar) that
the powers under the
mortgage for the receiver
to hold and to dispose of the
property and to act in the
name of the mortgagor derive
from the legal charge itself
and survive liquidation. The
Land Registrys view
previously was that this
decision was conned to
companies, but Practice
Guide 36A now expressly
acknowledges that the
principle is capable of applying
in relation to individual
insolvency situations.
The reason the agency
analysis overcomes the
obstacle in the 1999 Act
referred to above is contained
within the Act itself. The
problem with attorneys acting
on behalf of trustees only
arises in relation to trustee
powers. However, section 1
provides that the donee of a
power of attorney is not to be
regarded as exercising a
trustee power if acting under
a trustee delegation power,
which includes a power of
attorney given under a
statutory provision. One such
statutory provision is section
11 of the Trustee Act 2000,
which provides that trustees
may authorise any person to
act as their agent. Land
Registry policy now accepts
that receivers can be deemed
to be acting on behalf of the
borrower (trustee) under a
general power of agency,
hence the solution.
Joint receivers
In a receivership situation,
it is prudent for the mortgagee
to appoint joint receivers so
that one can act in the
absence of the other. This is
important also for Land
Registry purposes where
property is held by two or
more individuals and there
is a Form A restriction on
the title, preventing registration
of a transfer or other
disposition by a sole
proprietor where capital
money arises.
Even though the Land
Registry accepts that the
receiver may validly execute a
transfer on behalf of joint
owners, it will still look for
evidence that benecial
interests have been validly
overreached before removing
the Form A restriction.
The Land Registrys new guidance
usefully identies in a single
place the principles applicable
to LPA receivership transactions

Iain Macfarlane is a
Real Estate Partner at
Simmons & Simmons
iain.macfarlane@
simmons-simmons.com
Section 27 of the Law of
Property Act 1925 requires
the capital money to be
paid to at least two persons,
and this requirement is not
satised if one individual
receiver is acting on behalf
of both joint owners.
Conclusion
While there is no commentary
provided by the Land Registry
to explain the background
to the change, the Land
Registrys new Practice
Guide 36A signals a change
in policy that is of assistance
to receivers, their appointing
banks and to purchasers.
The number of occasions
when a purchaser or receiver
needs to ask that the
appointing bank execute the
transfer will be signicantly
reduced. Purchasers can
look to the new guidance
for greater comfort that they
will not be in a situation
where they have completed
on a purchase and are left
with a transfer they cannot
register and no recourse
against the receivers.
The position on Form
A restrictions is not
straightforward. Even though
receivers will be able to
execute transfers that
will be accepted for
registration by the Land
Registry in a wider range of
circumstances than previously,
a well-advised purchaser
will want to ensure that a Form
A restriction can be removed
from the title without
complications. For that to
happen, the purchaser
will insist on execution by
both of the joint receivers
so that the purchase price
can be shown to be paid to
two individuals. Although
an additional hurdle, this
is still less of an obstacle
than having to involve
the mortgagee. C
C
Related competencies include
T020
Further +info
2 8 A P R I L / MAY
TAXING
TIMES
RI CS PROPERTY
JOURNAL
C
COMMERCI AL
TAXI NG TI MES
C
Related competencies
include TO89
Further +info
Lorraine Parkin is Head of
Indirect Tax at Grant Thornton
UK LLP
Lorraine Parkin details a welcome change of VAT policy by HMRC
I
n November
2012, HM
Revenue &
Customs
(HMRC)
accepted
that its
policy has been incorrect in
relation to the transfer of a
property business as a
going concern. The policy
essentially stipulated that if
the transferor retained any
interest in the property the
transfer would not fall to be a
transfer of a business as a
going concern (TOGC) and
outside the scope of VAT.
Test case
HMRCs position was tested
recently at the First-tier
Tax Tribunal in the case of
Robinson Family Ltd [2012]
UKFTT 360 (TC). For legal
reasons, the transferor, who
occupied the property in
question under a head-lease,
was unable to assign its
interest to the transferee.
Instead, it granted a sub-lease
for a term equal to its
head-lease save for three
days. The company treated
the transfer as a TOGC but
HMRC stated that, as the
transferor had not disposed
of its interest in the property
and had merely created a new
interest (the sub-lease), the
transfer could not be treated
as a TOGC.
The First-tier Tax Tribunal
looked at the economic reality
and conrmed that, in the
circumstances, taking a
substance-over-form
approach, there had in fact
been a transfer of a property
letting business. When viewed
on an objective basis, the
transferee was to carry on
the same property letting
business as that previously
carried on by the transferor.
In essence, the Tribunal
held that it was of no
relevance that the transferor
retained a small reversionary
interest in the property and
that the interest held by the
transferee was diferent from
that of the transferor. All
other conditions having been
met, the transfer was that
of a going concern.
Narrow
interpretation
The decision was quickly
followed by HMRCs Revenue
& Customs (R&C) Brief 30/12
on 16 November, in which it
conrmed that it would not be
appealing against the First-tier
Tax Tribunals decision. Having
considered, HMRC now
accepts that its previous policy
was incorrect and that, going
forward, a TOGC can take
place even if a transferor
retains an interest in the
property being transferred.
However, HMRC puts a
narrow interpretation on
the level of interest that can
be retained and indicates that
possible TOGC treatment
will only be available where
this is sufciently small. The
brief sets a limit of 1% of the
value of the property and
states that TOGC will not
apply to transfers where
this limit is breached.
It is not clear to me where
this 1% de minimis gure
arises from. It seems to miss
the point being made by the
Tribunal. As the Tribunal set
out in its decision in Robinson
Family Ltd, it is the substance
of the transaction that
matters when determining
whether or not a business
has been sold as a going
concern. I suspect we may
see more litigation given
HMRCs narrow interpretation.
Retrospective
application
Having acknowledged that its
policy was incorrect, HMRC
accepts that there may have
been situations in the past
where, in light of the existing
policy, certain property
transfers may have been
treated incorrectly. In such
circumstances, VAT will have
been charged by the
transferor in relation to the
supply of the property in
question. In the majority of
cases, it is likely that the
transferee will have opted to
tax and will have, therefore,
reclaimed the VAT charged.
Nevertheless, there might
be a few situations where it
could be advantageous to
seek a retrospective VAT
adjustment. For example, a
cash ow benet might be
gained if VAT has been
incorrectly charged but not
yet repaid to the claimant.
More crucially, the transferee
is also likely to have paid
stamp duty land tax (SDLT),
which is based on the VAT
inclusive purchase price of
the property. Revenue &
Customs Brief 30/12 conrms
that, in such cases, HMRC
will consider any claims for
overpaid VAT and SDLT.
However, details on how any
overpaid SDLT can be
reclaimed are sketchy.
HMRC is to issue further
guidance on this in due
course. In brief, a claim for
overpaid SDLT can normally
be made within 12 months
of the ling date for the return
in question. Where the
12-month period has passed,
it is much less clear whether
a claim would be accepted
by HMRC.
Ordinarily, overpayment
relief is not due if the original
SDLT liability was calculated
in accordance with the
practice generally prevailing
at the time. We await HMRCs
guidance, but consider that
it would be harsh in the
extreme if, in the
circumstances, HMRC
refused to make a refund.
C
Nevertheless, there might be
a few situations where it could
be advantageous to seek a
retrospective VAT adjustment

R E S I D E N T I A L
R
den
tial
resi
RI CS PROPERTY
JOURNAL
A P R I L / MAY 2 9
R
Images Phil Parnham
RI CS PROPERTY
JOURNAL
3 0 A P R I L / MAY
Newly built and renovated residential
properties have to meet Building
Regulations. These standards are set
down in many approved documents and
supporting publications. Because of their
increasing complexity, many practitioners
nd it difcult to keep up to date with the
legislation. Additionally, because most
properties inspected were built before
the existence of the rst edition of the
national Building Regulations, many
residential practitioners do not see the
comparison with the current regulations
as relevant. This attitude is not
appropriate for a number of reasons:
b regulations increasingly apply to
everyday maintenance and repair work
b not recognising that Building
Regulations apply to parts of buildings
that have been changed can leave
practitioners vulnerable to legal challenge
b keeping up to date with regulatory
changes can help practitioners refresh
their technical knowledge in a rapidly
changing world.
As we focus on a number of typical
regulatory issues encountered during
Condition Reports, HomeBuyer Reports
and Building Surveys, we will not try to
turn you into building control surveyors,
N
In the first of a series of articles focusing on regulatory issues
encountered when completing RICS Condition Reports,
HomeBuyer Reports and Building Surveys, Phil Parnham
and Stuart Smith look at loft conversions in homes
Lofty
ideals
RESI DENTI AL
SURVEYS
but rather to inform your daily work.
Looking at the assessment of loft
conversions in domestic dwellings, our
experience suggests that many
practitioners are still using out-of-date
regulations abolished in 2007.
Below, we highlight the critical issues.
The nal judgement is yours.
Is it a loft conversion?
Many older properties have rooms within
what would otherwise be the roof space.
Where they have existed for decades
(and certainly before 1965), its suitability
should be assessed using common-sense
criteria, e.g. safety and usability. Although
the Building Regulations standards can
be used as a benchmark, they should not
be applied too strictly.
Where the space is clearly the result of a
more recent conversion, the rst step is to
ask the vendor or their agents if the project
has approval under Building Regulations.
The nal completion certicate can
conrm that it was properly signed of. Two
actions may then be appropriate:
b if the vendor shows you certicates
suggesting the conversion has full approval,
your inspection should focus on making
sure it broadly conforms to the expected
standards and has not been changed since
(for example, doors removed or self-closers
disabled). You should also recommend
that your clients legal adviser conrm the
validity of the approval
Look for obvious problems with
loft conversions. Opening these
windows would result in a characteristic
aroma in the bedroom
1
A typical example of a poorly
constructed loft conversion, likely
to be well below current standards.
The client should be given clear warnings.
Bringing this space up to a safe, usable
standard would be costly

2
Where a room in the roof has existed
for many decades, comparing it to
current standards can be helpful.
These existing stairs are not as safe as
modern ones. Make this clear to your client

3
A P R I L / MAY 3 1
RESI DENTI AL
SURVEYS
b if the vendor cannot show Building
Regulations approval, emphasise this in
your report as a very serious matter. If the
conversion includes spaces that inuence
the value or marketability of the property,
the cost of bringing it up to standard may
be considerable. Your inspection should
then identify how far below the current
standards the conversion is likely be (in
broad terms), so your client can make an
informed decision.
Your subsequent inspection should
concentrate on the most important issues:
b that the loft conversion is stable
b that there is safe escape in the
case of re
b that the stairs are safe to use
b that the spaces are thermally
insulated
b that there is reasonable sound
insulation between the conversion
and the rooms below.
This does not include everything, but will
put your client in the right ball park.
In some parts, we have identied
chronological changes in the regulations to
show how the requirements have altered
over time. Some loft conversions met the
regulations at the time of the work but fall
below todays standards. Depending on the
circumstances, this does not mean the
work should be condemned or brought up
to the current standards, but the client
should be informed that, although
authorised at the time, it now falls below
current requirements.
Stable structure
Structural stability is an obvious
requirement and the loft conversion
should not weaken the existing structure.
For example, trussed rafters, lateral
bracing, purlins and any ceiling ties must
not have been altered without specialist
advice and calculations. If you can get
into the remaining roof spaces, look for
structural components abruptly cut of
or unusually altered.
Floors must have adequate joist sizes
and be properly supported on other
load-bearing elements below. A few tips:
b always carry out the heel drop test
in the middle of each room/space to see
if the oor vibrates excessively, and use
your spirit level to look for sloping oors
b if you can look into remaining roof
spaces, how big are the oor joists to the
rooms? If they are 50mm x 200mm or larger
they are probably okay, but the closer the
ceiling joist size gets to 50mm x 75mm, the
louder the alarm bells should ring
b check for sloping ridgelines and
dishing roof slopes from the outside.
The cheeks to any dormer windows must
be properly supported, so look for signs
of deection and/or damage along either
side of the opening.
Safe escape in case of re
There is a range of issues to consider, but
here are a few nuggets:
Separating oors
In bungalow loft conversions, a
modied half-hour re resistance to
the rst oor is normally acceptable.
This usually means a oor construction
with a 9.5mm plasterboard and 5mm
skim ceiling. In two-storey house loft
conversions, the new oor must be full
half-hour re resistant (usually 12.5mm
plasterboard with 5mm skim), including
any supporting steelwork.
In most cases, the existing rst oor
landing area may need to be upgraded.
Over-boarding the oor with hardboard
usually achieves this.
Carpets and other oor coverings will
usually conceal most of this constructional
detail, but you should expect to see a new
ceiling below the loft conversion. If it looks
like the original lath and plaster (for
example, it is uneven and cracked), it is
unlikely to comply.
The new room(s)
Many loft conversions built before 2007
may have Building Regulations approval,
but will not meet current requirements.
Before April 2007, the new second-oor
room should have been:
b separated at the top or bottom of
the new stair by a re-resisting enclosure
and self-closing re door
b the existing stair should be within a
re-resisting enclosure and discharge to
a nal exit or give access to alternative
exits at ground-oor level
b existing doors to habitable rooms
should be tted with self-closing devices
b existing or new glazing within
the staircase enclosure should be
re resistant
b the new room(s) should have an
escape window sited no more than
1,700mm up the roof slope from the
gutter and internally between 600m and
1,100mm above the oor level to allow
occupants to escape by ladder.
As an alternative to the above, where
there is no suitable escape window, all
doors opening into the protected
enclosure should be self-closing re
doors, except those serving bathrooms
and toilets, and the enclosure should lead
directly to a nal exit at ground-oor level,
or into a re-protected enclosure that
leads to alternative exits separated by
re-resisting construction.
Approved Document B was revised in
April 2007, bringing signicant changes
and treating loft conversions the same as
A closer view of
the loft room. The
stairs are not that
safe. The opening is
not guarded and it is
unlikely the floor will
come up to standard

R
RESI DENTI AL
SURVEYS
RI CS PROPERTY
JOURNAL
3 2 A P R I L / MAY
new three-storey homes. As a result, more
onerous conditions apply, requiring the
formation of a re-resistant protected
escape route from the loft to the dwellings
nal exit, to prevent occupants being
trapped in a re. The changes include:
b the escape window option at
second-oor level was withdrawn,
because rescuing a neighbour on
a rickety ladder during a re was
considered too dangerous. The main
solution is now a protected escape route
from the new storey to the nal exit point
b self-closing devices are no longer
required, but all doors that open onto
the protected staircase, including those
to existing rooms (although not normally
those serving bathrooms and toilets),
must be re-resisting. In listed buildings,
existing doors may have been upgraded,
but will still feel substantial when opened
and closed. Doors may also have an
intumescent strip set into the frame/lining
b generally, the staircase cannot
discharge into an open-plan ground-
oor space. Most authorities will ask
for a protected staircase through to the
nal point of exit. Where an open-plan
arrangement is retained, a domestic
sprinkler system should be installed
along with a number of other provisions
b every habitable room in bungalow
loft conversions should have an escape
window, or a protected route should be
provided from the new rst-oor level.
There is no minimum headroom for loft
conversions in the Building Regulations,
but environmental health standards and
reasonable headroom for means of
escape in case of re should be
considered. Normally, 2m would be a
reasonable minimum, apart from some
straight staircases where a reduced
height may be acceptable (see below).
Safe staircases
Since 1992:
b it is acceptable to use a xed ladder
or an alternating tread stair in a loft
conversion where there is just one
habitable room and a conventional
stair would not t. Non-slip treads
and handrails on both sides will make
them safer to use
b retractable ladders and spiral
alternating tread stairs are unacceptable
b it is acceptable to have slightly reduced
headroom on loft conversion stairways:
1.9m above the centre of the stair pitch
line and as low as 1.8m at the side.
For more information on stairs, see
Part K: Protection from falling, collision
and impact, 1998 edition incorporating
2010 amendments.
Thermal insulation
Part L of the Building Regulations
has applied to loft conversions since
2006. This is important, because many
substandard loft conversions are
virtually unusable during the colder
months. It is difcult to assess the
adequacy of the thermal insulation
without ripping plaster from the ceiling,
so here a few signs to look for:
b thickness of construction: in most
situations, it is impossible to t enough
ventilation space and insulation within
the depth of most standard rafters.
Therefore, expect to see very wide
reveals around roof windows. The cheeks
of dormers should be at least 100mm-
120mm thick. (Some building control
bodies may also accept the use of thin
foil-based insulation material, which may
reduce the thickness considerably.)
b ventilation to the roof space: we look
for ventilation grilles at the eaves/soft
and at ridge level. However, where the
whole roof slopes have been recovered
and breathable felts used, ventilation may
not be required, so keep an open mind
b if you can get into the remaining roof
spaces, you should see insulation to the
rear of stud partitions.
A 100mm thickness of mineral wool
insulation alone will not meet the new
requirements, so expect to see rigid foam
insulation in most locations.
Sound insulation
Part E of the Building Regulations deals
with sound resistance. In most cases, this
has applied to conversions, extensions
and new builds since April 2003, but
there is no regulatory requirement for
sound insulation in loft conversions.
However, it is good practice to increase
the sound resistance to avoid future
neighbour issues and make the space
satisfactory to use. Here are a few typical
improvements:
b where there were no party walls to
begin with, new ones should comply
with Part E
b if the party wall is one-brick thick
masonry or a standard cavity wall, a layer
of 15mm plasterboard should be enough
b if the wall is only 100mm thick, an
independent stud partition with a couple
of layers of plasterboard and insulation
quilt is the most common solution.
All these are difcult to identify from a
visual inspection, so look for robust dry
lining as a minimum.
For internal walls between the diferent
rooms and spaces on the conversion, a
stud wall with 15mm plasterboard either
side with an insulation quilt in the middle will
usually be good enough.
For the oor of the loft rooms,
the re-resistance improvements will
usually improve the sound insulation
and include a 100mm-thick quilt and a
oorboard of 22mm thickness. You might
be able to see some of this in adjacent
loft space. If not, expect a solid reaction
to the heel drop test. With thick chipboard
on oor joist packed with insulation quilt,
your heels should give of a dull thud with
little vibration.
Other standards apply, including
certicates for all the electrical work (Part
P) and ventilation requirements (Part F), but
this is scope for another article. R
Phil Parnham MRICS is a Chartered
Building Surveyor and a Director of
BlueBox Partners; Stuart Smith MRICS
is a Chartered Building Control Surveyor
and Head of Recruitment in the Faculty
of Development and Society at Sheeld
Hallam University
phil.parnham@blueboxpartners.com
s.d.smith@shu.ac.uk
C
Related competencies include
T006, T044
Further +info
The best source of information on the
Building Regulations is the planning
portal at www.planningportal.gov.uk,
which includes all the approved
documents that support the
regulations, as well as interactive
features. We nd the Common
projects series of articles the most
useful, outlining the permissions
required for a variety of repairs and
alterations. Some councils, such as
Forest of Dean and East Devon
District Councils, have their own
detailed online guides, but these can
reect their own interpretation of the
regulations and are not necessarily
accepted by all councils.
More information

R
The key to investment growth in
the build-to-let sector is getting the
Montague Reviews recommendations
on planning right and getting them
implemented, says Ian Fletcher
Call for
action
RESI DENTI AL
HOUSI NG DELI VERY
RI CS PROPERTY
JOURNAL
M
any communities are struggling to provide
housing for young people those who
cannot access mortgage nance or do not
want to in uncertain economic times, and
will never be at the top of the priority list
for social housing.
The recent Montague Review of housing
investment, the result of Sir Adrian Montagues examination of
barriers to investment in the private rented sector (Department
for Communities and Local Government, August 2012), is
therefore not some esoteric policy exercise, but an important
review that seeks to establish how institutional investment can
support the delivery of what our sector might call build-to-let:
quality new-build accommodation at market rents.
The report makes ve recommendations, four of which focus on
local authorities. It is sometimes easy to forget that housing delivery
decisions as to the type, location and quantity are made mainly
at local, rather than national, level.
Planning support
If build-to-let is to be delivered in scale, local authorities must
have condence in it and support it. The rst of the review
recommendations focuses on planning. Countrywide, planning
ofcers and councillors on planning committees want to have
clarity on how to treat build-to-let. Lack of clarity leads to
indecision and inertia.
The review does not suggest any sort of general abolition of
afordable housing requirements, but it does recommend that
build-to-let be treated diferently from accommodation for market
sale. The viability for an investor seeking income and willing to tie
up capital for 10 to 20 years will be diferent to a housebuilder tying
up capital for short-term prot. As the review expresses: In many
cases, it will be appropriate for authorities to waive afordable
housing requirements in relation to schemes for private rental, or to
the private rental component of larger schemes also including an
owner occupier component. Local authorities therefore remain in
the box-seat when it comes to controlling whether they want to
ask for afordable housing and their requirements.
The review further suggests that the need for private rented
accommodation should be better reected in local planning and
that planning conditions on build-to-let developments should be
applied, restricting its use for renting for 10 to 20 years.
Practically, this is necessary to stop stock built for rent being
ipped into home ownership to avoid afordable housing
requirements, but it has other important implications about how
build-to-let might be valued if there are restrictions on its use.
Quality assurance
The review challenges other accepted orthodoxies. Successive
governments have pursued a mixed-tenure policy, but build-to-let
works best with single tenure. And large-scale single tenure
housing only works where it is designed and managed well. Local
councillors, in particular, will want assurance that the build-to-let
will meet good management standards. Montague therefore
suggests a simple kitemark of quality assurance, building on what
exists rather than adding yet more standards. As well as inspiring
condence in local politicians, such assurance should also ensure
that build-to-let includes diferent housing-management models.
To further support local authorities, the report also suggests
that a small task force of public and private expertise be formed
for local authorities to tap into during development negotiations.
Big city authorities have the expertise to look after themselves,
but smaller district or borough councils may welcome some help.
Build-to-let must compete with other forms of housebuilding and
needs fair access to public-sector land. As local authorities are by
far the biggest land source, there is concern that a long-term,
income-driven model for delivering housing does not sit
comfortably with the concept of best value and the almost instant,
one-of windfalls that local authorities often get from selling
housing on the open market. The review is probably at its most
woolly on this aspect, suggesting that: In order to set the model,
value for money in these projects should be considered in the round
in order to test whether best value, and not just the highest cash
consideration, can be achieved. Depending on the outcome, this
approach could then be applied more widely.
One private sector-focused recommendation in the review
concerns nancial support from the government. One of
the most signicant challenges for institutions seeking to
invest in build-to-let developments is sourcing sufcient,
quality, purpose-built stock. The fact that the government
recognises a need to prime the market is therefore welcome.
The 200m of equity funding it is making available could help
support 10 to 20 schemes, or more if funding is recycled. The
results of a procurement exercise should be known soon.
The rules for accessing the governments 10bn of debt
guarantees have also been issued, and a procurement exercise
launched to nd an intermediary through which these will be
distributed (www.gov.uk/government/news/next-steps-for-10-
billion-housing-guarantees).
Overall, the review reects unprecedented interest in build-to-let
from politicians, matched by extraordinary market interest from
investors, developers and housing associations. But interest does
not equate to action. I believe that if we are to see signicant
build-to-let development growth to meet needs, the key is to get
the review recommendations on planning right, and to get them
implemented. The Greater London Authority has led the way, with
Novembers supplementary planning guidance on housing in
London. It is important that national government follows. R
Ian Fletcher is Director of Policy (Real
Estate) at the British Property Federation
and sat on the Montague Review Group
ietcher@bpf.org.uk
C
Related competencies include
T041, T061
Further +info
A P R I L / MAY 3 3
R
Image Alamy
3 4 A P R I L / MAY
RI CS PROPERTY
JOURNAL
James Wilson examines the Upper Tribunals adoption
of the comparable method of valuation in leasehold reform,
with adjustments including relativity and Act rights
RESI DENTI AL
LEASEHOLD REFORM
Considering
all factors
T
he comparable method of valuation is an
established tool in the valuers armoury to
reach opinion of market value. Here, we
examine how the Upper Tribunal (UT) applies
the method to meet specic requirements in
leasehold reform.
It is beyond the scope of this article to set
out the various bases of price and premium computation in
leasehold reform. But the valuer must be aware that the freehold
vacant possession, corresponding share of freehold or 999-year
lease and, where marriage value is payable, new and existing lease
values are required.
Analysis of comparable sales
A comparable can be broadly dened as an item used during the
valuation process as evidence in support of the valuation of a
diferent item of the same general type... [RICS Comparable
evidence in property valuation information paper, 1st edition].
For any evidence to be regarded as comparable evidence, it
needs to be comprehensive (ideally a number of transactions);
very similar; recent; arms length, open market; veriable; and
consistent with local market practice.
Adjustments and weighting
In the case of The Earl Cadogan v Farrokh Faizapour & John
Stephenson [2010] UKUT 3 (LC), a collective enfranchisement in
prime central London, the UT categorised adjustments as follows:
Non-physical factors:
b time, interpreted as market movement from the sale date of the
comparable to the valuation date, by applying an appropriate index
b lease length relativity.
Physical factors, which include:
b condition improvements and disrepair
b location, position
b lateral layout (a typical example is a at in a converted house
across two buildings as opposed to one)
b oor, gross internal area, number of bedrooms
b outside space, i.e. terrace, garden.
The UT has stated that it prefers the adjustments for
non-physical factors (time and lease length relativity) to be
made rst, followed by those for physical factors.
The nal end adjustment, if applicable, is that to be made for
Act rights, also known as the benet of the Act (referring to the
Leasehold Reform Act 1967 and Leasehold Reform, Housing and
Urban Development Act 1993). See The benet of the Act
(opposite). Having made all of the adjustments, the valuer attributes
weight to each. This is also referred to as a hierarchy of evidence;
that is to say, an opinion is expressed as to whether the sales
analysed are to be attributed equal weight or weighted in favour
of one or more. In any event, the weighting will add up to 100%.
In Earl Cadogan v Betul Erkman [2011] UKUT 90 (LC), a case in
prime central London (referred to as 42 Cadogan Square), the UT,
having made the adjustments to the three comparable sales
analysed, went on to attribute weight to each as follows: 70%, 20%
and 10%, to a total of 100%. The UT adopted the same approach in
The Earl Cadogan (and others) v Cadogan Square Ltd [2011] UKUT
154 (LC) (referred to as 38 Cadogan Square), where it set out its
decision in tabular form (see Table 1). The adjusted weighted
average value of 884/sq ft is then applied to the gross internal
area of the property to give the capital value.
Lease length relativity
What is relativity? In the context of statutory valuations under
leasehold reform legislation, leasehold relativity is the value of
a dwelling held on an existing lease divided by the value of the
same dwelling in possession to the freeholder, expressed as a
percentage (Leasehold reform: graphs of relativity, RICS
Research, October 2009).
The following capital values are required, each where applicable:
b either the freehold or corresponding share of freehold
or 999-year lease value to value either the freeholders or
landlords interest
b either the freehold or new lease value, coupled with the
corresponding existing lease value to calculate the marriage value.
Freeholders and landlords interests
Generally, when house enfranchisement claims are considered
under the Leasehold Reform Act 1967, freehold interest
comparable sales are analysed and relativity is not an issue.
However, under the Leasehold Reform, Housing and Urban
Development Act 1993 (the ats legislation), invariably the
comparable sales analysed are leasehold properties, and in
such cases relativity can be an issue.
In 42 Cadogan Square, the UT determined the following
relativities between freehold and long lease values:
b 100 to 114 years 98%
b 115 to 129 years 98.5%
b Above 130 years 99%.
Marriage value
Generally, valuers are rst introduced to the concept of marriage
value (also called synergistic value in commercial property) in
surrender and renewal valuations for commercial premises.
The same valuation principles apply in leasehold reform.
In short, marriage value is that released by the coalescence
(merging) of two or more interests in its simplest form, of the
freehold interest with the leasehold interest to which it is subject.
A P R I L / MAY 3 5
RESI DENTI AL
LEASEHOLD REFORM
The marriage value computation is required where the existing
lease term is 80 years or less. To calculate the marriage value,
the following capital values are required, each where applicable:
b either the freehold or share of freehold or 999-year lease value
b the new lease value (see above and 42 Cadogan Square)
b the existing lease value.
Relativity the existing lease value
Marriage value being payable per se is a contentious issue,
doubly so when it is understood that a comparatively small
change (either increase or decrease) to the existing lease value
can result in an appreciable change in the enfranchisement price
or premium. Where marriage value is payable, the tenant
(claimant lessee) is required to pay 50% of it.
Guidance on the approach to existing leases (save those with
very short unexpired terms) is given in Nailrile Ltd v Earl Cadogan
[2008] LRA/114/2006. The UT nds: In such circumstances, in our
view, it is necessary for the tribunal to do the best it can with any
evidence of transactions that can usefully be applied, even though
such transactions take place in the real world rather than the no-Act
world. Regard can also be had to graphs of relativity.
The no-Act world
When valuing the existing lease to calculate the marriage value,
the statutory assumption is that the tenant has no right to acquire
either the freehold interest or a new lease. That is not to say there
is no Act (the legislation giving tenants rights either to enfranchise
or to take a new lease), it is that those rights are not available to
the tenant. They are, in efect, sitting in a no-Act world bubble.
The benet of the Act (Act rights)
A lease granted with an original term of more than 21 years is a
qualifying lease within the meaning of leasehold reform and the
tenant can exercise the rights granted under the legislation.
Accordingly, the sale price will include an element attributable
to rights in leasehold reform. In the knowledge that they have
rights to either acquire the freehold interest or a new lease,
purchasers of a leasehold property will fundamentally pay more
for that interest than they will pay for the same property on a
corresponding lease with no such rights. Not only is it important
for the valuer to understand the concept of Act rights, but also to
be aware that those rights can be assigned to an incoming
purchaser of the leasehold interest.
So, when the valuer analyses sales of leasehold interests,
following the approach in Nailrile, to reach the existing lease value
for the marriage value computation, an adjustment for the benet of
the Act is required and it is made as an end adjustment, after the
adjustments for non-physical factors and physical factors.
How to quantify the adjustment for Act rights
In the RICS Research Leasehold reform: graphs of relativity
document, the graphs are categorised into three sections:
prime central London, Greater London and England, and
published research.
In 38 Cadogan Square, the UT adopted an approach to
quantifying and calculating the adjustment for Act rights by
reference to the Savills (2002) enfranchiseable schedule, published
research, and the John D Wood & Co/Gerald Eve (1996) graph,
prime central London.
In 38 Cadogan Square, the valuers had referred to both of the
above. The Savills (2002) enfranchiseable schedule represents
relativities for leases with Act rights, whereas the John D Wood &
Co/Gerald Eve (1996) graph excludes any rights. The UT analysed
the diference between the two to reach the adjustment for Act
rights for varying unexpired terms.
An example of the adjustment for Act rights (the benet of the
Act), based on a 15-year unexpired term, is set out below:
Savills (2002) enfranchiseable schedule relativity: 50.9%
John D Wood & Co/Gerald Eve (1996) graph relativity: 35%
50.9% minus 35% = 15.9%
15.9% divided by 50.9% = 31.2%, say 30%.
Accordingly, the end adjustment to be made for the value of Act
rights for the 15-year term is a deduction of 30%, which in turn,
when applied, gives the existing lease value with no rights for the
marriage value computation.
Further cases on relativity and Act rights
b Shoa & Another v Nikoltseva & Another [2012] UKUT 73
(LC), new lease claim in prime central London, 69.82 years:
UT determined Savills 2003 (2002 graph) discounted by 2.5%
for Act rights
b Coolrace Ltd (and others) [2012] UKUT 69 (LC), ve new
lease claims in West Midlands, 63.67 years: UT determined
LEASE graph
b Midland Freeholds Ltd [2012] UKUT 296 (LC), new lease
claim in West Midlands, 62 years: UT determined LEASE
graph following Coolrace
b Trustees of the Sloane Stanley Estate v Charles Carey-Morgan
[2011] UKUT 415 (LC) (referred to as Vale Court), collective
enfranchisement in prime central London, 4.74 years: UT
determined net rental value, capitalised applying dual rate tables.
Leasehold reform is a specialist eld in residential valuations.
Valuers should be aware of the basic principles, although they
may not practise in the eld. The UT has set out how the
comparable transactions method of valuation is to be adopted
in analyses of sales. Its view, and the principles of relativity
and the value attributable to the benet of the Act, should be
well understood.
R
James Wilson MRICS is head of valuation at
W.A.Ellis and co-author of Leasehold
enfranchisement explained, RICS Books
jwilson@waellis.co.uk
ADDRESS ADJUSTED
VALUE
(/SQ FT)
WEI GHTI NG
(%)
ADJUSTED
WEI GHTED
VALUE
(/SQ FT)
FLAT 1, 11 CADOGAN SQUARE 1, 041 10 104. 10
G&B, 21 CADOGAN SQUARE 766 15 114. 90
G&B, 21 CADOGAN SQUARE 937 12. 5 117. 12
FLAT E, 30 CADOGAN SQUARE 921 10 92. 10
FLAT 1, 44 CADOGAN SQUARE 937 17. 5 163. 97
FLAT 1, 58 CADOGAN SQUARE 777 17. 5 135. 97
FLAT 10, 78 CADOGAN SQUARE 890 17. 5 155. 75
TOTAL 100% 883. 91
WEI GHTED
AVERAGE, SAY
884/SQ FT
Table 1
C
Related competencies include
T048, T083
Further +info
RI CS PROPERTY
JOURNAL
The first confirmed UK cases of ash dieback disease early last year highlighted
how increasingly vulnerable our native trees are to threats from beyond our
shores. Jeremy Barrell reviews the practical measures surveyors can take to
buffer the inevitable adverse impacts on fragile rural and urban environments
RESI DENTI AL
ASH DI EBACK
Trees
under
siege
A
sh dieback is caused by a fungus, Chalara fraxinea, which only
afects ash trees (see www.forestry.gov.uk/chalara for the
governments detailed analysis). It infects new shoots, killing the
living cells beneath the bark and causing the leaves to shrivel and
die. The cumulative impact of many dead shoots usually results in
the death of the tree over a number of years. The disease is spread
by spores that can be distributed on the wind, by animals and birds
and through the movement of infected material, mainly as a result of the international
nursery trade in young plants.
The government advice is that there is no cure, although there is thought to be natural
resistance in the ash population that may allow a small percentage to survive. Otherwise,
the prospects are grim, with infections in Europe indicating that up to 90% of the
population could be lost. To set that in context, Dutch elm disease killed about 30 million
trees in the 1970s and there are thought to be at least 80 million ash trees in the UK. There
can be little doubt that ash dieback is going to have a big impact on the way the country
looks and the wildlife within it.
Worryingly, the threat has been known about for years (the Horticultural Trades
Association warned the government of it in writing in 2009). Yet there was a failure to act
quickly to ban the import of ash saplings, identied as a primary vector of the disease.
Whereas U-turns are possible with controversial schemes such as the systematic
extermination of badgers and the selling of of forests, there can be no such reprieve for
native ash trees. The damage is done and the opportunity for prevention has been missed.
Ash dieback is here to stay and attention is now turning to minimising its adverse impacts.
Other biological threats to trees
The ash problem is just one of an increasing number of foreign threats to the UKs trees,
with a raft of pests and diseases just waiting for the right opportunity. Two of the most
serious at the moment are caused by the fungus-like organism Phytophthora. Oak trees
have sufered decline and death, while larches are also afected, resulting in swathes of
forest being felled to control its spread. Meanwhile, across the Channel, the French are
reghting a devastating outbreak of a disease similar to Dutch elm disease that is
afecting plane trees. At Frances historic Canal du Midi, a UNESCO world heritage site,
thousands of the 42,000 plane trees that
line it are now being felled as a result of a
deadly fungus. There is no cure and,
should it cross the UKs borders, London
planes would be at similar risk.
Management strategies
Ash is common in both urban and rural
environments and creates a substantial
green backdrop, with larger trees often
contributing greatly to local character.
Despite government advice that the
disease cannot be cured, there is
emerging evidence that a chemical option
may ofer good control for individual trees
of high importance, with seemingly few
adverse side efects for the treated tree
or the environment. Dr Glynn Percival
from Bartlett Tree Experts (www.bartlett.
com/UK) thinks that a fungicide called
Signum, currently used on fruit and
vegetables, could control the disease and
is currently attempting to get it approved
for use on amenity trees. Micro-injections
into the main trunk of infected trees
can deliver controlled doses that kill the
fungus without any spillage into the wider
environment. Injecting is not practical for
the whole ash population, but it does ofer
hope of protecting important individuals.
In the longer term, the bulk of ash trees
are likely to be lost. This highlights the
inherent risk of relying on monocultures,
i.e. tree populations of the same species,
because, just like elm trees in the 1970s,
they can all die in a single epidemic. The
abundance of plane and lime in London is
a good example. They are widely planted
because they can tolerate harsh urban
conditions and have thrived to create our
green capital. The downside is that they
could all be lost in a few years if a killer
disease gains access. Improved border
controls and quarantining of plant imports
will be an essential rst step in reducing
this risk, but the only efective way to
improve long-term resilience is by
increasing species diversity. Planting
diferent species sounds simple, but it will
signicantly reduce the risk of new
diseases devastating green infrastructure.
Over the next decade, property
managers will need to keep a close
eye on large ash trees in areas where the
public may be at risk
3 6 A P R I L / MAY
Image & Figure 1
Jeremy Barrell
R

RESI DENTI AL
ASH DI EBACK
Safety implications
For property managers, safety is an important issue and the problem of big
trees in declining health is set to crop up more often because of this disease.
On the positive side, infected trees are likely to take years to deteriorate to a
point where intervention is required. Government advice is to carefully monitor
trees in areas of high public access and only to prune or fell if risk
assessments show them to be a hazard. However, eventually many trees will
require signicant management works and owners with ashes on their land
should be budgeting for increased costs over the next ve to 10 years.
In a liability context, the standard of the duty of care that the courts are
likely to expect in the event of harm arising from a tree failure remains the
same. The precise nature of that standard is likely to vary according to
individual circumstances, which makes pinpointing the detail an elusive task.
However, the framework set out in Figure 1 provides a means for duty holders
to understand the issues and design a management approach to suit their
own particular situation. In practice, the courts expect duty holders to have
considered the safety of their trees, and evidence conrming the adoption of
the approach in Figure 1 is likely to carry signicant weight in successfully
refuting allegations of negligence. Due to the extensive publicity surrounding
ash dieback and its safety implications, it is unlikely that the courts would
accept a defence based on duty holders claiming that harm from dangerous
ash trees was not foreseeable.
Jeremy Barrell is Managing Director of Barrell Tree
Consultancy in Hampshire and advises on tree
management in a legal and planning context
jeremy@barrelltreecare.co.uk
www.barrelltreecare.co.uk
Figure 1 is a good starting point for
duty holders and their advisers, but
more specialist advice is available
from the Arboricultural Association
(www.trees.org.uk), for urban situations, and
from the Institute of Chartered Foresters
(www.charteredforesters.org), for rural.
Planning implications
Property professionals involved in
planning will be aware that trees are a
material consideration in the planning
process and can signicantly constrain
the potential for development. Indeed,
large trees can completely sterilise sites,
so does the prospect of tree losses from
disease open up new development
opportunities? Almost certainly, but these
are likely to gradually arise over the
coming decade rather than a sudden
bonanza in the next year or two.
It is not inevitable that all ash trees will
succumb to the disease, so local planning
authorities should not be expected to allow
their removal well in advance of their death.
However, once the disease is present and
recovery unlikely, there is obvious potential
for a release of sites for those who are alive
to the silver lining of this gloomy cloud.
In summary, ash dieback will eventually
kill many trees and property managers
should brace themselves for challenging
times ahead. Unfortunately, it will not stop
with ash, and there is likely to be a constant
ow of emerging threats to all trees. The
primary responsibility for protection must
lie with the government, but if communities
are to continue to enjoy the multiple
benets of trees, then all professionals
should be aware of their importance and
focus on conserving what we have left. R
C
Related competencies include
T044, M009
Balancing tree benets against tree security:
The duty holders dilemma, published in the UK
Arboricultural Journal (bit.ly/XncEXL), Barrell, J
(2012)
Further +info
A P R I L / MAY 3 7
Figure 1

Stage 1: Assess the potential for harm that arises purely
because of the occupancy of the location by people and
property. Occupancy is a measure of the level of access and
can be carried out by anyone with knowledge of the land.
If there is no significant potential for harm because of low
occupancy, then there is no need to visit to even check whether
trees are present or not.
Stage 2: If the occupancy is such that there is a significant
potential for harm, then the location will need to be visited
and any trees visually checked by someone with a working
knowledge of trees. If this does not identify any obvious
problems, then no further action will be necessary in that
management cycle. If problems are identified, intervention
works could be specified at that point.
Stage 3: If necessary, a more detailed inspection may be
appropriate. It is likely that this would require specialist
knowledge and that the inspector should be formally trained
for the task.
>
A decision-making framework for duty holders
Stage 3 Stage 2 Stage 1
Remedial management needed
No remedial management needed
If
necessary
High
No visit
Low
Visit and
visual check
Assess the
location
occupancy
Detailed
inspection
Review period assessed and scheduled
RI CS PROPERTY
JOURNAL
3 8 A P R I L / MAY Images
1 courtesy of Pat Lee Boilers; 2 courtesy of
Renewable Living; 3 &

4 David Hilton
A burning
question
In spite of challenges, the technology, design application
and safety awareness of biomass fuels have progressed
signicantly in the past few years, explains David Hilton
in the second of a three-part series on renewable energies
RESI DENTI AL
SUSTAI NABLE POWER
R
T
he UK is legally committed to sourcing 15% of its energy from
renewable sources by 2020 and it is becoming more commonly
thought that biomass can play a signicant role in hitting this target.
More than 20% of the target can be achieved by converting
fossil-fuel power stations to biomass under the governments
Renewables Obligation banding proposals. There are, however, two
main objections to this: biomass is a source that needs to be
purchased, whereas wind and solar are free resources; and there are arguments that
when whole tree trunks are burnt, they produce as much, if not more, CO
2
when
compared to coal combustion.
This leaves a signicant focus on the heating industry. Many people have fond memories
of cold evenings spent in front of an open re or log burner, enjoying the warmth and
atmosphere created by this biomass heater. The reality is still not too far away from those
images, but the technology, design application and safety awareness of biomass fuels have
progressed signicantly in the past few years.
The most efcient use of wood as a heating fuel is to burn it at very high temperatures of
around 1,000C. This is known as gasication and at this temperature all the caloric
particles are burnt, so there are virtually no products of combustion, such as smoke, ash or
residue, in the ue. This is efectively a clean burn and all the caloric value of the wood can
be transferred to the heating medium, namely the thermal store. The caloric value of wood
is between 3.5kW-5kW per kilogram and it is only at the very high temperatures that this
energy can be realised as heat output.
Many homeowners t a conventional log burner with a wetback heat exchanger, which
is in turn plumbed to a hot-water cylinder. The heat produced by the log burner is
distributed to the heating circuit, and if there is no demand, stored. This set-up is
acceptable if there is a continuous demand for heat (as in older or commercial buildings)
and the log burner is used on a frequent basis. Where it falls short is, rstly, in the fact that
the heat exchanger actually cools the burn down and there is therefore less heat output
from the fuel. As a result, there are a lot more products of combustion like smoke, ash and
residue build-up in the chimney.
Secondly, there is an issue in modern well-insulated buildings with a small heat load
because the heat source is uncontrollable and when the load has been met there
needs to be a way of dumping heat to avoid potentially dangerous situations when the
uid will boil and could cause injury from burns or explosion. This is also the case when
the burner is used infrequently, because the load of the building may already have been
met when the re is lit.
Log gasication
In a log gasication boiler the logs are burned in batches. The chamber of the burner
is manually loaded, the door is closed and the boiler proceeds to burn the complete
load and dump the heat in a store. The store needs to be specically sized to the
output of the boiler, not the storage requirements of the house. The basic rule-of-thumb
calculation is that the store needs to have about 50 litres of storage per 1kW output
of the boiler. This equates to a 20kW boiler requiring a 1,000-litre store.
The logs used in a gasication batch boiler
need to be seasoned for a couple of years
to be dry enough for optimum combustion,
cut to the correct length for the boiler, split
to maximise the surface area and stored
in a dry, aerated area.
Pellets ofer the convenience of
automatic feed and ignition and can be
trickle-fed to the re chamber for a
continuous load, which reduces the need
for a large thermal store. A thermal store,
albeit smaller, is still required, however,
because the typical system is usually
designed to cover 25% to 50% of the peak
load and the balance is met by the bufer
tank or a secondary heat source.
The uniform size and consistency of the
pellets allow for a rapid burning-in phase,
which enables very efcient high
temperatures to be maintained with an
expected ash content of only around 5%
from good-quality virgin wood pellets.
Pellets made from other grown products,
such as miscanthus, straw, mixed
bio-matter or even vine, which has a
high sap content, can have varying ash
contents and caloric values.
Pellets can also be made from the
brous residue from the anaerobic
digestion process. Many large-scale
organic waste-handling depots have the
facility to install an anaerobic digester that
will convert the waste to a biogas. This is a
slow process, but the heat used can also
be used to dry out the brous residue,
which in turn gets milled into pellets.
These pellets can then be used as burner
fuel, albeit with an ash content of around
11%, or the lower-grade ones can be
returned to the agricultural sector as
The store needs
to be specically
sized to the output
of the boiler, not the
storage requirements
of the house

A P R I L / MAY 3 9
RESI DENTI AL
SUSTAI NABLE POWER
compost. It is very important to know
what fuel you are using and that the boiler
is compatible with the ash content and
burn temperatures of that fuel.
Safe storage
The storage of pellets is increasingly
becoming an area of concern. The
Health and Safety Executive (HSE) has
issued a safety bulletin for anyone who
uses or works with wood pellets (see
bit.ly/VZQm1m). At least nine fatalities
have been attributed to carbon monoxide
(CO) poisoning in wood pellet stores and
bulk cargo storage in Europe over the
past 10 years and as more homes,
businesses and schools are replacing
coal, oil or gas boilers with pellet boilers,
awareness needs to increase as to the
associated dangers.
A number of factors contribute to
the amount of life-threatening CO
produced by small quantities of wood
pellets. Pellets produce the most CO
during the rst six weeks of manufacture.
Those made from timber with unsaturated
fatty acids, such as pine, will produce the
most. The surface area of the pellets,
as well as the amount of available oxygen
and higher temperatures, will create higher
CO production. If pellets are allowed to
get wet from either rain or condensation,
they can self-heat and spontaneously
combust. The heat and moisture can
also cause mould growth that can cause
diseases such as farmers lung (a condition
associated with intense or repeated
exposure to inhaled biologic dusts).
Flue gases
There is also the possibility of ue gases
entering the store through the pellet feed
tube due to inadequate equipment or
badly designed ues. These ue gases
are not only toxic but also present an
explosion risk. Any wood or pellet store
should be seen as an area of potential
toxic gases and steps should be taken
to eliminate the risks.
Full control
The key to an efcient biomass heating
system is the correct use of controls.
Traditionally, temperature-based controls
have been used, but with the availability
of better-design software and cheaper
heat-metering devices the use of heat
load controls and weather compensation
has vastly improved performance. The
better controls, albeit with uninterruptible
power supply (UPS) systems, also give
the opportunity to not lose heat up the
ue in the event of a power failure. The
controls need to be designed into the
system from the concept stage with a
full controllability review, because it has
been shown that adding them at a later
stage does not really work.
This may seem like a lot of bad news,
but it is not the case. We need to be aware
of the risks when designing a system to
adequately and safely meet our
requirements. This can be done by
following the HSE guidelines on wood
pellet storage and BS EN 13384-1
Chimneys, for the design of chimneys and
ues, and by making sure that the engineer
is competent and able to deliver a safe and
efcient installation and commission it for
all load conditions. R
David Hilton has a master's degree in
sustainable architecture, is an accredited
renewables installer, trainer and design
specialist and a Gas Safe-registered
heating engineer. He is also the Sustainable
Building Expert at Grand Designs Live
shows and delivers CPD talks, training
seminars and presentations
davehilton111@yahoo.co.uk
The controls
need to be
designed into
the system from
the concept
stage with a full
controllability
review, because
it has been
shown that
adding them at a
later stage does
not really work

C
Related competencies include
T044, M009
Further +info
Manual biomass boilers
can be used to burn
irregular shapes such as tree
roots and large logs, reclaimed
products such as pallets with
nails, or products with high
ash content such as straw that
would normally be composted
or left as waste
Section of a pellet
boiler showing the
mini pellet hopper with
auto-feed pipe
Pellets can be
purchased in 10kg
bags for manual loading in
mini hoppers or top loading
burners. They can also be
volume purchased and
mechanically blown into
silo-style bulk hoppers
Log burners are more
efficient and offer
better safety, health and
flame control than open
fires, but need correct flue
liners and properly designed
ventilation requirements
1 2 3 4
R
RESI DENTI AL
CASE NOTES
Images Philip Santo
RI CS PROPERTY
JOURNAL
4 0 A P R I L / MAY
T
Suitable for
mortgage?
In his continuing series on the practical issues faced by surveyors and valuers,
Philip Santo considers an unusual residential property where the differing
views of valuers on its suitability for mortgage lending raised questions
The changing demands of lenders and the ups and downs of the
residential property market mean that determining the precise
boundary between those properties that are suitable for
mortgage lending and those that are not can be something of a
movable feast. Making matters more difcult is the knowledge
that what may be perfectly acceptable to a lender in buoyant
conditions may look dubious when it comes back into
possession in a falling market and when lending criteria have
inevitably been tightened.
After losing three sales, the vendor of this small mid-terrace
house (photo 1) believed it was unmortgageable and lodged a
complaint against the valuer who had recommended it for
lending ve years earlier.
Located in the highly developed centre of a historic port
town, with mixed retail and residential uses, parking restrictions
and pavement frontage, and with restricted natural light and
ventilation to the rear part of the ground-oor accommodation,
this was certainly not a conventional residential property.
The sole external area was a small rear rst-oor balcony,
overlooked by surrounding properties (2) and itself only
looking across a mixture of domestic courtyards, outbuildings
(3) and unattractively roofed areas serving the rears of
surrounding shops (4).
Despite its many drawbacks, however, there was no question
about the demand for the property in the local market. The
selling agent revealed that two reasonable ofers had previously
been turned down by the vendor. Of the three agreed sales that
had fallen through, the rst purchaser had withdrawn after a
private survey and the second without either having a survey or
applying for a mortgage, apparently following a conversation
with the rst purchaser, who was a personal acquaintance.
Only one mortgage valuation inspection had been completed
and the reason the valuer had declined the application had nothing
to do with the propertys location or value, but was mainly because
a section of external walling
at the rear was of single-brick
construction (5). The vendor
accepted that the opinion
from a single mortgage
valuation was not sufcient
evidence in itself to
condemn a property as
unmortgageable, but
understandably questioned
how two valuers could come
to opposite opinions on an
issue unrelated to value or
market conditions.
It is well known that
single-skin walls can sufer
problems of damp penetration
and condensation and that a
two-storey height of this
construction is potentially
unstable. When encountered
in residential accommodation,
the impact of such
construction on a potential
mortgage security should
certainly be carefully
considered, but should not
automatically make a property
unsuitable for lending.
At this property, the section
of single-skin wall, bordering
the balcony, was relatively
small. Most of the wall only
served an external store and
the remainder comprised the
exterior wall to a shower room
and the doorway onto the
balcony from the rst-oor
landing (6). The entire wall had
been fully lined and insulated
internally during comprehensive
renovation works prior to the
original valuation, and the
undecorated lining was still
visible within the store. In the
intervening ve years there had
been absolutely no indication of
any damp penetration or
condensation in the area of
The white-fronted house, next to the property with the
brick-faced first floor, sits in the historic town centre
1
The small rear
balcony, overlooked
by surrounding properties,
provides the only external
area. The window to the
right of the access doorway
serves a shower room
2
RESI DENTI AL
CASE NOTES
A P R I L / MAY 41
C
Further +info
Related competencies include
T006, T044, T083
Philip Santo FRICS is a
Director of Philip Santo & Co.
His second edition of
Inspections and Reports on
Dwellings: Assessing Age
will be published in June
bit.ly/assess_age
psanto@philipsanto.co.uk
This
unattractive
roofed area
beyond the
balcony covers a
rear yard serving
retail premises
single-skin construction, even
in the high humidity area of the
shower room (7).
The lender guidance
available to the original valuer
stated: Where part of the
property is built in single-skin
brickwork/blockwork the
case should be treated
on its merits, but a warning
should be given... about
weatherproong and
insulation. Plainly this did
not amount to an expectation
that such cases should be
immediately declined and
the original valuer had
considered it suitable as
mortgage security.
The unusual nature of the
property meant that some
lenders would understandably
consider it unsuitable for
lending, particularly in times of
more cautious lending policies,
and the most recent valuer was
reecting the expectations of
such a lender.
In view of the evidence of
strong demand from the local
market, however, there seemed
every reason to believe that
many lenders would view an
application more favourably.
The vendor was reassured to
learn that on balance the
property should be readily
mortgageable and so it
ultimately proved.
There is no denitive right or
wrong in such instances and
what may be suitable for one
lender client may well be
unsuitable for another. Lenders
have diferent risk appetites,
but they are all in business to
do business and do not want
to have acceptable cases
unnecessarily declined any
more than they want to take
on unsuitable ones.
With every mortgage
valuation it is important
to understand the particular
lenders requirements and
reservations and to follow
any specic guidance that
may have been issued. The
skill of the mortgage valuer is
in interpreting the lenders
requirements, assessing the
extent to which they are or
are not met by what has
been seen on site and
reaching a reasoned
conclusion about suitability.
Matters will usually be clear
cut, but naturally these do not
present the problem cases. In
the back of the valuers mind
there is often a nagging
concern that if questions
should arise at a later date the
market conditions are likely to
be diferent. Consequently,
there is a danger, however
understandable, of being
over-cautious. However, it is
not the mortgage valuers
role to anticipate the future,
but to reect the clients
requirements and the market
conditions on the date of the
valuation and to report what
has been seen on that basis.
The best protection a
valuer can put in place
is to have complete site
notes, comprising a factual
and accurate record of
what was seen on site,
reasoned assumptions
where there was uncertainty,
appropriate and adequate
comparable evidence
and a logical, well-argued
justication for the
valuation and lending
recommendation. If
questions should arise
at a later date the
appropriate answers will
then be readily at hand. R

4
A general view
behind the terrace
in photo 1, showing the
densely developed character
of the area. The subject
property is concealed
beyond the white-painted
house, left of centre
3
The brickwork wall
on the right is
single-skin thickness,
given as the main reason
for declining the mortgage
application. The green
door gives access to the
external store. The entire
wall, including the store,
is internally lined
5
View from the
balcony towards
the first-floor landing
shows the relationship
between the store on the
left and the shower-room
window on the right
6
Looking out towards
the balcony from the
landing, with the shower
room on the left. Despite
the single-skin construction
there were no indications
of damp penetration or
condensation in any
internal areas
7
4 2 A P R I L / MAY
R
RI CS PROPERTY
JOURNAL
RESI DENTI AL
ENFRANCHI SEMENT
Appeals in 2012 covered
issues ranging from the
deferment rate to the common
problem of development value,
with the year culminating in the
long-awaited decision in the
two appeals collectively known
as Hosebay, where the
Supreme Court considered
what constitutes a house
under the Leasehold Reform
Act 1967.
Development value
When faced with a collective
enfranchisement claim,
freeholders often seek an
extra sum in addition to the
premium to compensate
them for the loss of any
development value. Flat
owners resent having to pay
development value, because it
inates the premium and is
payable even if they have no
intention of undertaking the
development required to
unlock it. Common forms of
development include the
building of new ats on unused
roof space or the conversion
of ats into houses.
The sums involved in cases
concerning development value
can be considerable, especially
in central London. There were
two notable appeals to the
Upper Tribunal (UT)
concerning development value
last year: Kutchukian v The
Free Grammar School of John
Lyon [2012] and Cravecrest
Ltd v the Sixth Duke of
Westminster [2012]. Both
concerned collective
enfranchisement claims
under the Leasehold Reform
Housing and Urban
Development Act 1993.
In Kutchukian, the property
was a house on the John
Lyons estate in London that
had been converted into four
ats. It was also subject to a
head lease that contained a
restrictive covenant preventing
the house from being used as
a single dwelling. The UT had
to consider whether the same
restrictive covenant should be
imposed in the freehold
transfer and how the
development opportunity
should be valued. It was
common ground that the
building was much more
valuable if there was no
restrictive covenant.
At the date of the claim the
diference in value was about
3m. The UT decided that the
restriction did not materially
enhance the value of other
property in the vicinity. The
main reason for this conclusion
was that there was already an
Estate Management Scheme
(EMS) in place, regulating the
use or appearance of a
property within an area by
imposing restrictive covenants
on freeholders. The existence
of the EMS meant that an
extra covenant restricting the
use of the building would have
little impact on the surrounding
area. The UT also felt that the
freeholder was merely seeking
to retain the restrictive
covenant for its ransom value.
As a result, the freehold
was transferred without
any restriction.
On the development value
issue, the UT had to consider
what discounts should be
applied to the current value to
reect the risks and
uncertainties of realising a
development value in 2046,
the year of the reversion. It
decided that the uplift in value
should be discounted by 70%.
This comprised a 5% discount
for the uncertainty of obtaining
planning permission in 2046, a
discount of 35% for a change
in market conditions making
redevelopment less protable
and a further 30% to reect
the legal uncertainties
regarding the recovering of
possession of the ats.
This case has since been
appealed (see Further info),
but it does illustrate that when
acquiring the freehold,
tenants can succeed in
removing existing restrictive
covenants, although this may
have cost consequences.
Cravecrest also concerned
development value on a
collective claim relating to a
house converted into ats. In
this case, the underleases
only had a few days left to run
so the development value was
potentially immediately
realisable rather than having
to wait until 2046. A number
of intermediate leases were a
complicating factor. It was
agreed that the uplift in value
in this case was approximately
2m. The main issues on
appeal were whether
development value could be
claimed and, if so, how it
should be valued. The UT
decided that the nominee
purchaser did have to pay
something in respect of the
ability to convert the building
back into a house, even
though there were
intermediate leasehold
interests. The decision also
gives useful guidance on how
to value the landlords
respective interests.
Deferment rate
Another common valuation
issue is the level of the
Natasha Rees looks at interesting legal appeals in the
world of enfranchisement over the past year, including the
prominent Hosebay decision and its implications
Home truths
A
Image Alamy
A P R I L / MAY 4 3
RESI DENTI AL
ENFRANCHI SEMENT
deferment rate to be applied
when calculating the premium.
The deferment rate is the
annual discount applied to the
anticipated future value of the
freehold to arrive at its current
value. A higher deferment rate
produces a lower premium.
The rate for leases of more
than 20 years was efectively
set at 4.75% for houses and
5% for ats by the case
known as Sportelli [2007].
Following several subsequent
decisions, it has become clear
that in areas outside prime
central London there is scope
to argue a higher deferment
rate to reect the greater
risk of deterioration and
obsolescence and the
prospect of lower growth. It is
also possible in all cases to
seek a higher deferment rate
to reect the management
burden associated with ats.
However, proper evidence is
required before a tribunal will
move from the generic rate.
The case of City and County
Properties Ltd v Yeats [2012]
UKUT 227 illustrates the level
of evidence required. The
appeal concerned a lease
extension claim of a at in a
building in Horsham, Surrey.
The Leasehold Valuation
Tribunal (LVT) described the
building as unattractive, tired
and poorly maintained and
determined a rate of 6%.
On appeal, the UT found
that the correct deferment
rate was 5.5%. It agreed with
the LVT that an extra 0.25%
should be added for
obsolescence and also added
0.25% for the risks associated
with residential block
management. But it did not
agree with the LVT that the
rate should be increased to
reect a slower growth rate,
believing that the evidence of
market movements in
Horsham was not strong
enough and did not go back
far enough to demonstrate a
signicantly slower growth
than in prime central London.
The UT said evidence of
growth would need to date
back at least 15 years, and the
best evidence would date
back 50.
Hosebay appeals
The Hosebay appeals, brought
by two central London landed
estates, challenged a Court of
Appeal decision that a property
used wholly for commercial
purposes could qualify as a
house for the purposes of
enfranchisement. In a decision
on 10 October 2012, the
Supreme Court unanimously
allowed both appeals.
The appeals followed the
removal of the residence
condition for enfranchisement
claims in 2003. Before this, the
question of whether a building
was a house was relatively
straightforward, because the
tenant had to live in the
building. After the residence
test was removed, investors
and commercial tenants could
also seek to enfranchise, which
led to claims by tenants of
buildings in a variety of uses.
The test of whether a
building is a house under
Section 2(1) of the Leasehold
Reform Act contains two
separate parts: the building
must be designed or adapted
for living in, and it must be a
house reasonably so called.
The Supreme Court stated that
both parts of the two-stage
test are complementary and
overlapping, but both need to
be satised at the date the
notice is served. When
considering whether a house is
designed or adapted for living
in, the identity or function of
the building based on its
physical characteristics must
be looked at.
When deciding whether a
building can reasonably be
called a house, it must be
considered whether it is a
single residence, as opposed
to a hostel or block of ats and
whether it is a place to live,
rather than as a piece of
architecture or street scene.
On this basis, the Supreme
Court judges concluded that
the buildings in the Day v
Hosebay appeal (houses that
had been converted into
atlets as short-term student
or visitor accommodation)
could not reasonably be called
houses. That the buildings
might look like houses or be
referred to as houses was not
sufcient to displace the fact
that the use was entirely
commercial. On the earlier
conjoined appeal of Howard
de Walden v Lexgorge,
concerning a town house in
Marylebone sublet as ofces
to a legal rm, they decided
that since the building was
wholly used as commercial
ofces it could not be a house
reasonably so called.
The judgment was clearly
aimed at closing the loophole
that allowed tenants of
buildings wholly in commercial
use to seek to acquire their
freehold. Consequently,
numerous claims, including for
signicant buildings in Mayfair,
Harley Street and Chelsea,
have been withdrawn.
Practitioners must now
consider how best to apply the
test in future. The judgment
showed it will be necessary to
consider the propertys
internal and external
characteristics and its current
use at the date the claim is
made. If the function is to be
lived in, it will be a house for
the Acts purposes.
The key problem is that there
are many buildings that remain
designed or adapted for
residential use, but are used as
ofces or hotels. Since it is the
use of the building at the date
the notice is served that must
be considered, it appears that a
tenant need only arrange for
such a building to be vacated to
make a claim. It is also difcult
to see how the test is applied
to a mixed-use building, or to
one that has been stripped out
so that the previous design or
adaptation is not apparent.
Another issue that may arise
is what constitutes commercial
use. Houses can be let out in a
number of diferent ways. In
Hosebay, the Supreme Court
decided that short-term letting
of studio atlets was a
commercial use. On this basis,
it decided that the buildings
could not reasonably be called
a house. However, where a
property is subdivided into ats
that are let for slightly longer
periods, at what point does the
building become a place to live
in, rather than a business?
Although the judgment is clear
that a building wholly in
commercial use will not qualify,
it is not the nal word on
houses that everyone had
hoped for. R
Natasha Rees is a Property
Litigation Partner at Forsters LLP
natasha.rees@forsters.co.uk
The key problem is that many
buildings remain designed or
adapted for residential use, but
are used as ofces or hotels

C
Related competencies include
T048, T083
As Property Journal was going to press, the Court of Appeal
gave judgment on the Kutchukian appeal. The court
dismissed appeals by the nominee purchaser, Mr
Kutchukian, and ruled in favour of the landlord, John Lyons
Charity, that the UT had wrongly applied a 30% discount for
uncertainty in respect of legal problems. As a result of this
decision, the cost of the freehold has almost doubled.
Further +info
4 4 A P R I L / MAY
R
RI CS PROPERTY
JOURNAL
I
Reasonable
protection
Image Alamy
RESI DENTI AL
RESTRI CTI VE COVENANTS
It can be devastating for an employer
when key employees resign, but even
more so if they set up in direct
competition and try to take their team
and clients with them. However, in the
absence of a contract of employment
with restrictive covenants in it, there may
be nothing the company can do to
prevent this.
A restrictive covenant is a promise in a
written contract of employment that
restricts an employees activities for a
period of time when he or she leaves. It is
essential that it is carefully drafted to
protect the employer from the actions of
departing staf. A restrictive covenant is,
prima facie, unenforceable as an unfair
restraint of trade. A court will only enforce
a restrictive covenant if it is reasonable
and drafted to protect the employers
legitimate business interests. The court
will look at every clause on its own merits
and in the specic circumstances of each
case, so there is no magic wording to
guarantee that it will be upheld.
How do you decide what is reasonable?
Generally, the clause must be limited in
terms of the time and location to which it
applies and the activity it tries to restrict.
For example, a covenant preventing
someone from competing with their
protection ofered by condentiality is not
sufcient for example, where a
particular employee has a high level of
inuence over customers. In such
circumstances, the court may upheld a
covenant preventing competition,
provided that it is for a reasonable time
frame. Employers must consider how long
it will take for the inuence of the
employee in question to wane, and for
other staf members to build up client
relationships to the point where the
company could withstand competition.
This is likely to be a period of six months
to a year; attempting to restrict someone
for more than 12 months would only be
enforceable in exceptional circumstances.
Non-solicitation covenants prevent
employees from approaching, inducing or
otherwise enticing the companys
customers away. To make such clauses
seem more reasonable, and thus
enforceable, they are often expressed to
prevent employees from soliciting
customers with whom they had personal
dealings. The clauses also often limit the
denition of clients to those who were
customers for a specied period of time
before the employee left the company,
usually 12 months.
Again, the period of time that the
restriction is to last must be reasonable.
A good starting point for the calculation is
how long it will take the company to
establish customer links that are strong
enough to negate the danger of them
simply following the employee out the
door. The employer should also ensure
that the pre-termination period taken into
account is reasonable.
Non-solicitation clauses can go further
than this, though, and apply also to
prospective customers, or any customers
While regular business rivalry is healthy, restrictive
covenants for employees can help companies ensure
that competition takes place on a level playing field.
Clare Kelly explains how such clauses work
former company for 10 years anywhere in
the world would be unenforceable.
Reasonableness will also depend on
the nature of the business and the
employee. A senior employee with
high-level access to the companys best
clients can be restricted for a longer
period than a junior staf member who
does not have a client-facing role. For
many roles, there may be no need for
restrictive covenants at all. If someone is
promoted or moves into a role where he or
she has more client contact or access to
condential company information, then a
new contract with tighter covenants may
be required. The reasonableness of a
covenant will be assessed at the date on
which it is entered into, so it is not possible
to simply insert covenants suitable for
senior employees into all contracts in case
employees are promoted.
What can be protected?
Restrictive covenants come in diferent
forms, but most commonly they deal with
non-competition, non-solicitation of
customers and employees, non-dealing
and condentiality.
The most frequent source of concern to
companies is that top employees will leave
and set up a competing business, taking
their best clients with them. It is, of course,
not possible to stop someone competing
because in efect this will mean that the
departing employee cannot actually make
a living.
Non-competition clauses are therefore
heavily scrutinised by the courts. The
protection aforded by the fact that
employees have a duty of condentiality
(so cannot simply share customer details,
for example) may be enough.
However, there are situations where the
A P R I L / MAY 4 5
> The information in this article is general in nature and does not constitute legal advice.
You should consult a solicitor regarding any specic legal problem
RESI DENTI AL
RESTRI CTI VE COVENANTS
of the company not just those with
whom the departing employee worked. In
certain circumstances, this will be
appropriate. For example, if it takes time
to build up client relationships before
obtaining any work from them, then
prospective customers may be deemed
just as important as current clients. In
smaller companies, or in the case of
senior employees expected to take part
in rm-wide marketing initiatives, a
restriction wide enough to cover
prospective or all clients may be
enforceable. These wider clauses will
have to be justiable and, in larger
companies, where the departing
employee had little contact with many
clients, this will be very difcult.
It is also possible to have non-solicitation
clauses relating to other employees to
prevent someone from leaving and taking
team members with them. This may be
important in a small company where the
loss of several staf members would be
extremely difcult to cope with, or in a
larger company where the loss of a whole
team could be devastating. When deciding
the length of the covenant, the
considerations are similar to those applied
to non-competition clauses.
Non-dealing clauses have a wider
scope, preventing the employee from
dealing with clients even if approached
directly (the employee having taken no
active steps to contact the customer). To
enforce a non-solicitation clause, the
employer has to prove that the former
employee had approached clients and this
can be very difcult (especially without
damaging commercial relationships), so a
non-dealing clause can be very useful.
However, because it gives the employer a
wide level of protection, it is harder to
persuade the court that it should be
enforced. It will only be justiable if, for
example, the company can show such a
close relationship between the departing
employee and the customer that the
customer is likely to seek out the employee,
causing a substantial loss of business.
To protect condentiality, there is really
no need for a separate covenant for
employees, who are subject to a duty of
condentiality under common law,
preventing them from revealing
information about their employer while
employed, and from revealing trade
secrets once employment has ceased. It
is worth including condentiality clauses
in the contracts of directors, partners and
self-employed contractors who are not
employees to protect you while they are
working with you.
Once an employee leaves, or a worker
stops working with you, then the duty of
condentiality only applies to trade
secrets. It may therefore be sensible to
include a covenant that prevents them
from disclosing condential information for
a set period of time afterwards. The best
way of calculating a reasonable period is
to consider how long it will take for the
information to be released into the public
domain (in the case of accounts or sales
data) or to be out of date (such as in the
case of new initiatives or seasonal
variations in performance).
What to do in practice
First, check whether your employment
contracts contain restrictive covenants
and, if so, whether they protect your
business adequately and are likely to be
enforceable. It is better to err on the side
of caution and have a covenant that will
be upheld by the court, even if it gives you
fewer months protection than you would
like, than to have a costly legal battle
ending in the covenant being struck out.
Also, remember to consider the
appropriateness of the restriction for the
employee to whom it relates. You may want
to have diferent levels of protection in
place, depending on seniority, client contact
and access to condential information.
Where employees are promoted, check
the latest version of their contracts and, if
necessary, ask them to sign a new one.
An employee will only be bound by the
covenants in the signed contract, even if
it was signed 20 years earlier when they
joined as a junior staf member and they
are leaving after a successful career
having been promoted to head of sales.
What if an employee resigns?
If someone hands in their notice, consider
immediately putting them on gardening
leave (if you are entitled to do this under
the contract). While this is frustrating
because you have to pay them not to
work, it immediately prevents them having
further contact with your clients, starting
the process of breaking down those
relationships. At the same time, the
employee cannot begin working for
anyone else. The contract should specify
when the restrictive covenants take
efect, and in most cases time on garden
leave will be counted towards the time for
which someone is restricted, because
otherwise the period may be too long.
It is worth reminding departing
employees of the restrictive covenants by
which they are bound, especially if they
signed their contracts some time before
and may have forgotten. If they are signing
a compromise agreement, it is usual to
reiterate that they are bound by those.
If you are aware that someone is
intending to breach their covenants (or it
is highly likely that they are, because they
are going to work for your largest
competitor), then you may apply for a
pre-emptive injunction (also known as a
springboard injunction). Alternatively, you
can apply for an injunction once you
become aware that a breach is taking
place. Take legal advice, though, because
injunction proceedings are costly and
success is never guaranteed.
Competition is a fact of life in business
and in a free market it cannot, and should
not, be restricted. But it is important that
competition takes place on a level playing
eld, and restrictive covenants can help
to ensure that companies are protected
and that the departure of a key employee
is not devastating to the business. R
C
Related competencies include
M002, T051
Further +info
Clare Kelly is a Partner at Anthony Gold
Solicitors with expertise in debt recovery
and other commercial litigation
clare.kelly@anthonygold.co.uk
The period of time
that the restriction
is to last must
be reasonable

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RI CS PROPERTY
JOURNAL
A R T S
A
ts
ar
A P R I L / MAY 47
ARTS
I NTRODUCTI ON
A
RI CS PROPERTY
JOURNAL
Welcome to your new RICS journal. We hope the following pages will prove both
interesting and informative not only to chartered arts and antiques surveyors but
all those working in and around the property business in the UK and elsewhere
O
A global
success
story
One of the great joys of the
arts and antiques market is its
diversity. At one end of the
spectrum the sector holds
enduring appeal for investors
and serious art collectors, and
at the other it attracts those
individuals who simply enjoy
being surrounded by objects
they nd beautiful or
collectable. It is an area
accessible to everyone
regardless of wealth, ranging
from collections in museums
and in other types of public
ownership to art and antiques
owned by private individuals
and companies. Chartered arts
and antiques surveyors are
found working in every sector
of the market, where their
professional advice is sought
on valuation, purchase and
sale, as well as sometimes on
storage, security, conservation
and restoration and even
shipping and packaging.
The British market continues
to hold its own and is the third
largest arts and antiques
market in the world with a
global share estimated at
around 22%. The British Art
Market Federation believes the
market comprises nearly 9,000
businesses, providing direct
employment to some 50,000
people in the UK. According to
art fair TEFAF, China overtook
the USA as the dominant global
player in 2011, with 30% of the
market against 29%. The
Chinese auction sector is now
demonstrating the strongest
growth worldwide, with a
massive hike of 177% in 2010
followed by a further rise of
64% in 2011.
According to Artprice.com,
sales of ne art at auction in
2012 achieved more than $9bn
and are expected to top $10bn
once complete gures for the
year are in (source: FT.com).
These gures do not match the
record-breaking highs achieved
in 2011 ($11.8bn) but top 2010s
$9.5bn. In line with the growth
in auction sales, Bonhams
announced 2011 pre-tax prots
up 24% on the year to
December on the back of a
22% increase in revenues.
Sothebys quoted auction sales
in 2012 were more than $5.1bn
with Christies reporting the
highest ever sales gures a
record-breaking $6.27bn up
10% on 2011 (source: FT.com).
These gures were driven
by the popularity of
contemporary art, which
performed particularly strongly
during 2012. This is probably
due to a continuing supply of
good-quality works and high
sale prices leading to
increasing numbers of works
being put forward to auction.
The modern and contemporary
sectors now account for
almost two-thirds of the
ne art market and continue to
recover strongly, with sales
levels recorded in 2011 in
excess of the boom of
2007-08 (source: TEFAF).
Sothebys achieved
outstanding prices for a
number of key works of art
during the past year, including
Edvard Munchs The Scream,
which sold for $119.9m in
May 2012. New auction
records were also set for
major contemporary artists
including Jackson Pollock and
Roy Lichtenstein.
Like other segments of the
property market, the art and
antiques sector is changing in
response to technology and a
shift in emphasis from the
West to the Asian economies
where there is an increasing
recognition of art as an asset
class and a status symbol. In
common with other markets,
art was hit hard by the global
economic crash in 2008 but
unlike sectors such as
commercial property, the
market has rapidly bounced
back. According to research
published by Mei Moses and
other art index providers, art
outperformed equities in all
the periods from 2000-11
(source: Deloitte Luxembourg
and ArtTactic, Art & Finance
Report 2011). In 2010, Deloitte
Luxembourg and ArtTactic
reported a dramatic increase
in the global high net worth
individual (HNWI) population,
estimated to be 10.9 million
worldwide. With art investment
accounting for 22% of these
individuals investments (source:
World Wealth Report 2011,
Capgemini and Merrill Lynch)
Deloitte predicts that the art
market will continue to grow in
line with the growth of HNWI.
Closer to home there is a
sense of optimism in the
auctions market for 2013 and
even tentative signs that the
market in brown furniture in
the UK or at least for pieces
dating from the Georgian
period has started to
stabilise (source: Antiques
Trade Gazette). A
Edvard Munchs
The Scream, sold
in May 2012
Sold
$119.9m
P
4 8 A P R I L / MAY
John Anderson is
Associate Director of
RICS Professional Groups
Image PA
Over the two decades since the collapse
of the USSR, the extraordinary rise of an
international market in Russian art has
been both visible and well documented.
According to William MacDougall, of
MacDougalls Auctions, in the past ve
years alone, the market has grown 700%,
easily outperforming other more traditional
asset classes. This growth has led to the
establishment of two Russian sale weeks in
the London calendar with the UK capital
emerging as the primary location for
specialist sales. Although current levels of
sales may have fallen below their 2007
peak, the most recent sales have been
described as showing, consolidation,
improvement and optimism
1
.
Although Russia is portrayed as an
emerging market, it has not performed in
what is often described as the standard
progression. Russia could possibly be
better described as a re-emerging market
because it has been part of the European
art market for centuries with strong
relationships between St Petersburg and
Western Europe and a history of highly
educated and notable collectors.
From signicant historical gures,
including Peter the Great (1672-1725) and
Catherine the Great (1729-1796) stemmed
a rich patronage of the arts and a strong
tradition of collecting. The freeing up of
the country has seen a revival of this
tradition and in 2008 the government
decree Concept of Long-Term Socio-
Economic Development of the Russian
Federation (20082010), included as one
of its aims the development and
realisation of both personal and social
cultural potential.
Culture is viewed as having a
fundamental social and ethical role in the
RI CS PROPERTY
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RUSSI AN MARKET
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A P R I L / MAY 4 9
A
A renewed interest in heritage is a major force
driving the re-emerging art market in Russia
Sense of
tradition
life of the Federation and the current
strength of the Russian art market can be
seen as an aspect of its continuing
signicance. This has been manifested,
as identied by MacDougall, in the
undoubted rekindling of a passion to
locate and re-establish a dispersed
cultural heritage
2
. So, while investment
gain is an undoubted driver, there is a
strong sense of the desire of Russian
nationals to surround themselves with the
visual evidence of their heritage.
From Russia and back
This renewed sense of history has led to
a strong demand. This is both from the
increasing numbers of Russian residents
in London
3
and the desire to re-establish
entire collections and repatriate Russian
work removed during the upheavals of
the 20th century
4
. In addition to global
investors with an interest in Russian art,
buyers are ying in from the CIS with the
aim to return assets to their country
of origin. One such initiative is led by
Andrei Filatov, who has established a fund
to buy back Soviet works that were sold
for export after 1991. He is known to have
spent $100M already, with a view
to establishing a public collection of
mainly Soviet realist works dating from
1917 to 1991.
Another high-prole example was the
acquisition of the entire Rostropovich
collection by Alisher Usmanov, the day
before its scheduled 2007 auction at
Sothebys. Usmanov ofered almost twice
the pre-sale estimate to secure the
works, which are now housed within the
Constantine Palace in St Petersburg.
Further demand is developing for Russian
sacred art as the Church extends its
inuence and legislation has been passed
to enable it to hold works in its own name.
Recent auctions have continued to see
A vase from the
collection of Russian
artworks at Dorich
House in London, now
a museum curated by
Kingston University
RI CS PROPERTY
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5 0 A P R I L / MAY
ARTS
RUSSI AN MARKET
Professor Sarah Sayce is head of
the School of Surveying, Faculty of
Art and Design and Architecture at
Kingston University
strong sales in Imperial art, artefacts and
icons. The highest values still relate to
19th and early 20th century works and
buyers are willing to pay substantial
amounts for high-quality works with
strong provenance.
Challenges moving forward
It would be easy to paint a vision of
Russian art moving back to a home
market that is enjoying its renewed
heritage. In many ways that is the case,
but it is not without signicant issues.
Provenance is a key issue for any art
appraiser, for without good title and
proven authenticity, value is slashed. This
is an issue even in stable countries; in
Russia many important artefacts were
removed during almost a century of
political and social turbulence and war.
This has led, almost inevitably, to disputes
in relation to title, restitution rights and
claims of forgeries. The lack of
established and respected authentication
systems also provides a greater incentive
for producing and placing forgeries into
the market because there is a reduced
chance of detection.
High-prole disputes, include those
surrounding the work of the early
20th-century artist Natalia Goncharova in
2011 and the claims of Vasilev in relation
to the Russian Museum in St Petersburg,
have led to the prosecution of dealers in
Russia and Finland. Recent years have
also seen an increase in claims against
experts who had previously certied
works only to have them revealed as
forgeries through the intervention of
either physical examination and/or
competing documentary evidence. With
the greater availability and increased
sophistication of forensic testing, the
ability to detect frauds will increase and a
number of laboratories already ofer a
range of services in this area.
However, although the notoriously
secretive international market has as
much to lose as to gain, the take up of
such services is relatively limited until a
dispute in relation to a specic work
arises. But it would be incorrect to
characterise the production of such
forgeries as being especially linked to the
Russian market or a product of the latest
developments in the art market in Russia.
The current Chabad
5
case also serves to
illustrate the complexities of the change
of policy from the USSR to the Federation
coupled with the inevitable problems of
legal jurisdiction.
Regulation and the
role of experts
To help alleviate the issue of forgeries, the
authorities have been urged to establish a
Register of Experts and a book illustrating
works known to have been copied has
been republished. Additionally, there are
other signicant moves within Russia to
move matters forward, both in relation to
the techniques of appraisal and in
professional regulation. Under the
authority of the Government of the
Russian Federation, the Business Union of
Appraisers held a Round Table in Vienna in
October 2012 to discuss both methods of
appraisal and the development of
professional standards.
Much of the agenda focused on the
very real issue of establishing, to the
satisfaction of the authorities, a method
of setting fair and defensible prices for
the transfer of assets from the public
sector, where they have been held
without any notion of book value, into the
public domain. One of the methods
discussed was the possibility of
correlating data in relation to the artist,
the size of the painting, its age and even
the materials of its manufacture, with
market transaction prices as a means of
analysis for predictive purposes.
While this may sound an unusual
approach, it must be recalled that against
a history of an absence of market pricing
even in the real estate markets - cost of
production has and remains a prevalent
methodology. The remainder of the
Round Table was devoted to discussion
of professional standards, including the
vital role that the RICS Red Book can play
in helping appraisers to conduct their
work consistently and in line with
international practice.
The issue of appraisal method will
hopefully resolve if and when the
hegemony of markets is fully and nally
established in both private and public
sectors. There seems little doubt that it
would also be facilitated by the adoption
of RICS standards and dialogue is
ongoing with a clear appetite to promote
RICS membership in Russia. Following
the Round Table event, representatives
from Moscow have visited RICS to hold
discussions about the development of
standards in Russia and with a view to
developing links for mutual benet.
Conclusion
It would be easy to think that the Russian
art market is one of booming prices fuelled
signicantly by the desire to regain
heritage, but this would be wrong.
Undoubtedly, the rise of the market
post-USSR is of high signicance to the
global art market but it is also a complex
picture, in which issues surrounding
provenance of object are pronounced. The
Russian authorities have made great
strides in seeking to improve the situation
through legislation and are now moving
towards the development of professional
standards to support the activities of the
art market.
Since 1991, a range of legislation has
been drawn up to deal with cultural
heritage. Much of this relates to aspects of
restitution, including for objects displaced
to the USSR
6
as a result of the Second
World War and transfer of objects of
religious intent to monasteries and
churches
7
. But disputes continue and are
likely to do so for some time. The
challenge now for the art appraisal
profession is in working with colleagues in
Russia and internationally towards
increasing transparency aimed at reducing
the issues of forgeries and title disputes
that have the potential to destabilise the
markets. For this, the adoption of
professional Red Book standards must
surely be part of the story. A
Further +info
1
James Butterwick, quoted Artmarketmonitor 03/12/2012
2
William MacDougall of MacDougalls Auctions 05/12/2012 published in the
DailyTelegraph
3
Estimates vary but believed to be up to 500,000 many of whom are classied as
High Net Worth Individuals
4
Forrest (2007) Proting from the rush for Russian Art, Art Market Blog 30 November
5
A current ruling has set a $50,000 a day civil penalty against the Russian
Federation for failure to return a substantial Jewish Archive to a religious community
now established in the USA
6
Law on Cultural Objects Displaced to the USSR as a Result of the Second World
War and Remaining on the Territory of the Russian Federation (1998)
7
Law on the Transfer of Property of Religious Intent Owned by the State or
Municipality to Religious Organisations (2010)
Kingston University offers RICS-accredited
programmes the BA Art Market and MA in
Art Market Appraisal.

A P R I L / MAY 5 1
A
ARTS
JEWELLERY
RI CS PROPERTY
JOURNAL
Pieces
of history
How do you value antique jewellery? This simple
question has a complex answer and forms the daily activity
of the Jewellery department at Fellows Auctioneers in Birmingham
F
ounded in 1876,
Fellows Auctioneers
now handles more
individual items of
jewellery than any
other UK auction
house, each one
requiring a valuation and posing its own
particular set of challenges.
For antique jewellery, the current market
is buoyant but becoming ever more polarised.
Quality items that are ne and rare,
preferably with a signicant makers
name, achieve great prices. Cheaper
items that provide an afordable and more
interesting alternative to modern
commercial jewellery also sell well if they
are priced correctly. The middle ground,
with poor-quality, damaged or altered
jewels with nothing to make them stand
out, is the area that is sufering.
The popularity of antique or
auction-themed television programmes
is driving more private buyers to sales
than ever before, and these buyers are
better informed and more discerning.
Glossy magazines promote vintage and
antique looks for both clothing and
accessories. Their focus on hand-made
and individual items creates an antique
chic that is increasing demand.
So what is it all worth? It is the job of
the specialists at Fellows to provide
auction estimates an assessment of
what the jewel will make in a sale. There
is an art to this, because the estimate has
the potential to attract or deter bids. It is
the nature of an auction that bidders like
to feel the possibility of a bargain so if
you start the estimate at the point you
feel the item will sell, you will have no
bids. Starting below this point is a risk on
the part of the vendor, but the attention
generated plays into a second aspect of
human nature, competitiveness. The lure
of just one more bid can drive prices
higher, despite a low estimate.
There are other forms of valuation that
antique jewellery can undergo.
Remember that the original purchase
price is usually of historic interest only
and should not form part of a current
value calculation. Valuations done for
insurance purposes should reect the
cost to replace the item in question, and
from the most appropriate market.
Unfortunately, these are often inated
unnecessarily by retailers keen to give
the impression of added value, a practice
that can cost the client more in premiums
and not stand up to scrutiny once a claim
is made. Probate valuations should reect
market values at the date of death. It is
simply the purpose and methodology of
these that sets them apart from other
forms, not the value itself.
What are the factors that we consider
when arriving at a value? First, and most
important, is to establish the intrinsic
value of the jewellery. This is a
painstaking process of determining what
an item is made from and what these
materials are worth in their own right
essentially the scrap value and is the
minimum gure that could be applied. For
gold and silver, this may be as simple as a
purity test and a weight, but for gem-set
jewellery a wide range of knowledge and
experience is required. The stones must
be correctly identied, along with any
treatments that may have been applied. It
may be necessary to judge whether the
stones are contemporary with the piece,
or later replacements. This is before the
stones are weighed and measured and
diamonds assessed for colour and clarity.
Once this baseline has been secured,
other less tangible aspects must be
considered. Is there a noteworthy makers
mark and is this authentic? Jewellery
from the large houses commands a
premium price but fakes are always a
problem. How commercial is the
jewellery? Is it fashionable now or does it
fall into the category of a period
collectable? If it is a good example of Art
Deco, Art Nouveau or the Arts and Crafts
movement then its value will be higher.
Provenance and association can be a
highly signicant factor. A piece of
jewellery can also be a piece of
history if the provenance is solid.
The prices paid for Elizabeth
Taylors jewels are a good example of
how association and sometimes several
layers of provenance can catapult a
jewels value out of all proportion to its
intrinsic worth.
The nal consideration is condition.
Has the item been damaged, or altered to
its detriment? Originality is key and many
jewels have evolved over the years to
keep up with changes in use or taste. Not
all of these changes are sympathetic or
of the same quality as the original
craftsmanship.
All of the work outlined is a necessary
part of the valuation process. If any areas
are neglected, or if the knowledge and
skills are lacking, then mistakes can
happen. A full up-to-date knowledge of
gemmology is necessary to detect all the
latest treatments or to identify a rare and
valuable stone source. The research for
history and comparables needs to be
global. Mistakes or assumptions can be
very costly to both reputation and pocket
in todays litigious society.
This process is neatly exemplied by a
gold bracelet, which was sold in May
2012. The piece was brought to Fellows
having been rejected elsewhere as being
worth no more than scrap weight. During
cataloguing, a jewellery specialist
recognised the mercury oxide treatment
and architectural motifs as typical of the
early 20th-century French jeweller Louis
Wiese and after close scrutiny, a
well-rubbed makers mark was found.
Due to the damage evident on the pearls
and a replaced clasp, a cautious estimate
of 2,000-3,000 was placed on the lot,
but a furious contest between two avid
collectors pushed the nal price to 7,100
plus commission. A
An early 20th century
French gold sapphire
and cultured pearl bracelet
by Louis Wiese, recently
valued by Fellows and
sold for 7,100
Adrian Hailwood is the Business
Manager at Fellows in Birmingham
Tel: 0121 212 6304
5 2 A P R I L / MAY
RI CS PROPERTY
JOURNAL
A
The number
and speed of
house sales in
the area has a
big part to play
in the fortunes
of businesses
like ours

ARTS
REGI ONAL MARKETS
I
Personal service, well-attended local
auctions and international specialist
sales have ensured that Hartleys
continues to thrive despite the downturn
Keeping it
in the family
If you were looking for a
typical chartered arts and
antiques surveyor to explain
the day-to-day business of an
auctioneer to aspiring
members of the profession,
you could not do better than
talk to Andrew Hartley, who
heads up well-respected
regional saleroom Hartleys.
Andrew is the latest Hartley
to run the family business in
Ilkley established by his
grandfather Thomas in 1906,
which, as well as an auction
saleroom, originally had
departments for home
furnishings, removals and
even an undertakers.
Thomass youngest son
Douglas took over the
auctions side of the business
from his father and in 1936,
together with Douglas
Smallwood, he started the
new rm of Dacre, Son &
Hartley, which grew to be the
largest independent rm of
chartered surveyors in Yorkshire.
In 1966, after a three-year
spell at the University of
Cambridge where he qualied
as a chartered surveyor,
Douglass son Andrew took on
the furniture and ne arts side
of the business. Ultimately, he
was able to concentrate
exclusively on the chattels
department, developing it into a
highly successful business that
now boasts international status
and a turnover of 3m per year.
Since 1989, following the
sale of part of the business to
what was then the Abbey
National Building Society, the
saleroom has been run as a
totally independent company
under the banner of Hartleys,
with Andrew taking great
pride in providing a personal
service to both vendors and
purchasers. The business
continues to thrive despite a
challenging economic climate,
with growing numbers of
people attending the weekly
sales of what Andrew
describes as smalls.
He puts the popularity of
these auctions, which mainly
consist of china, glass, small
silver and plate, jewellery and
general equipment as well as
furniture, down to both the
enduring appeal of boot fairs
people can buy job lots at
auction to sell on and TV
shows such as Cash in the
Attic and Flog It! These
programmes have done a
good job of promoting
auctions as a way both to
make money and unearth
interesting nds, says Andrew.
Once a month the saleroom
devotes part of an auction to
stamps, coins, cigarette
cards, postcards and medals
and these sales too are very
popular with local collectors.
Four or more times each
year, Hartleys holds antique
furniture and ne arts sales,
which are backed up by
international advertising and a
catalogue mailed out to the
companys list of specialist
dealers and collectors. The
same information also goes
on the Hartleys website with
photographs of every item in
the sale; condition reports
and additional information on
any lot are available on
request. As far as Andrew is
concerned, the development
of online bidding is the single
biggest change to have
afected the auctions
business for decades. We are
not yet involved in electronic
bidding but it is on our
agenda, he says.
Other specialist sales
include toys and dolls every
spring and autumn and ne
wines before Christmas.
These events attract a
regular mailing list of
predominantly private buyers,
who bring considerable
specialist enthusiasm to our
sales, says Andrew. Hartleys
sale goods come from a
multitude of sources, from
single items entered for
specic sales to whole or
partial house clearances. The
only items you will not nd at
the saleroom are livestock
too large, too messy and
plant and machinery.
Anything you would nd
inside a house, we will sell for
you, explains Andrew.
As a result, the health or
otherwise of the housing
market has a major impact on
the business. Andrew
explains: Unlike the big
London auction houses, which
largely deal in major works of
art and valuable specialist
collections, regional
auctioneers deal with local
A Brian Shields (Braaq) work, sold for
a world record price of 30,000
SOLD
30K
A P R I L / MAY 5 3
ARTS
REGI ONAL MARKETS
people and their personal
possessions sold for myriad
reasons from downsizing to a
death in the family so the
number and speed of house
sales in the area has a big part
to play in the fortunes of
businesses like ours. Items
that in a buoyant economic
climate may only take weeks
to come onto the market can
take many months to come up
for sale and this all has an
impact on both stock levels
and cash ow.
To date, however,
Hartleys has continued to
keep items coming onto
the market although some
prove more popular and
others, such as brown
furniture, are harder to sell.
Andrew explains that as far
as his clientele is
concerned, collectables
hold an enduring appeal,
as do works by popular
local artists such as
Brian Shields,
Herbert Royle and
Dame Elisabeth
Frink. At
Hartleys most
recent sale,
the area that
achieved
the best
selling rate
was silver,
due to a
recent hike in
the bullion metal price. The
global trend towards Asian art
was also apparent in the
saleroom with two Chinese
items going to several times
estimate: a Kangxi style
jar sold for 750 and a
20th-century baluster vase
fetched 1,450.
From time to time, Hartleys
is ofered a single-owner
collection. Most recently, a
wide selection of vintage
bicycle lamps went like hot
cakes and fetched a very
good total at auction of
3,600, the best single price
being 950 for an Otto
penny farthing lamp. Other
interesting collections have
included pottery bed
warmers, Sutclife toy boats
and Pelham puppets.
As a long-established local
business, Hartleys now
has 20 employees,
including four
professionally qualied
members of staf who
do valuation work for
insurance and tax purposes
as well as working on the
auctions side of the business.
The company really is a family
concern with Andrews wife
Anna on the sales counter,
eldest daughter Emma as
ofce general manager and
son Charlie as trainee
auctioneer and valuer. Even
daughter Daisy, who is
currently working two days a
week at Sworders in Essex,
will hopefully one day rejoin
the business, bringing her
interest and expertise in
jewellery into the mix.
Andrew is delighted to see
a fourth generation of
Hartleys joining the business,
with two qualifying as
chartered surveyors. He is
very positive about the
benets of RICS membership,
having been an Arts and
Antiques Committee member,
and is supportive of local
continuing professional
development events when
numbers make them worthwhile.
While, as a regional member,
Andrew does not feel that he
benets in quite the same way
from RICS facilities and
services as members based in
London and the South East.
He believes its real value is in
setting standards and giving
chartered surveyors an ethical
framework within which to
work. Its a great thing to fall
back on when clients ask me
to do something I dont feel
comfortable with, he says.
My position is always that my
chartered status wont allow it.
The younger members of
the Hartley family have been
able to gain qualications
specic to the arts and
antiques market and Andrew
regards this as a sign that the
Institution is taking the sector
seriously. And you cant argue
with that, he says. A
Nuremberg
Chronicle
published
1493, sold
for 90,000
SOLD
90K
4 scale Fowler
engine, sold for
13,500
SOLD
13.5K
Lesley Davis is a freelance
writer and editor of
Property Journal Arts section
ldavis@rics.org
5 4 A P R I L / MAY
RI CS PROPERTY
JOURNAL
A
W
ARTS
VALUER REGI STRATI ON
Reinforcing
international
standards
In an increasingly global business environment, international valuation
standards facilitate greater transparency and regulation by the profession
through Valuer Registration demonstrates compliance with these standards
With so much uncertainty
in the wider economic
environment, it is increasingly
important that our clients trust
the professional advice they
receive. Valuer Registration
raises condence in the
delivery of valuation advice
and reinforces the highest
professional standards in
valuation.
In April 2011, RICS
Governing Council agreed a
mandatory requirement for all
practitioners carrying out Red
Book valuations to join RICS
Valuer Registration. The
Council has now approved the
extension of Valuer
Registration to include
personal property valuations.
In the context of the Red
Book, personal property is
dened as assets that are not
permanently attached to land
or buildings. It includes
antiques and ne art,
furnishings, collectables and
appliances. RICS will shortly
be publishing additional
guidance, which will be
contained in the revised
edition of the Red Book.
Why is personal
property included?
By extending Valuer
Registration to include
personal property, RICS
members bring greater
consistency to the application
of RICS valuation standards
and contribute to the
leadership role of RICS in the
development, regulation and
enforcement of international
standards. By not regulating
this segment of the profession
as practitioners, in the same
way as their peers in property
or business valuation, we risk
undermining the credibility of
RICS valuation standards.
Why do we need to
follow the Red Book?
Accurate valuations are vital
to a healthy business
environment and a stable
economy because they
underpin so many business
decisions. More specically,
arts and antiques as a global
market is worth billions of
pounds. As far as ofering
valuation advice is concerned,
this market is comparatively
easy to enter and relatively
unregulated. RICS arts and
antiques professionals have
an opportunity to further
separate themselves from
those who purport to act as
experts without any
professional qualication or
code of ethics and, in so
doing, can gain further trust
from customers and other
industry stakeholders.
What is RICS Valuer
Registration?
RICS Valuer Registration is an
independent system of
regulatory monitoring, which
includes a register of valuers.
It was conceived at the
request of the profession and
in response to the global
nancial crisis over the past
few years. Introducing Valuer
Registration to the UK is part
of the ongoing commitment
by RICS to protect client and
public interests by
underpinning the standards
its members work to with a
quality assurance mechanism.
The initiative, which has
been rolled out around the
world, has been well received
by nancial institutions, clients
and other stakeholders. First
launched in October 2010,
there are now almost 14,500
Registered Valuers worldwide.
Of course, personal
property valuations are
diferent to bricks and mortar.
However, RICS Regulation
regulates according to the
standards in
the Red Book,
therefore we
are only
monitoring
members
against the
standard that
they have committed to
following. We take a
principles-based approach
and if there are diferences in
practice across sectors, we
will engage with the member
and rm to help them into
compliance and take into
account diferences across
sectors and/or geographical
areas.
Why do we need it?
The fundamental purpose of
RICS is to bring about higher
standards of industry
professionalism. Any changes
and developments to the way
we operate must reect this
principle. As valuation
professionals, we are aware
that there has been a lot of
talk about the exact causes of
the nancial crisis linked to
real estate. The reasons are
complex but a clear theme
has emerged: there is a need
for efective regulation and
enforcement throughout the
profession, particularly in the
valuation sector.
How does the
process work?
Monitoring by RICS
Regulation begins as soon as
members sign up to Valuer
Registration. An automatic
risk score is established for
the individual member and
rm. Should any risks come to
light, RICS monitoring staf
will make an assessment.
Further investigation will
follow, including checking
information against Red Book
requirements and the
processes and audit trails that
rms have in place.
RICS Regulation
also provides advice
and guidance as a
core part of the
process and free
continuing
professional
development to help
all members to comply with
their professional and
statutory duties. Its aim has
always been to ensure that
the international valuation
standards that underpin so
much economic activity are
being maintained and
correctly applied. A
there are now almost
14,500
Registered Valuers
worldwide
More information

For details on Valuer
Registration and how to sign
up, visit www.rics.org/vrs
or call RICS Regulation on
+44 (0)20 7695 1670
RI CS PROPERTY
JOURNAL
To adverti se contact l uci e I nns +44(0)20 7871 2906 or l uci e@sundaypubl i shi ng. com
A P R I L / MAY
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