Vol 12 No 1 Spring 2006

CEMicircular
The College of Estate Management compiles this bulletin for
current and former students as an aid to your studies and future
careers.
CEMicircular covers all courses and includes information about
important developments and topical issues in the world of
surveying and property. You should not, however, rely on the
extracts in CEMicircular as your only source of information. They
will seldom offer more than a brief summary of a new topic or
recent issue and some points are bound to be omitted, perhaps
giving undue emphasis to the material included. You are
therefore urged to read as widely as possible, including making
use of the Internet, and it is vitally important that current
students study the course material. This could make the
difference between superficial knowledge and real
understanding.
To help you keep up to date, look out for the following captions
against items:

CEMicircular WebWatch gives details of related

websites where additional information can be sourced.
Latest Research indicates material that has been
generated by recent research, including projects carried
out by CEM and other institutions.

Contents
Page
Building
Under floor heating and cooling
Stainless steel fixings
Building Regulations and energy
Finishing a cathedral

2
3
5
7

Construction
Whole-life value
Concurrent delay
JCT contracts and historic buildings
PFI equivalent project relief clauses

11
12
15
16

Development
Social housing costs
Mixed-use schemes

19
21

Finance
Off-shore investment
UK REITs
Islamic finance

25
27
29

Law
Expert witnesses
Adjudication

32
34

Residential

Editors note
The editor of this circular is Gaye Pottinger, Senior Research
Officer at CEM. She would be pleased to hear your views and
comments on its structure, content and presentation.
Contributions or suggestions of material for inclusion are also
welcome. Please write to Gaye Pottinger at the College address
below, or email to: k.g.pottinger@cem.ac.uk.

Subscription to CEMicircular
CEMicircular is produced twice a year, in the spring and autumn. It
is sent to all students on CEM courses, staff, CPD subscribers and
members of the Property Peoples Network (PPN), which is open
to CEM alumni. To join PPN see www.ppnonline.co.uk.

Home information packs

Retirement housing

36
37

Management
Shopping centre definitions
Onerous lease terms
FM and multiskilling

40
44
46

Planning
Planning and flooding
Planning permission life span
Planning gain
Housing strategy

50
52
53
55

Property
Auction conditions
Property research origins

57
59

Rural

Copyright
The extracts from journals in this circular are reproduced by
permission of the publishers. So as not to abuse this permission,
the College asks that anyone wishing to make copies of any of the
articles should first contact the editor of CEMicircular.

Ancient rights of way

Inheritance tax and farm property

61
62

Valuation
Comparable evidence
Break clauses and valuation
Valuing gaming property in Macao
Wind farms and home values

64
66
69
73

Notices
BSc graduations
Wanted: online tutors
CEM publications

Whiteknights, Reading, Berkshire, England, RG6 6AW

Tel 0118 986 1101 Fax 0118 975 5344

75
75
75

BUILDING
Underfloor heating and cooling
Underfloor heating is nothing new, but underfloor cooling is more novel. Both can offer greater energy efficiency than
conventional systems. Mike Mosely, major projects manager for Rehau, explains the main features and application of
underfloor installations (AJ Specification, 11.05, pp.47-49).
Throwing more energy at a building to keep it cool in
summer and warm in winter is no longer an option with
rising energy prices and the need to tackle global
warming. With more innovative methods of regulating
temperature required, developments in wet underfloor
heating and its companion, underfloor cooling, make
them an interesting option.

part of the building or be in pairs: one north-facing and

one south-facing. The index rooms work with the
building-management system to monitor whether to cool
or heat the building. For example, on a hot, sunny day the
building-management system switches the main control
valve to the chiller side. Chilled water is then passed
through the floor, cooling it below the ambient
temperature.

Heating

The choice of floor covering has a much greater effect on

an underfloor-cooling system than on a similar
underfloor-heating system. With the exception of thick
shag-pile carpet, underfloor heating can cope with the
majority of floor coverings. Underfloor cooling can only
work with a limited variety. Coverings will need to be
stone or ceramic, or a fully-bonded vinyl or commercial
carpet. Underfloor cooling requires the floor to be of a
solid concrete construction and it cannot be used in firstfloor timber construction.

These are similar to systems used by the Romans

thousands of years ago. Wet underfloor-heating systems,
however, have been slow to catch on in the UK market,
compared with those on the continent. In the majority of
applications, underfloor heating uses less energy. This is
predominately because of the delivery of warmth through
more radiant heat transfer than a conventional radiator
system (in which most of the heating effect is via
convection). Generally, air temperatures are lower, with
the same level of comfort for the occupants.

An issue that must be considered with underfloor cooling

is the minimum floor temperature and the dew point. The
floor temperature must never be cooled below the dew
point because of the risk of condensation forming on the
surface which could rot a carpet or be a potential slip
hazard on solid floors. The ideal floor temperature for
comfort reasons should not fall below 20C. This is why a
building-management system is needed to control it. It
can monitor the relative humidity and either restrict the
amount of cooling or control the humidity with some
form of air-handling system.

Compared with a conventional radiator system, the

temperature of the water within an underfloor system is
much lower, which makes underfloor heating ideal for
use with high-condensing boilers. Often the water can be
fed directly into the floor from such boilers without the
need to pre-mix down to a lower temperature. Because
underfloor heating systems use lower-temperature water
they can also be used with non-conventional heat
sources, such as geothermal heat-recovery systems. Coils
of pipe are either laid 2m deep in a large, open area or
placed into piles around the building. The ground will
remain constant at about 10C throughout the year. With
the use of a heat pump, heat energy can be extracted from
the ground and used to heat the building.

In a well-designed system, the switch from cooling mode

to heating mode will not take place in the same day, as
this would be energy inefficient. The system will heat in
the morning and go off in the afternoon or vice versa.

Cooling

Cooling potential

Underfloor cooling is simply a conventional, wet

underfloor heating system into which chilled water is
passed to cool the building in the summer. Most of the
components are identical for heating and cooling systems:
the most significant difference is in the control systems.
Most underfloor heating systems are controlled by the
different circuits or zones running from the manifold,
fitted with a zone valve and thermostat. When an
individual area reaches the required temperature, the flow
to that area is cut. With cooling, the controls are more
complex. Underfloor cooling will need to be linked to a
building-management system. Index rooms are also
required and these will be either in a temperature-neutral

Underfloor cooling will never replace conventional airconditioning systems. It offers a level of comfort cooling
that can be ideal for our moderate climate. Because of its
relatively inexpensive installation costs, it is considered
for applications where full air-conditioning systems would
not be appropriate. The majority of new schools under
construction are using underfloor heating systems, where
it is ideal because of its lack of hot surfaces and radiators.
As such projects often also have building management to
go with the systems, cooling can be provided for the
moderate additional cost of a small chiller.
2

Large glass atria are another application for underfloor

cooling. Having large glazed areas can give huge thermal
gain and the size of plant required to control this with airhandling units would be enormous. Underfloor cooling
can be installed in such areas with a moderate budget,
and the output of such systems is limited to the occupied
level providing optimum temperature at chest height.

The rest of the space can remain at a higher temperature

without affecting the occupants.
Underfloor heating is now a standard part of many
projects and its inclusion is becoming orthodox.
Underfloor cooling is unorthodox and its inclusion in
projects needs to be considered at an early stage of the
design, with the entire design team.

Stainless steel fixings

The hidden fixings within structures may be small, but they are essential to overall structural integrity. Wall-tie failure, for
example, can be drastic and expensive to correct, therefore choosing the right fixing is vitally important. Dennis Ansell,
technical services manager at Ancon Building Products, discusses the benefits of stainless steel fixings (AJ
Specification, 01/06, pp.3031).

Life-cycle costing is increasingly recognised as the true

way to establish the cost of building components.
Although stainless steel may be considered expensive, its
maintenance-free status and integrity eliminate the need
for remedial or refurbishment measures during the life of
the structure.

classification is determined by strength, function and use.

Types 1 to 4 cover masonry-to-masonry ties, while types 5
and 6 cover masonry-to-timber construction. Unlike BS
1243, DD140-2 enables architects to select wall ties to suit
the performance criteria of the intended application.
DD140-2 enables wall tie manufacturers to design costeffective wall ties that offer superior performance.

In cavity-wall construction, stainless steel is now

exclusively used to manufacture wall ties, restraint fixings,
masonry support systems and windposts. As the trend
towards higher specification and longer life continues,
stainless steel could also provide cost-effective long-term
solutions in other architectural applications.

BS EN 845-1: 2003 Specification for Ancillary

Components for Masonry specifies the requirements
for wall ties used for interconnecting masonry and for
connecting masonry to beams, columns or other parts of
the building. Materials, tolerances, tie types and the
requirements for declared values are all covered in this
standard.

Significant changes to wall-tie regulations

Wall ties are an essential element in the stability of
masonry panels. The correct selection, spacing and
installation of ties is essential to avoid damp penetration
and the distortion, cracking or even collapse of brickwork.

Approved Document E: Resistance to the Passage of

Sound was amended in 2003 to raise the performance
requirements of walls for their resistance to the passage
of sound. To meet the new requirements the dynamic
stiffness of ties must be measured to test the products
ability to transmit airborne sounds. Document E classifies
wall ties into two types: type A and type B.

Wall-tie selection depends on many factors, including

type of brick/block to be tied, cavity width, type and
height of building, location and design life. There are
several documents which need to be consulted and some
recent changes in regulation.
BS 5628: The Use of Masonry: Part 1: 1992 provides
recommendations on length of tie, embedment, density
and positioning. Wall ties conforming to BS 1243
(withdrawn) or DD140 will meet the requirements of this
standard.
BS 1243: Metal Ties for Cavity Wall Construction:
1978 was withdrawn in January 2005. This document
specified the shape and material specification of butterfly
ties, double triangle ties and vertical twist ties (pictured).
Wall ties should now be specified to DD140-2.

Type A ties: For separating (party) walls and external

walls. Taking both cavity width and tie density into
account, these ties must have a measured dynamic
stiffness of less than 4.8MN/mJ.

Type B ties: For external walls where a type A tie is

unsuitable. Taking both cavity width and tie density
into account, these ties must have a measured
dynamic stiffness of less than 113MN/mJ.

Robust Details Limited has approved the use of several

standard construction details as a means of complying
with Document E when building new houses and flats.
Use of these details eliminates the need for precompletion sound testing. Ties complying with type A
requirements must be used with the standard details for
masonry separating walls.

D140: Part 2: 1987 gives recommendations for the design

of wall ties for use in masonry and timber construction in
the UK. Ties are classified by type. The relevant

At vertical edges of an opening, unreturned or unbonded

edges and vertical expansion joints, additional ties should
be used at a rate of one per 300mm height, located not
more than 225mm from the edge.

Density and positioning of ties

For walls in which both leaves are 90mm or thicker, ties
should be used at not less than 2.5 per square metre
(900mm horizontal x 450mm vertical centres). Ties should
be evenly distributed over the wall area, except around
openings, and should preferably be staggered.

Length of tie and embedment

Wall ties should be of the correct length to ensure that
they are properly embedded in the masonry.

In cases where insulation board is incorporated within the

cavity and restrained by ties with insulation-retaining
clips, it may be necessary to reduce the horizontal spacing
of the ties to 600mm.

The tie should have a minimum embedment of 50mm in

each leaf, but also take site tolerances into account for
both cavity width and centring of the tie. For this reason,
tie lengths which achieve an embedment of between
62.5mm and 75mm are recommended.

Recommended lengths of masonry-to-masonry ties

Cavity width (mm)

Length (mm)

5075

200

70100

225

101125

250

126150

CEMicircular WebWatch
Further information about stainless steel fixings can
be found at the following websites:

275/300

Ancon Building Products www.ancon.co.uk

British Stainless Steel Association www.bssa.org.uk
Robust Details Limited www.robustdetails.com

Building Regulations and energy

In response to the European Energy Performance of Buildings Directive, the UK is implementing changes to Parts L and F
of the Building Regulations and accompanying requirements for improved energy efficiency in new homes will put
pressure on housebuilders to cut carbon emissions. Jason White, sustainability services manager with NHBC, looks at
how developers can clean up their act (Building Data toolkit, online, 20 January, 2006). However, more recent reports
indicate that industry may get a further year to implement the revised Part L (Building Breaking news, online, 10
February 2006: see box below).

About a half of all carbon dioxide emissions come from

buildings and about 30% of that from the 24 million
dwellings in the UK. Because of this, the Government is
calling on housebuilders to make a substantial
commitment to cut carbon dioxide emissions from
buildings in 2006, in order to meet Kyoto Protocol targets.

Changes to EcoHomes
The Building Research Establishment (BRE) introduced the
BREEAM rating in 1990 as a method of measuring the
environmental performance of buildings. The assessment
specific to housing is EcoHomes, and this balances
environmental performance with the need for a high
quality of life and a safe and healthy internal environment.

The EU driving energy efficiency

Currently, it is compulsory to receive a Good EcoHomes

rating for Housing Corporation developments and a Very
Good rating for English Partnerships developments.
EcoHomes assessors look at environment and
sustainability factors including energy use, transport
options, pollution, choice of materials, water use, land
use, ecology, and home owners health and wellbeing.
Each category has a weighting and contributes to the final
EcoHomes score, a Pass rating of 36%, a Good rating of
48%, a Very Good rating of 60% or an Excellent rating of
70%. EcoHomes will form the basis for the Code for
Sustainable Homes which will replace it.

While the UK Government is looking for developers to

specify and build efficiently, the European Union is also
party to the Kyoto Protocol. The European Commissions
research shows that, by improving energy efficiency,
carbon emissions from buildings could be reduced by
22%.
For the European Community to meet its Kyoto
requirements it has developed the Energy Performance of
Buildings Directive. Under the directive, EU countries
must ensure that when any building, including housing, is
constructed, sold or rented, a valid energy performance
certificate is made available to the prospective buyer or
tenant. For new dwellings, the UK is ensuring compliance
through the revision of Part L of the Building Regulations
and the directives implementation from April 2006.

The drive for efficient affordable housing

For the first time since its inception, developers in the
private sector have been invited to bid alongside the UKs
housing associations for a share of 3.9bn available from
the Housing Corporations National Affordable Housing
Programme. However, the Housing Corporation has also
announced that in the 200608 funding round, new homes
drawing on its grants will have to achieve an EcoHomes
Very Good rating up from the Good rating, which is its
current minimum requirement. This rating is expected to
cover an estimated 70,000 affordable homes due to be
funded in 200608. The Environment Agency has issued
figures suggesting that these measures will cut carbon
emissions by an estimated 26%, compared with typical
new build housing. The Housing Corporation also
believes that housing association tenants and private
homeowners could save an average of 138 a year in utility
bills on homes with a Very Good rating.

Amendments to Part L and F

The ODPM has brought forward the changes to parts F
and L of the Building Regulations, concerning ventilation
and fuel conservation, from 2008 to April next year. The
amendments follow the Governments energy white
paper which outlines methods of cutting the UKs carbon
dioxide emissions 60% by 2050. In the latest revision, the
changes to Part L are intended to improve the energy
efficiency of new buildings by reducing their levels of
carbon emissions by about 25%.
The latest revisions include a requirement for air-tightness
testing of a representative sample of new buildings to
ensure minimum heat loss. The amendments to Part F will
complement Part L by ensuring there is adequate
ventilation within the home without compromising its
energy efficiency. The Government estimates that
amendments to the Building Regulations will improve
energy standards in non-dwellings 27%, 22% in houses,
and 18% in flats. It also anticipates that the changes to Part
L will deliver an overall saving of 80,000 tonnes of carbon
annually from new homes.

Code for Sustainable Homes

The Code for Sustainable Homes will become reality in
2006. From April all new residential developments
receiving government funding will need to meet the
codes requirements. This will impact on developers
seeking Housing Corporation funding. Although the
environmental rating system has yet to be finalised, the
government has stated the code will cover fuel and water
5

efficiency as well as focusing on building materials and

waste reduction. The code will include practices and
materials to safeguard occupants health and wellbeing. A
consultation document on the code was released in
December, inviting comments until March.

How Eco are your homes?

Developers required to achieve a Very Good rating or
more have to plan for their homes to be pushing the limits
of environmental performance. Categories to consider
when looking at any EcoHomes rating include the homes
energy requirements, transport requirements, pollution,
environmental implications associated with building
materials used, water used, ecology and land use, and
internal and external issues which might affect
homeowners health and wellbeing. It is helpful to
consider:

How McCann Homes achieved an

EcoHomes Excellent score

McCann Homes Willows Chase development, in Milton

Keynes, includes four- and five-bedroom homes and twobedroom apartments. To achieve an Excellent EcoHomes
score, McCann took the following measures (among
others):

installed high-efficiency boilers and low-voltage

downlights;

fitted A-rated white goods in kitchen and a rotary

drier. Flats have a drying space over baths;

undertook sound tests to meet EcoHomes standards

and exceed Building Regulation requirements;

used timber from sustainable sources;

used roofing materials and windows which achieve an

A-rating in the Green Guide to Housing Specification;

fitted compact fluorescent light fittings outdoors, plus

light timer sensors and recycling facilities;

maintained the former agricultural sites original

hedgerows and made sure it was cleared outside the
bird breeding season;

Dedicated energy-efficient light fittings, condensing

gas boilers, the provision of white goods which are Arated for energy efficiency, drying lines or even the
use of renewable energy, such as solar hot water
heating.

A higher score may be achieved if the development is

within the vicinity of public transport and local
amenities such as a food shop, post box, medical
centre, primary school or pub, in a bid to reduce
reliance on cars. You should check whether there are
safe pedestrian routes. Consider providing cycle sheds
or space for a home office.

Have you checked with your insulation suppliers that

their products have a Global Warming Potential of less
than five, to reduce the materials effect on climate
change?

Are the timber and timber products used for basic

building elements or for finishing elements sourced
from certified sources or recycled? Do the
construction materials used receive an A rating in the
BREs Green Guide to Housing Specification?

Are there facilities available to allow current and

future homeowners to recycle their household waste?

Have amenities been specified to ensure reduced

water consumption, including dual flush toilets, taps
with flow regulators and showers with a reduced flow
rate?

Are water butts provided to enable rainwater to be

reused for irrigation of gardens and landscaped areas?

How can you improve the ecological value of the site?

Have you had an ecological assessment? Can you
protect any existing features from damage?

enhanced the grounds through landscaping.

Are rooms designed to have good natural daylight, to

improve quality of life and reduce the need for energy
to light a home?

CEMicircular WebWatch

You can find out more about the Building Regulations

at the ODPM website, www.odpm.gov.uk, including
copies of current regulations, consultation
documents on the latest changes and news updates.

Have you undertaken pre-completion sound testing to

reduce the possibility of noise complaints?

Industry may get extra year for Part L

The Industry could be given another 12 months to implement the new Part L of the Building Regulations. (Building, 10
February 2006 p )
The legislation comes into effect in April but it is understood that, under an unprecedented period of grace, buildings
can comply with the 2002 edition providing the scope of the scheme has been submitted to building control.
It is unclear how long this transitional period will last for but it is believed that it may be six months or a year. The ODPM
said the arrangements would be announced shortly.
To become eligible for this transitional period an application must be made before 6 April.
Previous arrangements had required full details of schemes to be submitted to Building Control and work to have
started before the new regulations came into force.
John Tebbit, industry affairs director of the Construction Products Association, said: If this is correct it would mean the
ODPM has effectively delayed the implementation of new Part L for a year, but politically John Prescott can stand up in
the Commons and say it has been implemented.
Last week housing minister Yvette Cooper gave a further indication that the government is responding to Buildings
successful campaign to reform the Building Regulations.
Speaking at an Environment Audit Select Committee, she admitted the regulations were confusing and the ODPM
needed to adopt a more efficient approach. She said: The way we do Building Regulations needs to be improved.

Finishing a cathedral
The cathedral for Suffolk has just been finished. It is Englands last Anglican cathedral. George Clark MSc MCIOB,
craftsman, site manager and long-time educator, observed this project from 2001 to its completion in 2005, and reports
how inspired leadership, devoted craftsmen and a miracle in a quarry answered many prayers (Construction Manager,
6 January 2006, pp.1821).

The medieval church of St James in the grounds of the

Abbey of Bury St Edmunds was nominated in 1914 as the
cathedral for Suffolk. In 1959 work began to enlarge the
church for use as a cathedral under the direction of
Stephen Dykes Bower, cathedral architect from 1943 until
1988. Between 1963 and 1970 the East End was completely
rebuilt, but funds ran out and only the concrete base for a
future tower could be constructed. Other works were left
incomplete.

and to see the quality of craftsmanship that resulted from

this pride.
Tenders were invited in accordance with EU rules, but the
successful bid was not based on price alone. The chosen
contractor had to demonstrate the special qualities of
management.
At an interview, shortlisted contractors had to describe
how they would manage a team of skilled craftsmen.
Bluestone selected Parsons as its project leader designate
and he attended the interview. Although its tender was
not the lowest, Bluestone won. Parsons likes to think it
was his Suffolk accent that won over the client, but he had
more to offer than that, having been with his company
nearly 50 years, and with many prestigious projects under
his belt.

At his death in 1994, Dykes Bower left a substantial

bequest to trustees to finish the work. His generous
legacy was not sufficient to raise the tower but was
enough to secure Millennium Commission co-funding.
This, together with a public appeal which raised more
than 2.5m, provided the funds needed to carry out the
project.

The contract required a two-stage tender, with stage one

covering the preliminaries, which included the
management team, site set-up and insurance, and
scaffolding, which was a major work package. A huge and
complex buttressed scaffolding system was required to
construct the 150ft stone tower. It had to be used for

Outstanding leadership
Leading the construction was Horry Parsons, whose quiet
personality fostered enthusiastic commitment from the
team for the full five years. It was refreshing for a visitor
like me to hear men express a sincere pride in their work
7

heavy lifting as well as for working on. Ninety-eight miles

of tubes and beams were used.

exterior stone to the brick core so the whole acts as one

mass of load-bearing masonry. The strength required by
the structure has been achieved without reinforcement or
metal ties, as these materials do not have a track record of
lasting a thousand years.

Stage two covered the brickwork and the stonework. The

extent and complexity of the stone cladding demanded a
specialist contractor, but the tower is essentially a loadbearing brick structure, so the brickwork was just as vital.

David Peacock was the leader. Every brick of the tower,

from the massive foundations up to the parapets, had to
be laid with a full bed and with precise accuracy. The team
had to develop special techniques in the use of modified
trowels. The architect required a completely flat bed,
which was obtained by cutting the trowels, to remove the
point, and creating a 75mm flat tip.

Here Parsons demonstrated what it meant to him to be a

builder. Rather than inviting a brickwork contractor to bid,
he recommended to his directors that they bid for the
work themselves, arguing that theyd be able to work as a
traditional builder rather than just provide management
expertise. It meant he could appoint and develop the
team of craftsmen, and so control the standard of
workmanship. It would enable him truly to lead the
project. They agreed and asked him to prepare the
estimate. The bid was successful. Parsons assistant was
site manager David Palmer. They worked together closely
to ensure the projects success.

The brickwork was built to an imperial gauge using bricks

made specially by Baggeridge of Birmingham. All fair face
work has been built in English Bond while the core
construction used quarter and half bonds. English Bond
was introduced from about 1560 and the nave of the
present building was begun in that century.
The four walls of the towers corners are exceptionally
thick, up to six feet in places, and this forms some 70% of
the work. Fellow craftsmen will appreciate the demands
this made on bricklayers who had to work on top of the
core. Much of their work was at toe level nose bleed
work, as its commonly known. To lay the full bed over
such wide walls required a technique not unlike icing a
cake. The jointing of all exposed work was wood and
ragged finished to give a full flushed effect to all the
joints.

The North Transept

Work started in 1999. At ground level three vaulted
cloister bays, with one extra bay, were built to link with
the north cloisters built in 195961. Internally the mass
concrete vaulting, finished with lime plaster, supports a
higher level gallery. This was fitted with tiered seating to
overlook the nave altar. A staircase from the north
crossing leads to this gallery.
Externally the walling is built of Doulting and Clipsham
stone. The two flank walls of the transept are of random
flint rubble, on a brick core, while the north wall is
patterned with flushwork of knapped flints.

The bricklayers had to demonstrate the required craft skill

and an attitude that would consistently produce highquality work, but even then they underwent a skills
development programme to prepare them further. Every
brick to be laid, for every course, was drawn in detail by
the architect. Many trials were carried out to familiarise
them with the workability of the mortar.

The Lantern Tower

The gothic stone tower at the heart of the project is, in
fact, a load-bearing brick tower faced with stonework that
is bonded to the brick core. St Jamess church was
originally built of Barnack Stone from Lincolnshire. Owing
to its popularity in the Middle Ages and later, most seams
have long been exhausted. Fortunately it has been
possible to open a new seam of Barnack stone to
construct the outer walls, and the inner walls are lined
with Ketton stone. After trials, a traditional lime mortar
was used.

The Lime Mortar

The company was issued with a series of mortar
specifications for the various activities. Lime mortar was
used for bedding and grouting stonework, bedding and
pointing flints, laying bricks in general conditions and in
damp-proof courses.
Recognised as an authority on preparing and using lime
mortars, Michael Wingate produced the specifications. He
worked with a team consisting of architect Gothic Design
Practice, the BRE, structural engineer Brian Morton and
Bluestone. He spent six months experimenting with
numerous mix ratios, methods of mixing, timing of
individual stages, various aggregates and water content.
Despite this initial work, every mix needed to be finely
tuned to be of practical use. Depending on the particular
use, a range of materials was required: Blue Lias Hydraulic
Lime from Dorset, Bleaklow Slated Lime Putty from
Derbyshire, crushed chalk from Norfolk and a mix of soft
sands from Suffolk Pits.

The existing reinforced concrete over the crossing, the

base of the new tower, was found to have such significant
irregularities that engineers had to carry out detailed
measurements. These measurements determined a
varying thickness for virtually every stone of the cladding
in order to maintain the required half-inch gap around the
concrete capping.

The Brickwork
The new elements were designed in the gothic style to
harmonise with the original medieval church. Wherever
possible the construction had to replicate medieval
methods, even to the point of using imperial
measurements over metric. This is why they bonded the

The process of mixing was, of course, critical to the final

result. Two pre-mixes were prepared in a barrel mixer.
8

These are a mix of hydraulic lime and sharp sand, which

has a shelf life of six days, and a soft sand with slated lime
making a putty which has a shelf life of months, probably
years. A proportion of each pre-mix was brought together
with chalk granules and water to taste in a pan mixer. The
proportions and timing of each ingredient were accurately
controlled in the mixing to maintain the required
standard.

Each of the worked stones arrived on site in accordance

with its scheduled position number. The completed tower
was created from 3800 tonnes of worked stone, but such
was the accuracy of the templates and the skill of the
masons that only some five or six stones had to be
replaced. The journey of each stone to its position in the
tower was a fascinating path to follow. The required batch
of prepared stones was carefully placed on a pallet,
transported to a lift housed in the huge buttressed
scaffolding tower and then raised to the working level.
The pallet was then wheeled 50ft on an access bridge to
the north face of the tower.

The stonework
Stone is the ultimate building material available to man. It
imparts a sense of permanence and allows the designer,
with the craftsmen, to produce a building that will mellow
through the years to delight generations to come.

It then became necessary to distribute the stones around

the external face of the tower and provide a means of
lifting them for bedding on the section under
construction. This was achieved in a most efficient
manner. As each lift of the scaffold was raised, a
suspended perimeter rail was provided that ran
continuously around the centre line of the tower walling
and above the masons heads. The rail carried an electric
hoist, mounted on a powered bogey, which enabled the
masons to hoist the stones, transport them over the top of
the perimeter walls and by means of a hand held
controller lower them gently on to their prepared bed. It
was remarkable to see a half-tonne carved stone
suspended only by the friction grip of a Lewis Pin
precisely lowered on to its bed.

At St Edmundsbury Cathedral, the links with earlier

cathedrals and their builders are remarkable. Barnack
stone was used to build both the Abbey and the adjacent
Norman tower. For many years the quarry was considered
exhausted. But fate took a hand and a seam of Barnack
was located which proved to be enough for cladding the
tower. It was occasionally supplemented by a similar
stone, Clipsham, to ensure that sufficient Barnack was
available for areas facing severe weather exposure.
When quarried the stone was transported a short distance
to the contractor selected to carry out all masonry work,
Ketton Architectural Stone and Masonry. Here the stone
was cut and worked. Each individual stone had to be set
out using detailed drawings and these were produced by
Peter Banister working in a small office in the garden of
his own house. Each of the full size templates were drawn,
and cut, to an accuracy of 1/32 with no tolerances
permitted. Many hundreds of face and bed templates
were required.

To bed the huge arch stones the masons employed their

own special techniques. As each stone was gently lowered
into position, small wooden wedges were placed under
each corner and these carried its weight. The arch was
completed in this way and the wedges withdrawn on the
same day. This allowed the whole arch to bed firmly down
on its joint lines and freed the centring for ease of
removal.

The arches presented a particular problem, as they had to

be drawn full size to set out the curve of support centring
and to prepare the templates. The floor of the village hall
was the only surface large enough.

Each craftsman had to interpret the intentions of the

designer consistently and faithfully. Parsons successfully
combined his roles as leader of the craftsmen and
manager of the commercial demands of his company. His
philosophy was simple: instruct clearly; constantly
encourage; continually communicate; show appreciation;
and keep smiling. It worked, as very few of the team left
before their part of the work was completed.

Brick and stone were bonded throughout the structure so

that the whole acts as one mass of masonry in the way it
would have done in a medieval building. Most 20thcentury buildings other than housing use a steel or
concrete frame to provide stability and load distribution.
However, St Edmundsburys tower achieves strength and
stability without reinforced concrete, metal ties or
Portland Cement. The masons and bricklayers worked as a
team. The stone facing was laid ahead of the brickwork by
one course, thus enabling bonding across the stonework
at intervals.

High up on the north face, incorporated in the flint flush

work of the tower parapet are the initials EE (for St
Edmund). In recognition of his outstanding leadership the
architect presented Parsons with a framed, detailed
drawing of the completed project. He had changed the
initials to HP.

Project information
Scope To complete the final phase of St Edmundsburys Cathedral, building a transept, a 150ft lantern tower, and a small
chapel. Work took from 1999 to 2005
Total cost 9m (approx)
Contractor Bluestone (formally Sindall)
Architect Gothic Design Practice of Saffron Walden
Masonry Ketton Architectural Stone and Masonry

Photographs by Ian Hulland

10

CONSTRUCTION
Whole-life value
The Private Finance Initiative (PFI) was aimed at delivering better quality and greater cost effectiveness from public sector
projects by driving down the whole-life costs associated with managing and maintaining buildings. But its not working
out like that. Thomas Lane asked Andy Green of Faithful & Gould if there is another way of going about the problem and
found that what we need now is whole-life value (Building, 23 September 2005).

As we know, a dog is for life, not just for Christmas. This

cautionary message could apply equally to the
construction industrys attitude to its product: for years it
was accustomed to simply putting up buildings then
walking away without having to worry about subsequent
running and maintenance costs.

costing. Second, theres a lack of robust historical data on

running costs. Third, people making investment decisions
need a tool not just based on cost but other drivers such
as time, sustainability, quality and return on investment.
Its done in a vacuum and theres no way of comparing
and evaluating these options. Finally, there is a lack of
tangible evidence of the benefits of whole-life costing.

Then the PFI came along and compelled contractors to

start considering those costs, as they would be picking up
the costs for them. Indeed, this was seized upon by
advocates of PFI because now the consortiums had an
incentive to optimise whole-life costs, which in turn meant
better-value public sector buildings.

He is right about what is meant by whole-life costing. For a

start, it is fogged by overly complex terminology lifecycle
costing, through-life costing and whole-life value.
Furthermore, there is no common agreement what should
be included in whole-life cost analyses. Some people
might define certain replacement items as capital costs
and others might define them as maintenance costs. If
this isnt structured, your predictions can be completely
out of place, warns Green.

Or so the theory went. The reality is that PFI procured

buildings have been heavily criticised for poor build
quality, notably the Cumberland Infirmary in Carlisle. Not
only did that building suffer from poor build quality,
including leaking roofs, but any alteration the NHS trust
wanted to make incurred huge costs hardly a positive
example of low whole-life costs (for more on this, enter
Cumberland Infirmary into the Building website archive
search engine. This will bring up the May 2003 article
Weve got your results).

On the other hand, there is some good news here the

Building Cost Information Service is working on a
standardised approach to whole-life costing to help tackle
this problem (see The data debate, below).
Another problem with the PFI is that the client often asks
for a high-specification building or for extras that it cannot
afford. If people are asked to give too much, something
has got to give and that may not be in the clients best
interest, says Green. It has to be affordable for the client
and the bidder. If this doesnt happen then youre stuffed.
He adds that bidders are often reluctant to pull out of
deals going this way because they would have to write off
significant bid costs. Clients are happy to proceed, too,
because according to Green their stock response is the
industry can use innovation to deliver savings.

That said, the Cumberland Infirmary was completed in

2000 and was the first hospital PFI. Has the industry moved
on from there, and is it now delivering PFI projects where
whole-life costs have been honed to perfection? Or are
there still barriers preventing the industry from achieving
best-value public buildings?
According to Andy Green, a director at cost consultant
Faithful & Gould, there are still obstacles to achieving best
value. Green has lived and breathed whole-life costing for
the past 11 years. He says the PFI market has come a long
way for a small group of people, but a lot of people are
still reverting to habit and going for low capital costs.

The tight invitation-to-tender timescale is another

problem facing PFI consortiums. In the case of schools this
is typically 16 weeks, which is not long to develop and
submit a proposal. The architect goes off on one and
comes up with a fancy scheme that is then put against
costs, says Green. Theres a 11th-hour panic, the scheme
is twisted to fit so its no surprise when the whole thing
goes off the rails.

He quotes a recent report published by the National Audit

Office called Improving Public Services through Better
Construction. It identified four key barriers to successful
whole-life costing that I totally endorse, he says. First,
theres a lack of clarity on what we mean by whole-life
11

Faithful & Gould has collaborated with Constructing

Excellence, the RICS and the European Construction
Institute to develop a solution to these problems. What
we are trying to do is create a tool so future deals dont go
the same way by providing something basic the industry
can use straight away, explains Green. He says the
objective of this toolkit is to achieve whole-life value,
which is a more holistic approach than whole-life costing.
The problem is whole-life costs address a specific solution
and dont consider whether it is the best solution overall.

of agreeing how the information should be compiled. The

Building Cost Information Service is set to address this
issue with a standard form for whole-life costing, which
should help, as most cost consultants use its data.
The problem is that the BCIS data is used by a wide variety
of sectors, all of which view whole-life costing differently.
For example, the developer of an office block who lets it
on a 25-year lease needs much simpler whole-life cost
information than the owner developer who wants
everything included. The other problem is what is counted
as a capital cost, and what is replacement. Some people
might say the replacement of plant is a replacement cost
but others might say it is a capital cost.

Green says whole-life value is simple and likens it to

leasing a car. With a car, a purchaser first considers the
make and type they want, then once they have decided
this they consider what options are available. As they go
through this process the monthly cost is flagged up so the
buyer makes an informed final choice. All this information
is hidden in the PFI process. Clever clients can deal with
this but not clients new to the game, Green says. With
this you dont mention whole-life costs; instead you talk
about what sort of building you want and how long you
want it for. This tool should go some way towards
addressing some of the problems with achieving best
value as, like the well-cared-for dog, PFI is here to stay.

The BCIS is going to update its standard form of cost

analysis, which covers capital costs, and its property
occupancy cost analysis early next year, which considers
running costs. A document unifying the two will also be
published. The way the data is structured will be changed
to make whole-life costing data more transparent.
Joe Martin, the executive director of the BCIS, says people
will still use the data to suit their sector needs but it will be
clear what has been included in their figures. Hopefully
having this new structure should make what has and
hasnt been included more apparent, says Martin.

The data debate

One barrier to achieving reliable, comparable whole-life
costing data is that there is currently no standardised way

Concurrent delay
The issue of concurrent delay within construction contracts is complex and this area of law is still developing. Tom
Wrzesien of Taylor Wessing goes back to first principles to explain the current state of play (Construction Law,
December 2005, pp.2022).

Concurrent delay is a subject surrounded by confusion,

and gives rise to vexed issues for those who have to deal
with it. Foremost it is a concern for certifiers under
construction and engineering contracts, and for tribunals
required to resolve delay claims. However, it should also
be in the minds of those who draft construction
documents, and amendments to standard form contracts.

Key points

Concurrent delay is a cause for concern to

contractors. employers, and certifiers alike.

It is important to consider extensions of time and loss

and expense separately, as different principles apply to
each.

The contractors entitlement to extensions of time is

affected by concurrent culpable delays.

The effect of concurrent delay on the contractors

entitlement to loss and expense.

When loss and expense may be apportioned between

concurrent causes.

The efficacy of contract clauses intended to address

concurrent delay.

Much of the confusion flows from the cases concerning

concurrent delay. This article seeks to dispel some of the
confusion by going back to first principles. In particular it
considers, separately, how concurrent delay affects a
contractors entitlement to extensions of time, and to
additional payment for related loss and expense. Finally it
considers what may be done in terms of contract drafting
to clarify the position.

12

Where there are concurrent delays, one of which entitles

the contractor to an extension of time and another is
culpable, then the employers default can be said to be
causative of the delay. To deprive the contractor of an
extension of time in such a case would be to allow the
employer to recover when it is itself in default.
Accordingly the contractor should maintain its right to an
extension of time.

What is concurrent delay?

The definition of concurrent delay is itself the subject of
debate. For the purposes of this article, a concurrent delay
is assumed to arise where a single period of delay is
caused by more than one event. On this analysis it is the
time that the delay is suffered, and not the time that the
event occurs, that is the key factor in determining
concurrency.

This reflects the decision of the Court of Appeal in Peak v

McKinney, and accords with the decision of Dyson J in
Henry Boot Construction (UK) Limited v Malmaison Hotel
(Manchester) Limited (1999) 17 Con LR 32, in which the
Judge accepted the parties agreed position that:

Why concurrency matters

Concurrency is important, because different delays have
different consequences. Delays can be divided into the
following categories:

Compensable delay events that entitle the contractor

to an extension of time and to additional payment (loss
and expense) in respect of costs flowing from the
event.

Excusable delay (or neutral delay) events that entitle

the contractor to an extension of time, but where the
contractor bears the risk of additional costs that flow
from the event.

... if there are two concurrent causes of delay, one of

which is a relevant event and the other is not, then the
contractor is entitled to an extension of time for the
period of delay caused by the relevant event
notwithstanding the concurrent effect of the other
event.

The above text was also cited with approval in the

judgment in Motherwell Bridge Construction Ltd v Micafil
Vacuumtechnik 81 Con LR 44. A similar approach was
adopted in Royal Brompton Hospital NHS Trust v
Hammond (No 7) [2001] 76 Con LR 148, where His Honour
Judge Seymour found that if the contractor:

Culpable delay (or inexcusable delay) events that do

not entitle the contractor either to an extension of
time or to additional payment.

was delayed in completing the works both by

matters for which it bore the contractual risk and by
relevant events, within the meaning of that term in the
Standard form, in the light of the authorities to which I
have referred, it would be entitled to extensions of
time by reason of the occurrence and the relevant
events notwithstanding its own default.

Events in two or more categories that can be said to have

caused the same period of delay (concurrent delay)
conflict in the determination of extensions of time and
loss and expense.

The dichotomy between extensions of time

and loss and expense
The key to understanding concurrent delay is to
appreciate that the considerations that apply to
extensions of time are different from those that apply to
loss and expense. This is sometimes overlooked, despite
building and engineering contracts such as the JCT and
ICE forms dealing with the two issues separately.

In any case, where there is concurrent delay, the

employers loss is the same regardless of the occurrence
of the culpable event. Where there are concurrent delays,
both of which can be said to have caused the delay
suffered, the contractor should remain entitled to an
extension of time, notwithstanding its own culpable delay.

Concurrent delay and extensions of time

Concurrent delay and loss and expense

It is often forgotten that extension of time provisions are

not included solely for the benefit of the contractor. Their
key purpose is to preserve the employers entitlement to
liquidated damages. Unless the extension of time
provisions allow an extension of time for delaying events
that are the responsibility of the employer, then the
liquidated damages machinery breaks down and cannot
be enforced (Peak Construction (Liverpool) Limited v
McKinney Foundations Limited 1 BLR 111). Where the
machinery for extensions of time and liquidated damages
breaks down, then time becomes at large, giving the
contractor a reasonable time to complete, and restricting
the employers remedy to losses it can prove have been
caused by the contractors default.

Unlike the position with extensions of time, there is no

overarching principle that interferes with agreements
between the parties with regard to loss and expense. The
position therefore depends upon the terms of the
contract. The standard forms differ in their drafting, but
most provide that the contractor can recover loss and
expense caused by specific matters identified in the
contract in question. Unfortunately, concurrent delay
gives rise to difficult questions of causation. Where
different events can be said to cause a delay, it is often
difficult to attribute costs to each. The starting point must
be to unravel the factual position as far as possible. In
many cases, the events and the costs can be broken down
13

deal expressly with concurrent delay. As such provisions

tend to be proposed by employers, they often seek to
exclude extensions of time and loss and expense in the
case of concurrent delays.

so that it can be shown which party is responsible for

each.
Where delays are truly concurrent, the questions of
causation are more difficult, and have been the subject of
debate in various competing authorities. Until recently,
these have tended to favour a winner-takes-all type
approach, where the claim succeeds or fails as a whole.

Although this may be seen as cutting through the

confusion and protecting the employers interests, there
are risks involved.
There is a risk that a clause denying the contractor an
extension of time for compensable or excusable delay,
which is concurrent with culpable delay, will render the
liquidated damages unenforceable. This follows from the
relationship between extension of time provisions and
liquidated damages provisions, exemplified by Peak v
McKinney. These days, there is less suspicion of liquidated
damages than when Peak v McKinney was decided in 1970
and the court is more likely to uphold such provisions.
However, in the absence of clear authority on the point,
the risk remains.

In some cases, though, it is not possible to attribute a

dominant case to a particular item of loss and expense,
notwithstanding
clear
evidence
of
concurrent
compensable delaying events. This was recognised in a
recent Scottish case, John Doyle Construction Lid v Laing
Management (Scotland) Ltd [2004] Scot CS 141, which has
opened the door to apportioning the losses between
competing causes. Whilst this case is not strictly binding
on the courts of England and Wales, it is persuasive
authority.
The Doyle case states that where an item of loss results
from concurrent causes, provided the events for which
the employer is responsible are a material cause of the
loss, an apportionment of the loss can be carried out in
appropriate cases. The Judge considered where delay
might have been caused by late provision of information
by the architect but where bad weather might have
prevented work for part of the time in the same period,
and stated:

The position is different in relation to loss and expense.

Here the parties are free to provide what they wish.
However, such clauses are not a panacea and can fail to
deliver the required certainty in practice. Given the
interwoven events on construction and engineering
projects, questions of causation abound and true
concurrency can often be difficult to establish.

Summary

In such a case responsibility for the loss can be

apportioned between the two causes, according to
their relative significance.... During the period when
both operated, we are of the opinion that each should
normally be treated as contributing to the loss....
Unless there are special reasons to the contrary,
responsibility should probably be divided on an equal
basis, at least where the concurrent cause is not the
contractors responsibility. Where it is his
responsibility, however, it may be appropriate to deny
him any recovery for the period of delay during which
he is in default.

When analysing concurrent delay it is vital to distinguish

the effect on extensions of time from the effect on loss
and expense.
In essence, barring specific contract terms to the contrary,
concurrent culpable delay ought not to preclude a
contractor from obtaining an extension of time, though it
is likely to prevent him from recovering loss and expense.
Where compensable delay is concurrent with neutral
delay, the contractor is entitled to an extension of time
and the resulting loss and expense should ordinarily be
apportioned between the competing causes according to
their relative significance.

Accordingly, where the concurrent delay is caused by a

combination of compensable delay and neutral delay, an
apportionment exercise should be carried out, based
upon the relative significance of each event. Where the
concurrent delay flows from compensable delay and
culpable delay, such an exercise is unlikely to be
appropriate, though it is not ruled out entirely. In the
latter case, the contractor is likely to be prevented from
recovering loss and expense save to the extent he can
show that the compensable delay was the dominant or
effective cause of specific items of loss.

A final word of warning, however: this is a developing area

of law, so the above propositions are not beyond
argument. More importantly, the above legal analysis
assumes concurrent delay in fact. This can only be
established by a rigorous examination of events on site,
and not every apparent concurrent delay turns out to be
critical on proper analysis.
Contact:
Construction Law is published by LexisNexis
Butterworths, tel +44 (0) 20 7347 3549. See the publishers
website www.lexisnexis.co.uk for orders, subscriptions
and online trials.

Specific contract clauses

Given the confusion that abounds in this area, those
drafting amendments and bespoke contracts sometimes

14

JCT contracts and historic buildings

JCT contracts can sometimes seem unwieldy for historic building projects, but Adrian Stenning warns against striking
out clauses too readily because they appear irrelevant or burdensome. The Information Release Schedule, for example,
may actually assist in running a project more effectively if used imaginatively (Building Conservation Journal,
Autumn/Winter 2005, pp.1819).

You might find this slightly controversial, but those who

write the JCT Form of Contracts must sometimes wonder
why they bother. I know it is far from the easiest set of
contracts but the clauses are there for a good reason and
should not be simply dismissed.

building work but that is taking me away from the issue

in hand.
Any extension of time granted due to unforeseen work is
liable to attract cost (possibly substantial) and is unlikely
to inspire the client that this is wholly well-managed if it is
born out of a Well, we didnt really know what to expect
approach. I agree this might be the only solution in some
instances, but in many that we dont yet know what will
be found is too often used as an excuse for not wanting
to put in the groundwork before the project commences,
and, further, would not want this drawn to their clients
attention highlighting it in an Information Release
Schedule.

Take the sixth Recital of the JCT Intermediate Contract

the Information Release Schedule (previously the fourth
Recital in the old IFC 98 Form), where there appears to be
an assumption that this should always be deleted. On this
clause the architect's guide to the contract even starts
with the words If not deleted ... which seems to presume
that it should be. What is more, the example page of the
contract shows it crossed through. Why did those good
people of the JCT put the clause in only for us to be told
to scratch it out?

Is this just too cynical?

So is there a big problem? How often at the first site
meeting of your project are you faced with the
contractors Information Required list, all with dates for
about one or two weeks thereafter, which it is just not
possible to achieve. With an Information Release
Schedule not in use, the contractors programme
(although not a contract document) has just been elevated
in status. If information is not provided, an argument
ensues and with it claims for delay. You can spend time
discussing and negotiating alternative dates with the
contractor, but you are still probably going to be left
under some pressure. In such instances the striking out of
the Information Release Schedule is almost certainly a
missed opportunity to be in better control of your project.

More importantly you might ask, what does this have to

do to with surveyors working on historic buildings? We
are not architects and historic building work is quite
different from the new build projects it might be felt that
guide is directed at. However, the deletion of the
Information Release Recital is a common perception, and
one I must hold my hands up to supporting for a while, ie
the notion that this clause is not appropriate to historic
building projects because it might tie the contract
administrators shoelaces together. That is, the contract
administrator (CA) could not guarantee dates for
providing information due to opening up delays, need for
a considered reaction to what is found, design of
sympathetic solutions and agreement of such solutions
with the relevant authorities.

Lets go back to our re-roofing example. Although it was

not possible to ascertain what repairs will be necessary to
the structure beneath, it was perhaps possible to know
when that information might be provided. Remember the
project duration had been fixed so we already had some
thoughts about what we expected to find. Why then could
we not have fixed the latest date when the design
information and decisions on such repairs could be
provided?

A re-roofing project is a good example where the exact

nature of the repairs to the structure cannot be identified
until the roof coverings have been removed and the
structure opened up. It is possible to get around the
problem by allowing a long enough construction time
and, considering what is found on its merits, discussing
and agreeing any impact with the contractor and awarding
an extension of time if necessary.

If we do so then we can take back control. The contractor

cannot pretend his programme and tender requires the
information by an unrealistic date: it has to have allowed
for the fact that this might not be available until a certain
date. That date is now fixed by you and the project is
under your control as project leader.

This touchy feely approach is laudable and you would

always like to think you can resolve any problems with a
contractor on an amicable basis.
But if that is to be the case, why should we bother to use a
contract at all?
Why do we want to be strict over certain clauses and not
others? Is it because it just happens to suit us? Perhaps we
should be discussing and considering the use of all the
clauses of the standard contract in relation to historic

It is possible the date could be linked to a construction

activity, eg, two weeks after the roof coverings to area 'A
are removed the repairs will have been designed,
scheduled and information made available.
15

Of course things will happen on an historic building

project that were genuinely unforeseen. Discussion and
negotiation with the contractor as part of the construction
team will be necessary to provide an amicable solution.
However, it will be done in far less muddy water, as the
majority of the issues will have been managed within the
framework you have set up and the problem isolated. It is
possible to make allowance in the contract documents for
updates to the schedule to be made, perhaps at monthly
progress meetings, and this would further assist in the
mitigation of any problems, which will make it easier to
explain to the client

management tool. I believe that the essence of this clause

has been overlooked for too long and it is time its use was
considered more widely for historic building projects.
Dont think just because it is not included in the Minor
Works Form the ethos cannot be accommodated within
the other contract documents. I am certain it could
improve the performance of many projects, not least by
providing an early and better consideration of the risks
and thus a well-managed solution. Enjoyment can be
taken in the project and work itself, avoiding bickering
over where fault lies,
Go on, make the JCT happy. Start using the contracts to
run successful projects not battlegrounds! Food for
thought if nothing else.

So, as the Intermediate Form Guide states: Used carefully,

the Information Release Schedule can be a very effective

PFI equivalent project relief clauses

The recent case of Midland Expressway Limited v Carillion Construction Limited & Ors [2005] EWHC 2963 (TCC) has cast
doubt on the effectiveness of equivalent project relief clauses in PFI subcontracts and will cause waves in the PFI
industry. The case has implications for project companies and their funders and investors. It arose out of the construction
of the M6 toll road and revolves around the applicability of the Housing Grants Construction and Regeneration Act 1996
to construction contracts. Given the Governments PFI-friendly stance, changes may have to be made to policy in the
arena of PFI subcontracts and the resolution of disputes. This article, issued on 11 January 2006, is from Law-Now, CMS
Cameron McKennas Online Information Service.

company could be exposed to costs it cannot recover.

Further, there is a possibility that a decision by an
adjudicator under the subcontract would be inconsistent
with or conflict with a decision made pursuant to the
dispute resolution procedure under the Project
Agreement, again exposing the project company to a
liability that it has not predicted or provided for.

PFI
subcontracts:
doubt
cast
on
effectiveness of equivalent project relief
clauses
For some time practitioners in the field of PFI have
grappled with the issues arising from the application of
the Housing Grants Construction and Regeneration Act
1996 (referred to here as the Act) to subcontracts in PFI
projects (typically the construction contracts and the FM
contracts). In particular, there is a potential conflict
between the needs of investors and funders to keep the
project company whole on the one hand (ie to match
(both in quantum and timing) the liabilities which fall due
from the project company to its subcontractors with the
benefits which fall due to the project company from the
contracting authority), and the provisions of the Act
intended to promote prompt payment to subcontractors
in a contractual chain on the other hand.

The second is under s.113(1), which provides:

a provision making payment under a construction
contract conditional on the payer receiving payment
from a third person is ineffective, unless that third
person, or any other person payment by whom is,
under the contract (directly or indirectly), a condition
of payment by that third person, is insolvent.

This has become known as the prohibition of pay when

paid provisions in subcontracts.

Issue and relevant legislation

The result is that any provision whereby a subcontract

may (i) defer or limit a subcontractors right to go to
adjudication at any time, and/or (ii) provide that the
subcontractors payment is conditional on the project
company receiving payment, may be held to be
unenforceable.

Two points arise out of a consideration of the Act.

The first is that s.108 provides that under a construction
contract as defined in the Act (which will cover a PFI
construction subcontract and may cover the hard
services part of a facilities management/maintenance
subcontract) either party is entitled to refer a dispute to
adjudication at any time. This right cannot be excluded by
contract. If a subcontractor invokes its rights under s.108
before the project company has had a chance to secure its
position under the related project agreement, the project

While it has long been realised that the drafting of clauses

that seek (by using any similar devices) to achieve this is
beset with difficulty, it was thought that clauses limiting
the subcontractors entitlement under the subcontract to
16

the project companys agreed or determined equivalent

entitlement (as opposed to actual payment) under the
project agreement, would be effective.

pending the determination, agreement or

resolution of any Equivalent Project Relief under the
[Project Agreement], [CAMBBA] shall take no steps to
enforce any right, benefit or relief under this Contract
to the extent that such right, benefit or relief relates to
the same circumstances as those to which the Project
Relief Event to which that Equivalent Project Relief
relates.

The case
Midland Expressway Limited v Carillion Construction
Limited & Ors [2005] EWHC 2963 (TCC).
The case in point was an application for an injunction
brought by the project company, Midland Expressway
Limited (MEL) to prevent the construction subcontractors
(each subsidiaries of Carillion, Alfred McAlpine, Balfour
Beatty and AMEC, and referred to as CAMBBA) from
pursuing a reference to adjudication under their
subcontract. None of the subcontractors was an investor
in the project company. The subject of the alleged dispute
was the amount of the payment due to CAMBBA from
MEL for a variation requested by the Secretary of State for
Transport (the Department) as contracting authority to
the project signed in 2000 to design, build, operate and
maintain the M6 toll road near Birmingham. The variation
related to the construction of the tie-ins with the main
M6 motorway at either end of the toll road.

Mr Justice Jackson held that there were two possibilities:

first that clause 7.4 should be construed narrowly and in a
manner compatible with the Act, and second that the
clause is contrary to the Act and thus the Scheme for
Construction Contracts (which would give CAMBBA a
right to go to adjudication at any time) is substituted in
the place of the contractual adjudication provisions. In
either case (and he did not decide which was correct),
clause 7 of the D&C contract did not bar CAMBBA from
pursuing its claim by adjudication.
S.113 (bar on pay when paid provisions)
MEL relied on clause 39.6.2 of the D&C contract. It
provides:

The Department disagreed with the sum requested for

variation works carried out by CAMBBA, and CAMBBA
instigated an adjudication against MEL for short of 10m.
While the project agreement gave the Department the
option to become a party to any dispute between MEL and
CAMBBA, the Department decided on this occasion not to
do so, preferring to await the result of the adjudication
between MEL and CAMBBA.

subject only to clause 7 (Contractors Rights) and

notwithstanding any other provisions of this Contract,
[CAMBBA]s rights to any Price Adjustment under or in
connection with clause 39 (Changes) in respect of a
Secretary of States Change shall in no event exceed
the amounts, if any, to which [MEL] is entitled to be
paid by the Department in respect of a corresponding
change pursuant to Clauses 8.1.3.1 and 8.1.3.3 of the
[Project Agreement].

In its reference to adjudication, CAMBBA requested

interim payment of the sum they claimed due, saying that
MELs pursuit of its entitlement under the Project
Agreement should not hold up payment to CAMBBA.

Mr Justice Jackson held that the practical consequence of

this clause was that CAMBBA would not be paid for
variations requested by the Department unless and until
MEL had received a corresponding sum from the
Department, even where CAMBBA had shown or could
show, under the D&C contract dispute resolution
procedures, that it was entitled to payment or extra
payment.

Mr Justice Jackson (Technology and Construction Court)

considered each of the clauses relied on by MEL to defeat
CAMBBAs claim in light of each of the relevant provisions
of the Act.
S.108 (right to commence adjudication at any time)
Clause 7.1.3 of the contract between MEL and CAMBBA
(the D&C contract) limited CAMBBAs entitlement to
payment or recovery in respect of a price adjustment
(such as a variation) to such time as:

In Mr Justice Jacksons view, this was what s.113 of the Act

was designed to legislate against. He went on to say that
the use in that clause of the words to which [MEL] is
entitled to be paid did not save the clause: words used as
a device to get around s.113 will not assist.

(a) an agreement has been made between the

Secretary of State and MEL or a determination has
otherwise been made under or in connection with the
[Project Agreement] establishing that [MEL] is entitled
to Equivalent Project Relief in respect of such Price
Adjustment; and (b) [MEL] has received the Price
Adjustment Funds or has certified that it has funds
available to it for the purposes of payment of such
Price Adjustment.

He went on to say that if that analysis were incorrect, then

clause 39.6.2, when read together with clause 7.1.3, would
in any case be a pay when paid provision in all
circumstances other than where MEL had certified that it
had funds available to pay CAMBBA.

Effect of the judgment

This was agreed to at best be a defence to adjudication as

opposed to a bar. However, clause 7.4 of the D&C contract
stated:

The outcome of this case will clearly cause waves in the

PFI industry. However, there are a few points to bear in
mind.
17

The first is that the case related to payment for a variation

as opposed to the payments to which the subcontractors
were entitled under the project as at financial close. The
latter type of payments made to a construction
subcontractor during the construction phase will not fall
within the ambit of any equivalent project relief-type
clause as they are paid through the project company from
the projects funders on certification by the latters
technical adviser. They are thus not the subjects of any
clause in the construction subcontract that relates the
subcontractors entitlement to a corresponding
entitlement of the project company against the
contracting authority.

the Act should be amended so that it applies to the

project agreements as well as the subcontracts.
Government policy has always been that the public sector
should not be embroiled in every dispute between the
project company and its supply chain (and that the project
company should ensure that decisions flow through the
contractual chain by correct structuring).
However, given the difficulties illustrated by this case, it
may be that this policy should now be reviewed. If both
the subcontract and the project agreement were subject
to the same dispute resolution regimes, there would be
much more scope for ensuring that the construction
subcontractors entitlement would be determined at the
same time as the project companys, and by the same
process.

A similar analysis should, given appropriate drafting, apply

to variation payments where the payment is being funded
by the project company by way of an addition to its
existing debt facility. Payment will be made to the
construction subcontractor following certification by
lenders TA and the unitary charge adjusted.

Meanwhile, investors and funders will need to review

subcontract provisions in both signed deals, particularly
given the recent activity in secondary market transfers,
and those approaching close, in the light of this case. If it
is thought that these clauses could fail, then they and their
advisers will be looking for alternative ways to deal with
the potential risk to the project company. They may now
be looking for longer periods in the subcontracts for the
project company to respond to claims. The as yet untested
back-up device of parallel loan agreements may come
under greater scrutiny as a potential solution. The risk of a
challenge may be higher in consortia that are not sponsorled.

Second, the case did not concern entitlement to

extensions of time or relief from termination. While it is
possible that a clause limiting the construction
subcontractors entitlement to time or relief to that agreed
or determined under a project agreement could offend
s.108, the pay when paid considerations are irrelevant.
Third, each case turns on its facts and the exact words of
the relevant restrictions. In many of the clauses
considered, the judge found wording which directly
offended the Act. With different drafting the result could
be different in another case. Other contractual provisions
could be, and often are, included which are aimed at
achieving by other means the protection for the project
company that investors and funders are looking for and
which facilitate the funding of these projects.

Contacts
For more information please contact:
Susan Booth at susan.booth@cms-cmck.com or
on +44 (0)20 7367 3095,
Paul Smith at paul.smith@cms-cmck.com or
on +44 (0)20 7367 3475, or

Nevertheless the courts purposive approach to the

interpretation of the Act, particularly of s.113, must cause
concern.

Trevor Butcher at trevor.butcher@cms-cmck.com or

on +44 (0)20 7367 2517.

This leads on to the issue of government policy. Part of

the problem lies with the fact that, whilst the Act does
apply to many of the subcontracts on a PFI project, it does
not apply to the project agreement. Any proposal to
disapply the Act from PFI subcontracts is unlikely to be
acceptable to the construction industry. On the other
hand, the Government last year rejected a proposal that

Acknowledgement
Law-Now CMS Cameron McKennas On-line
Information Service www.law-now.com

CEMicircular WebWatch
This article, together with others related to
construction contracts and PFI, can be found at the
Law Now website. Go www.law-now.com and use
the search facility.

18

DEVELOPMENT
Social housing costs
The cost of building social housing is highly pertinent for UK private developers, with local authorities still seeking free
serviced land through their strategic planning guidelines and section 106 planning agreements. Most local authorities
want 30% affordable housing on private schemes, while the London Mayor wants 50%. In a buoyant market with rising
property values, meeting such demands has proved possible, but a more static market accompanied by rising building
costs can quickly make schemes unviable. In the following extracts from Property Week, EC Harris provide data on the
costs of building houses (18 November 2005, p.60) and flats (21 October 2005, p.56) for registered social landlords.

Social housing build costs

Social housing flats build costs

The Graphs 1 - 3 illustrate the costs of new houses built

for registered social landlords (RSLs) tendered in the last
four years. The figures are based on the contract sum,
adjusted for location and updated to current price levels.

Graphs 4 - 6 illustrate the costs of new flats built for

registered social landlords which have been tendered in
the last four years and with which EC Harris has been
involved. The figures shown are based on the contract
sum, adjusted for location and updated to current price
levels.

Most social housing developments include a mixture of

flats and houses in a range of unit sizes. The figures here
are for houses only and represent costs of a typical mix of
one-, two- and three-bedroom homes. The procurement
method is invariably design and build.

Most social housing schemes include a mixture of flats

and houses in a range of unit sizes. The figures here are
for apartment buildings and represent costs of a typical
mix of one-, two- and three-bedroom units in low- to
medium-rise schemes, invariably design and build.

Building costs are affected by a range of factors, and the

schemes included in the benchmark studies cover a range
of locations and specifications. It should be noted that the
costs of external works, such as hard and soft landscaping,
access roads and car parking, can be extensive and can
typically add around 20% to the overall cost, although
figures of 15%30% are not uncommon.

These costs do not apply to affordable housing built as

part of a private scheme, as there is often no difference
between the designs of the two types of units.
The schemes included in the benchmark studies cover a
range of locations and specifications.

It is of interest that, based on a gross floor area of 818 sq ft

(76 sq m), the square metre cost of the deputy prime
ministers 60,000 house is 72.83/sq ft (784/sq m). At
prices prevailing in South-East England, only one of the
schemes in the EC Harris sample came in below that
figure.

The costs of external works, hard and soft landscaping,

access roads and car parking, can add around 15% to the
overall cost, although figures can range from 7% to 30%.
There is a big drive from within the Government to build
on brownfield sites. Last year more than 70% of housing
schemes were built on previously developed land. The
benchmark figures exclude the costs of any site
remediation.

However, with prices varying by as much as 28% around

the country this 72.83/sq ft target is achievable by around
50% of the sample in areas of Scotland and Wales.
Although 70% of housing schemes were built on
brownfield sites last year, the benchmark figures exclude
costs of any site remediation which may be necessary.

Postscript:
While all reasonable care has been taken in compiling the
figures, EC Harris takes no responsibility for any use put
upon them.

19

Graph 1

Graph 2

Graph 4

Graph 3

Graph 5
Graph 6

20

Mixed-use schemes
The post-war UK planning policies pursued a regime of separating housing from business uses, on the grounds of
providing people a better quality of life by locating homes away from the dirt and noise of industry and commerce. The
different tenure arrangements for housing and commercial property were also perceived to be incompatible for property
investment reasons. Since the 1990s, the pendulum has swung the other way, and mixed-use is increasingly the name of
the game for town-centre redevelopment, in a bid to bring life back into city centres. But can uses such as retail and
residential really mix? Simon Rawlinson of Davis Langdon examines the practicalities and costs of mixed-use city-centre
schemes (Building, 9 December 2005, pp.5052).

Introduction
After years in the doldrums, Britains cities are on the
rebound, with huge investment going into centrally
located commercial, retail and residential developments.
Major centres such as Manchester and Birmingham have
already transformed themselves, and others such as
Liverpool have begun on their own regeneration. The
effects of this trend can also be seen in Britains market
towns, which are upgrading their retail in mixed-use
schemes to compete with large shopping destinations.
Much of this trend can be put down to planning policy,
particularly PPG6, which since the late 1990s has directed
development into town and city centres and which
increasingly is aimed at creating rejuvenated city-centre
economies serving visitors and expanding local
populations. Even supermarkets are now required in some
circumstances to provide mixed-tenure housing as part of
a development.

Albion Riverside
Known for its distinctive luxury flats, also has a separate a
six-storey block of affordable housing above retail units.

Opportunities for mixed-use development

Retail-led mixed use is seen as key to the creation of a

diverse and sustainable urban economy, creating a critical
mass of activity, raising property values, increasing
employment opportunities and introducing a local
population to sustain services and create vibrant, lived-in
public spaces.

The traditional mixed-use development pattern in Britains

towns and cities was broken by post-war planning and
institutional investment in large single-use buildings, such
as shopping centres, designed to meet the specific needs
of tenants and investors. The legacy of many of these
schemes has been to disrupt pedestrian movement and to
erode the diversity and vitality that make town centres
work. Many of these schemes are now obsolete and are
due for redevelopment.

In order to succeed, regeneration projects need to create

a step change in the value of property in their target area.
However, combining uses such as retail, leisure and
residential introduces a number of challenges in terms of
optimising value and compatibility between different
occupier needs. This is a complex process that potentially
involves a wide range of development partners, and that
will benefit from specialist skills and early investment in
getting the right development balance.

Because of political and social pressure rather than

investor demand, mixed use has been adopted as the new
planning standard, aimed at revitalising city centres and
securing broader community benefits such as
contributions to transport, infrastructure and affordable
housing.

This cost model looks particularly at the integration of

retail and residential large-scale schemes.

One of the things that makes mixed use quite complex is

the considerable separation of residential and commercial
expertise involved in design, construction, marketing and
investment. In some cases, different design teams may be
engaged to design the different elements. Because of the
lack of shared knowledge, opportunities on schemes to
add value can be missed, and projects can fall short of
their objectives.
When planning mixed-use schemes, the following issues
will have a substantial influence on the development mix
and the initial layouts of the development:
21

Thereafter, the priorities for each use diverge. For retail

developments, the main issues include:

Size of the scheme. Retail schemes need to be

large to achieve a critical mass, and mixed use is
much easier to co-locate on larger schemes, which
allow better separation of uses.
Separation of uses. In larger schemes, the
preference is to separate uses vertically in
different buildings. In these schemes, vibrancy is
provided by proximity of uses, and also by active
management. This approach works well with
mixed tenures in residential schemes. The
advantages of this approach include the avoidance
of the need to physically isolate different
occupiers through design and construction and
the easier packaging of the development for
investment. Separation of uses horizontally in a
single building enables the achievement of higher
densities by combining high-value ground-level
uses such as retail with residential, which secures
value from building height. Horizontal separation
is generally the only option available on smaller
schemes where a mixed use such as ground-floor
retail units might be imposed as a planning
requirement.
Influence of the primary use. Retail and
residential have some fundamentally different
space planning and layout needs and the main use
and source of value should determine the basic
design parameters. A retail-led scheme will need
to maximise rents by maximising the extent of the
active frontage, and ensuring that the design,
orientation and permeability of the scheme create
retail routes for potential shoppers. A residential
scheme in a similar location will aim to exploit
views for value and will also seek to increase
privacy and calm by encouraging pedestrians to
move around rather than through the scheme. For
most retailers, this effect would be disastrous.
Similarly, the retail mix should be carefully
considered. On larger schemes, the opportunity
may be to address a lack of deep medium-sized
units aimed at providing high-quality space for
high-street multiples. However, on a residentialled scheme, local demand for retail might support
smaller convenience stores rather than larger units
for restaurants and retail chains that are popular
with institutional investors.

Value drivers for retail and residential

getting the mix right
Location, location, location is the mantra for both retailers
and residential. Town centres provide the convenience
and vibrancy that certain groups of residents value and
the critical mass of shoppers upon which retail absolutely
depends. Retail and residential also benefit greatly from
the enhanced public transport focused in city centres,
from central facilities such as parking and service yards
and from secure, managed environments.

22

Permeability and footfall. Retail centres depend

in exploiting existing and new pedestrian flows to
direct shoppers to their tenants. In modern retail
design, which is moving away from self-contained,
covered malls, the on-street active frontage is
critical to maximise rental values, so it is important
to carefully locate and to minimise the number of
access points and service entrances required to
serve to residential uses on floors above.

Retail mix. This is all about providing a range of

units to attract retailers and to support multimode shopping. The driver is the need to provide
a range of large and small units to attract highstreet multiples, niche retailers and smaller units
for one-off stores, which give a scheme character
and individuality. Leisure is increasingly a key part
of the mix, aiming to extend the operating hours
of a scheme. However, depending on the tenant,
the incorporation of leisure into a scheme
introduces a whole new set of requirements
concerning servicing, acoustic treatments and
wider impacts on other uses.

Preserving investment value. Retail units are

typically targeted at the institutional investment
market and are generally let on leases of 10 to 15
years. One of the concerns of mixed use is that the
different lease and ownership arrangements for
retail and residential might get in the way of being
able to refurbish and reconfigure the retail units to
meet future tenant needs to support rental
growth. In order to provide long-term flexibility,
units need to be capable of reconfiguration.
Provision for the inclusion of mezzanines, through
increased head height and strengthened
structures, will also differentiate units and provide
long-term flexibility.

Sightlines and visibility. Whether in malls or

high streets, retailers need to compete for
attention in a visually crowded environment.
Feature entrances, signage, canopies and towers
are key elements of design strategies to draw
shoppers to a scheme, which may affect the
attraction and value of some residential units.

Access and servicing. The location and design of

service yards is important in terms of minimising
the impact of deliveries to residents. With
mechanical plant such as DX units located on
roofs or in back-of-house areas, care also needs to
be taken in acoustic design and access for
maintenance. In order to minimise loss of sales
areas, designers may also seek to use access stairs
to residential as part of the means-of-escape
strategy.

Resilient operation. Mixed-use schemes can

face risks associated with the routing of residential

services, particularly drainage, through retail

tenant areas. Failure in these services could have a
substantial impact on high turnover businesses
such as food retail if an incident resulted in the
temporary loss of sales floor area. Protected
service routes can be created in transfer
structures, but add substantial costs of the
residential shell as they have to be sized to permit
access for maintenance, resulting in increased
building height and volume.

Residential design priorities also concern securing the

maximum value from the development. In a market with
static prices, optimum specification levels and
development efficiencies, together with the avoidance of
unnecessary costs, have become ever more critical.
Substantial issues that mixed-use developers will be
concerned with include:

Efficiency. Residential development efficiency is

primarily concerned with optimum unit size, netto-gross ratio and wall-to-floor ratios. Ideally sized
residential units may not match the depth of the
retail units, requiring transfer structures, setbacks
or a wrap around style scheme focused on a
podium or courtyard. Layouts such as these also
directly affect the efficiency of the wall-to-floor
ratio as it may not be possible to accommodate the
residential on compact floorplates. In mixed use,
net-to-gross floor area ratios are determined
largely by access and means of escape strategies
and by requirements for services risers and duct
runs.

Unit size. The size of units in terms of number of

bedrooms and overall space allowances are key
cost drivers and need to be carefully balanced
against the target market. Two- and threebedroom units are generally more expensive to
construct because of the more extensive services
and furniture and fittings. The selection of unit
size also has a significant effect in determining the
social mix of the development particularly
whether families with children will live there.

Access and means of escape. The multiple-core

approach to access in apartment schemes has
provided a highly effective means of minimising
area take-up by corridors, enhancing security and
enabling separation of different tenures. However,
because of the need to minimise the impact of
entrances on the active frontage, an opposite
approach is often adopted, based on maximising
escape distances through longer corridors and
fewer stair wells.

Integration of open market and affordable

units. Mixed tenure is at the heart of the
sustainable communities agenda and is a planning
requirement for all major urban developments.
With mixed-use retail schemes, the key issues are
the nature of the affordable unit tenure and
whether tenures are co-located in the same
building or housed in separate blocks. In general,
key worker and shared ownership tenures are
considered to be most compatible with open
market housing. Some aspects of mixed tenure
work well in city-centre locations, such as the
matching of demand for one- and two-bedroom
units. However, providing separate entrances may
reduce the efficiency of the scheme and affect
retail unit layouts. Management and service charge
costs can also create a challenge for tenants or
part-owners of affordable units, as the
management requirements for retail tenants,
investors and private apartment owners are likely
to be quite demanding.

The 45m Tally Ho Corner

Development in north London contains 15 storeys of flats
above offices and shops. The site also contains two theatres,
a community art club, a drama college and a bus station.

Design solutions for mixed-use

developments
Successful design and construction of mixed-use schemes
is focused primarily upon separating the two uses and
managing interfaces where they occur. From the point of
view of Building Regulations, mixed use does not present
major challenges. However, the requirement for
separation of uses and complex servicing arrangements

Orientation. Eastwest orientation works best for

living spaces and balconies, which may not align
with the street pattern and pedestrian flows that
drive retail values.
23

inevitably add further pressure on developments with

challenging cost targets.

Transfer structures. Solutions that enable the

column grid to be carried down through retail and
basement areas represent the most economic
solution but may not be possible on projects that
have large retail units with clear span structures.
Transfer structures can, however, provide a useful
zone for residential services distribution.

Privacy. Key issues for residents are control of

noise, waste management and security. The main
sources of noise in city-centre mixed-use schemes
are leisure units, service yards, traffic and street
life. Measures to control noise focus on the
acoustic treatment of leisure units and
management regimes to control noise breakout. In
the residential element of premium schemes,
mechanical ventilation may be provided to avoid
noise breakout through open windows.

provided a good opportunity to exploit the

benefits of combined heat and power systems.

Services distribution. Vertical supply and waste

to apartments is necessarily dispersed. Where
space planning allows, efficiencies in distribution
and riser design can be achieved through back-toback and service wall arrangements. Ventilation
from commercial uses will need to discharge at
the highest roof level if kitchen or toilet extract is
involved, and the duct runs will affect apartment
space planning. Terminations at roof level also
need to be carefully planned to avoid crosscontamination and to minimise noise.

Car parking. Town-centre residents use cars less

often than their suburban counterparts but many
will still require parking spaces on site. Spaces are
worth 1525,000 and can either be provided as
dedicated on-site parking or as contract parking in
public schemes. Parking ratios vary upon location
and local authority policy. Providing space for
shared car schemes and visitors is another issue
that developers need to consider.

Management of systems. In mixed-use schemes,

the management regime is an important aspect of
maintaining the quality and the long-term value of
the asset. It is also a potential income stream for
the ownerdeveloperfounder. If the developer
has a continuing interest in the management of
the scheme, it may be cost effective and good
marketing to enhance the basic retail and
residential shell specifications to include controls,
fire alarms and sprinklers, as required in order to
reduce recommissioning work and to facilitate
effective long-term maintenance. Use of common
BMS systems on larger schemes may also add
value by enabling central monitoring from a single
point.

Mixed-use retail and residential scheme

cost breakdown
This cost model comprises a scheme with three mixed-use
retail and residential buildings set upon a shared
basement car park and service yard. It forms part of a
larger urban regeneration project. Separate cost
breakdowns are given for retail, residential and basement
car parking and plant areas.

Main plant. On residential-led schemes, where

most of the value is derived from apartments, roof
space is not likely to be available for the location
of landlord or tenant mechanical plant. It will need
to be located in basements, service yards and
dedicated plant rooms, increasing requirements
for risers and builders work. Extensive acoustic
screening is also required for any externally
located plant.

The overall area of the development totals 40,000m2, with

19,500m2 of residential, 14,000m2 of retail and shared
basement totalling 6500m2. The scheme has three levels of
retail with active retail frontage to three sides of each
block. Three hundred flats are included in the residential
blocks, of which 100 are developed for the affordable
sector. The retail units are left as unfinished shells
whereas the residential is fitted out to meet the
requirements of both open market and affordable sectors.
Parking for 100 cars is provided in the basement.

Part L. Carbon reduction targets embodied in the

2006 revision of Part L may have a substantial
impact on the services design of apartments.
Currently electric heating is the most popular
option for heating because of the simple, dry
installation and low capital costs. However,
electric heating has a high fuel factor which means
other aspects of the design, such as the building
envelope, will need to work harder to meet the
regulations. Some authorities, such at the London
Development Agency, are likely to require a use of
efficient but complex wet systems which has
implications for distribution, management and
maintenance of services installation. Because of
scale, management regime and the existence of
diverse demand, mixed-use schemes may also

Costs are based on prices current in fourth quarter 2005

based on a location in the West Midlands. Rates are
appropriate for a project let on the basis of a two-stage
tender. Costs include a basic fit-out to residential units
but exclude demolition and site clearance, external
services and public realm works, fit-out to retail shells,
professional fees and VAT.
Consideration should also be given to factors including
specification, project size, programme, location and
procurement route.

24

FINANCE
Offshore investment
Taking property investments offshore from the UK can offer massive tax savings, but to avoid falling foul of Revenue and
Customs investors must make sure that they stick to the rules. The dos and donts of managing investments from outside
the UK are discussed by Deborah Lloyd, corporate and real estate partner at law firm Nabarro Nathanson and chair of
the regulatory committee of INREV (European Association of Investors in Non-Listed Real Estate Vehicles) (Property
Week, 16 September 2005, pp.5657).
The amount of UK property held in offshore vehicles
continues to grow. The trend is not monitored, but it has
been estimated that vehicles with assets of at least 23bn
are based in the Channel Islands. Much of the property is
held in offshore funds, which are not liable for UK
taxation (see box).
Rumours abound that Revenue and Customs
investigating how offshore vehicles are run.

This is not the right mindset and shows that offshore

property ownership may not be for all, especially for those
not prepared to cede control to a third party.
Directors of offshore vehicles who are resident in the UK
will find it inconvenient to exercise their duties. They will
have to go offshore to attend board meetings. They
should not attend by way of a conference call from the
UK. They must not think they can get away with delegating
the UK office junior as director to go to meetings to vote.
If the directors do not have sufficient seniority to make
decisions in their own right, it could be argued they are
just implementing a decision made by their bosses in
London.

is

For the pension funds, charities and non-UK residents that

have invested in these vehicles, it is critical that they
maintain their non-UK tax resident status. If they do not,
they risk becoming liable to 30% corporation tax on any
capital gains. This is bad news for non-tax-paying
investors.

Directors should have the appropriate experience and

qualifications to exercise their duties credibly. There is a
shortage of people in the Channel Islands who have
genuine property experience. The few who do have such
skills will have a string of directorships or a long queue at
their door. Is it credible to have directors whose day job is
as an administrator? Perhaps it could be argued that they
are just rubber-stamping a decision that has been made
elsewhere.

For a vehicle to be considered offshore, it must

demonstrate that its management and control is offshore
in practice, and not just on paper. The bigger property
investors have come to terms with offshore management
and have strict and robust procedures in place. But for the
unwary, if it is not taken seriously, there are expensive
consequences.

Board minutes should show the directors have had time

to consider the decisions they are making. They need time
to raise questions and queries.

Passport to success
So, what are good procedures to adopt and what are the
banana skins?

Directors have been heard to say: The first thing we heard

about a transaction was when we were emailed the
documents and told to have a board meeting and sign that
afternoon. We had no idea what the issues were.

Trustees of funds that are based offshore manage

property in the UK by appointing UK asset managers to
advise them. Those advisers must act as advisers, not
principals.

This bears the hallmarks of a direction from the UK. Earlier

board meetings should have considered the matter and
approved the principle, and directed the UK to progress
with the negotiation of documents.

They should recommend or report to the trustees, but

should not direct or make decisions. Otherwise, it could
be evidence that the fund is controlled from the UK. This
is a new mindset for UK asset managers, who are used to
making decisions themselves.

We are frequently asked how much authority can be

delegated to a UK asset manager. Consider it this way: if
you were appointing a property manager to look after
your UK properties, on what issues would you expect
them to report to you or seek your consent?

Directors on the boards of trusts will not normally be

resident in the UK. Offshore managers should have a
majority of directors who are resident overseas. Some
fund sponsors have been horrified to find that they
cannot control the board of the offshore manager and
operate the fund as they want.

The same considerations should apply when offshore

trustees delegate authority.
How many times have your lawyers in the UK preprepared board minutes for the offshore vehicle in
25

legalistic terms with no dialogue showing comments or

questions? Have these then been sent offshore, the board
meeting held and the pre-prepared minutes signed? This
gives the appearance that the offshore board is just doing
what it is told from the UK. It may be common transaction
practice in the UK and offshore, but it should be reviewed.

reflect that the central control and management of the

vehicle is offshore. A joke project name or casual remark
soon falls flat if you are asked to explain it.
If you have property offshore, there is plenty to consider.
Firm procedures should be put in place and it is a
continuing exercise to ensure they are complied with and
audited. There are plenty of banana skins for the unwary.

Then there are the dangers of email. If Revenue and

Customs decides to investigate your offshore vehicle, it
will expect to see your files and emails. Emails must never
be deleted and, while they are only likely to be recalled in
criminal cases, they are a potential weakness.

Deborah Lloyd is a corporate real estate partner at law firm

Nabarro Nathanson and chair of the regulatory committee
of INREV (European Association of Investors in Non-Listed
Real Estate Vehicles).

Messages are often sent without careful thought and

copied to a wide audience. The language used needs to

Why go offshore?
Offshore funds are tax beneficial in several ways. They do not pay tax on UK capital gains. Investors can also sell their
interests to other investors without incurring Stamp Duty Land Tax.
This contrasts with UK companies or unit trusts, which pay 0.5% duty on transfers, or limited partnerships, which pay a
minimum of 4% on the underlying property value.
Most offshore funds are tax transparent. This means the fund itself does not attract tax, although its investors have to
pay at their own rates 30% for companies and 0% for pension funds.
Offshore funds are usually in the form of a unit trust. A unit trust is created by a declaration made by trustees that they
are holding assets for investors.
The trustees are based in the jurisdiction of the fund, usually in Jersey or Guernsey. Among the service providers which
act as trustees are BNP Paribas and RBS International. The manager of the fund is often a different body from the trustee
and is usually linked to a professional service firm in the jurisdiction, such as Mourant or Carey Olsen. The asset
managers are usually UK-based property advisers linked to the UK fund sponsor.
The assets are UK properties held direct by the trustees. Each fund will have its own strategy defining the types of
properties it will own. Sector funds, such as Hendersons Retail Warehouse Fund, are popular. Alternatively, the asset
could be an interest in a UK-based fund vehicle, such as a limited partnership. This latter structure allows the properties
to be managed onshore, which is far more convenient than managing the assets offshore. Funds such as Morleys the
Mall, the Junction and Ashtenne are set up in this way, as are those managed by Grosvenor, ING, Teesland and Hermes.
The investors are usually pension funds, life insurance companies and charities, but could be any company or
individual. The investors will invest cash with the trustees in exchange for a share of the unit trust. The trustees acquire
the assets with the cash. There is usually debt in the structure. The investors will receive income arising from the rent of
the properties, as well as benefiting from a rise in the assets value.

26

UK REITs
On 5 December 2005, the UK Chancellor announced in the Pre-Budget Report that legislation for UK REITs would be
brought forward in 2006. On 14 December HM Revenue and Customs published, for consultation, draft legislation to
enable the creation of UK REITs, with a return date for responses of 27 January 2006. What follows is the RICS view of the
proposals, published at the RICS website on 16 February 2006, together with extracts from the HM Treasury statements on
UK REITs (see boxes).

manoeuvre regarding the actual figure of 10%, given that

it is derived from the UKs international tax treaties which
could not be renegotiated in anything like a reasonable
timescale.

The RICS view

A considerable amount of progress has been made on this
front over the last few years and RICS is continuing to
participate in the industry group with the Investment
Property Forum (IPF) and the British Property Federation
(BPF). The main thrust of our work is to continue to
promote the need for UK REITs to be attractive to the
market if they are to be successful.

This makes it all the more important that we should

continue the very constructive discussions that have
already started to find ways of limiting the impact of this
restriction on a UK REIT regime.

The stated aim of the policy is to improve the liquidity of

the property market and make it more competitive.
However, the system as proposed is unlikely to encourage
much conversion of existing vehicles and possibly little
new take-up either.

The conversion charge: We understand that there will

be no public pronouncement on the level or nature of the
charge until the Budget.
It is important, however, that the Government
understands and appreciates that, by setting this charge at
an unrealistic level, it will, at a stroke, deter any REIT
conversions.

The industry group concerns are broadly:

Gearing: by means of the proposed 2.5 income cover test
where we are absolutely clear that the limits you have
included in the draft legislation will not work for a UK
REIT.

Getting the charge right is all the more important, given

the restrictions that will be imposed on a REIT fund
owner, because of the 10% shareholding limitation and
the proposed gearing limitation although we hope that
in the latter case we may be able to persuade the
Government to relax its current position.

We understand the rationale behind HM Treasurys

decision to include such a restriction but we would
strongly contest that it is an unnecessary restriction for a
listed REIT since the market will constrain excessive
borrowing and ensure a reasonable level of taxable
distributions.

We would, therefore, encourage you to take confidential

soundings as to the likely behavioural impact of whatever
number/method for defining the conversion charge that
you may be considering.

This is proven by the experience of REITs around the

world, which are mostly not subject to a gearing
restriction, where market forces have generally led to a
gearing level of approximately 3540%.

Otherwise, there is a risk that the UK REIT initiative, with

all its potential benefits to the UK economy, will fail.
Transferring into a UK REIT from existing entities
without incurring punitive tax liabilities: Such a
provision, which would be similar to the UPREIT
provisions in the US and which allowed US REITs to
develop very successfully from 1992 onwards, will be
similarly important for the take-up in the UK, particularly
given the need to look for novel parenting structures to
accommodate the 10% shareholder restriction.

Furthermore, we believe that the proposed 2.5 times

interest cover would in practice offer such an unattractive
business model for a UK REIT that it is highly unlikely any
would choose to set up and operate under such a
restriction.
And if they did, they would be forced to focus either on
high yielding (and therefore older, lower quality)
commercial property or to adopt shorter term, more
volatile financing strategies and would be unable to
become a major force for regeneration schemes and
residential property due to the low yield of these sectors.

Unlisted REIT: A successful REIT market should have

both listed and unlisted vehicles in order both to allow
maximum choice to investors of differing experience and
size and also to provide a pooling facility for smaller REITs
to develop outside a listed market until such time as they
are ready and able to go public. This should be
particularly helpful for smaller players in the market.

The 10% shareholding restriction: which, we believe,

will limit the number of companies that are likely to
convert to a REIT at the outset and will subsequently
constrain the creation of new REITs through spin-offs,
demergers etc.

We appreciate that providing for unlisted REITs in time for

legislation in the Finance Bill 2006 is not feasible, but we
would appreciate some assurance that this is a subject

Again, we appreciate the rationale for this restriction and

the fact that the UK Government has little room for
27

Investment Trusts (REITs) with the aim of promoting

greater efficiency in the property investment market,
supporting the Governments wider objective of raising
UK productivity. The Government is today publishing
UK Real Estate Investment Trusts: a discussion paper,
along with a summary of responses to the Budget 2004
consultation.

that will be considered as soon as time allows and

preferably in the run-up to the Finance Bill 2007.
The requirement for 95% distribution of net
earnings: After capital allowances. We believe it is
entirely right that capital allowances should be taken into
account but we are concerned that the volatility and
uncertainty arising from their uneven application both
between different companies/sectors and from year to
year will make the distribution requirement difficult to
manage in practice and, in some cases, may leave too little
cash in the REIT for refurbishment of properties.

The Government is committed in principle to

reforming the taxation of property investment. The
consultation has enabled the Government to better
define the key features of a potential UK REIT model
that allows for market flexibility. The paper also raises
some challenging issues in designing the tax treatment
for a model that meets both the needs of the UK
property investment market and the Governments
objectives for a UK REIT. The Government will
therefore engage in further dialogue with industry
representatives. Subject to finding a workable solution
that meets the stated objectives, including reform at no
overall cost to the Exchequer, the Government aims to
legislate for a UK-REIT in Finance Bill 2006.

This compares adversely with the situation in the US

where distributions are now set at 90% (reduced recently
from 95%) and where the application of a depreciation
allowance means that in reality the actual distribution
requirement is considerably lower.
We suggest, in the detailed commentary, possible
methodologies for smoothing the impact of capital
allowances and other uncertainties relating to meeting the
distribution requirement; we believe also that there would
be considerable benefit in specifying a lower distribution
requirement of 90%.
Residential interests: These we consider will be
adversely affected by a number of the provisions in the
draft legislation, particularly gearing and the distribution
requirement.

EXTRACT
2005 Pre-Budget Report, 5 December 2005
Investment in housing and property
UK Real Estate Investment Trusts (UK-REITs)
Following Kate Barkers recommendation, the PreBudget Report announces that the Government will
bring forward draft legislation to establish UK REITs for
inclusion in the 2006 Finance Bill. Details of the tax
proposals will be published by HM Revenue and
Customs before the end of 2005 and will include the
following key features:

More detailed comments supporting this view are

included in Appendix 2 and we would encourage the
Government to consider the views of the industry against
the background of the Governments original policy
objectives for UK REITs.
Termination of REIT: Clause 14 allows HMRC to
terminate a companys REIT status if the company has
done anything that could be construed as obtaining an
unfair tax advantage; this is excessively draconian.

The regime will be open to companies resident in the

UK that are publicly listed on a Recognised Stock
Exchange.

Our view is that REITs should observe and be regulated by

existing tax legislation and anti-avoidance measures. The
procedure proposed by HMRC would lead to a great deal
of uncertainty and potential financial loss.

Companies or groups that meet the UK-REIT

eligibility criteria as set out in legislation will not pay
corporation tax on qualifying property rental income
or qualifying chargeable gains.

Budget 2005
Statement from HM Treasury, 16 March 2005

A requirement to distribute at least 95% of net

taxable profits on rental income to investors, who will
then pay tax at their marginal rate.

UK Real Estate Investment Trusts: a discussion

paper
Alongside Budget 2004, the Government launched a
consultation to consider the introduction of Real Estate

The Government remains committed to ensuring no

overall loss of revenue from the introduction of UK
REIT legislation and will announce at Budget 2006 final
details of the conversion charge applying to companies
joining the regime.

28

CEMicircular WebWatch
Documents referred to can be found online as follows:
The RICS view of UK REITs
http://www.rics.org/AboutRICS/RICSstructureandgovernance/RICSdepartments/REITsupdate.html
HM Treasury UK Real Estate Investment Trusts: a discussion paper, 16 March 2005, http://www.hmtreasury.gov.uk./media/A61/AB/Bud05Reits.pdf
The 2005 Pre-Budget Report, published 5 December 2005, http://www.hmtreasury.gov.uk/pre_budget_report/prebud_pbr05/press_notices/prebud_pbr05_press04.cfm
HM Customs & Revenue draft legislation for UK Reits, go to www.hmrc.gov.uk and search for UK REITs.

Research

Islamic finance
Islamic investment in real estate is a huge growth area with much potential, yet the funding must be compliant with
Shariah Law, explains Stephen Brown, head of research at RICS (RICS Business, February 2006, pp.1214).

Over the past decade, Islamic banking and finance has

grown to become, according to the Dubai International
Financial Centre, worth over $200bn, and is expected to
grow at 12% to 15% per year for the next 10 years. The UK
Financial Services Authority estimates that the Islamic
banking and finance market is worth between $200bn and
$500bn worldwide. And since 9/11, a significant amount of
Islamic capital has been flowing to Europe, Asia and the
Middle East.

What is Shariah-compliance?
Shariah-compliant investment ethical investment
organised in compliance with Islamic law is a
burgeoning sector of the investment market. To comply
with Shariah Law, investment must not involve riba, a
kind of usury practised during pre-Islamic times among
the Arabs, which involves delaying the payment of debt in
return for an increase in its amount in other words,
interest. Shariah property investment funds must also not
rent properties to organisations involved in alcohol,
armaments, cinema, conventional financial services,
tobacco, pornography, pork or gambling.

This growth has been reflected in Middle Eastern

investment in European real estate. Middle Eastern
investors are estimated to have invested 827m in
European property in 2001, a 225% increase over the
previous year, of which some 91% was invested in the UK.

There are a number of methods of financing real estate

investment permitted by, and fully compatible with, the
principles of Shariah law. However, they must all be
certified by a panel of experts the Shariah Board drawn
from respected Shariah scholars with the expertise to
interpret Islamic law. Similarly, every single transaction
has to be scrutinised by the Shariah Board to ensure full
compliance with Islamic principles. This can introduce
delays into the process, which requires speedy and
reliable decision-making to maintain market efficiency.

All this investment has to be compliant with Shariah law,

which forbids the paying of interest and restricts the
range of activities that can be invested in. The unique
range of skills in London place the UK commercial
property industry in a very strong position to take
advantage of the growth in Shariah-compliant real estate
investment. In the first nine months of 2002 alone, Middle
Eastern investment in UK commercial property totalled
875m, 15% up on the entire 2001 total. Estimates for 2003
and 2004 suggest that this rate of growth will continue in
the future.

Key financing methods for Shariahcompliant investment include:

Ijarah: An Islamic lease agreement. Instead of lending
money and earning interest, Ijarah allows the bank to earn
29

profits by charging rentals on the asset leased to the

customer.

of the market
investment.

Murabahah: Purchase and resale. Instead of lending

money, the capital provider purchases the desired
commodity (for which the loan would have been taken
out) from a third party and resells it at a predetermined
higher price to the capital user. By paying this higher price
over instalments, the capital user has effectively obtained
credit without paying interest.

The survey found that although compliance with Shariah

principles is, of course, fundamentally important for these
funds, attention is also paid to other criteria such as tax
efficiency and risk assessment in line with the
requirements of other conventional investments.

for

Shariah-compliant

real

estate

More than two-thirds of respondents put the tax status as

a very important factor in structuring Shariah-compliant
investments. Unless special tax arrangements are
available, an investor may incur double transfer tax (stamp
duty land tax in the UK), as the investor will sell the
investment to a bank and purchase it back over some
years, rather than raise an interest-paying mortgage.

Sukuk: Similar to a conventional bond, but asset-backed,

a sukuk represents proportionate beneficial ownership in
the underlying asset. The asset will be leased to the client
to yield the return of the investment.
Musharakah: Profit and loss sharing. It is a partnership
where profits are shared according to an agreed ratio,
whereas the losses are shared in proportion to the
capital/investment of each partner. In a musharakah, all
partners to a business undertaking contribute funds and
have the right, but not the obligation, to exercise powers
in that project, similar to a conventional partnership
structure and the holding of voting stock in a limited
company. This equity financing arrangement is widely
regarded as the purest form of Islamic financing.

Transparency is seen as a prerequisite by some of the

respondents. To be considered acceptable, more
information is required on transaction details (such as
acquisition structure) and type of assets than would
normally be the case. Information is also needed on the
type of lease and activities carried out in the property, as
triple net lease is prohibited. The owner of the property
has to retain ownership of the lease, which may imply the
inclusion of possible limitations for sub-lease. Although
not quantified, many respondents refer to a holding
period of approximately five years, which is much shorter
than the lifetime of the conventional funds.

Mudarabah: An investment partnership, whereby the

investor (the rab-ul-mal) provides capital to another
party/entrepreneur (the mudarib) in order to undertake a
business/investment activity. While profits are shared on a
pre-agreed ratio, loss of investment is born by the investor
only. The mudarib loses its share of the expected income.
A mudarabah is essentially similar to a diversified pool of
assets held in a discretionary asset management portfolio.

Research findings: the important factors in

Shariah-compliant investments
Tax status
65%
Availability of specialist expertise
61%
Regulation of investment
47%
Risk assessment regulation
47%
Transaction transparency
41%

Alongside these structures are a number of

banned concepts:
Gharar: Uncertainty. This sophisticated concept covers
particular types of uncertainty or contingency in a
contract. The prohibition on gharar is often used as the
grounds for criticism in Shariah Law of conventional
financial practices such as short selling, peculation and
derivatives.

A Shariah-friendly environment
High-quality human capital and expertise, a supportive
institutional and legal framework and an acceptable
political environment are all required for the success of
cities and marketplaces, where constant innovation and
product development is vital. This is definitely the case in
the development of the Shariah-compliant real estate
investment market, where, according to the survey,
London offers by far the best location for human capital
and expertise. Almost all respondents to the survey said
that London possessed the full range of human resources,
as well as an encouraging regulatory and legal regime.
Only around a quarter of respondents suggested that
France and Germany were similarly encouraging.

Maysir: Gambling. Prohibition is often used as the

grounds for criticism of conventional financial practices
such as speculation, conventional insurance and
derivatives.
Riba: Interest. In simple terms it covers any financial
return on money whether the interest is fixed or
floating, simple or compounded, and at whatever the rate.

Understanding the market

Given the increasing importance of Shariah-compliant
investment, new research was undertaken into its
influencing factors, funded by King Sturge, undertaken at
London South Bank University and published by RICS
Research. We have become familiar with ethical funds in
the UK, says Angus McIntosh, head of Research at King
Sturge, but we wanted to find out more about he nature

Of the funds that are invested, many have a geographical

focus, with the UK coming out strongly as a favoured
destination. Over 90% of the funds favour investment in
the UK, while France and Germany are seen as countries
with future potential. However, the market environments
in France and Germany are seen as being less flexible in
30

offering new and diverse financial and investment

products.

Shariah Board does impose restrictions on specific

investments.

In Central Europe more opportunities are being created

for investment as the real estate markets in these
transition economies develop. New destinations are
becoming available for real estate investors as the markets
in Poland, the Czech Republic and Hungary mature.
Furthermore, with the availability of more diverse real
estate investment products, Shariah investment funds are
willing to operate in new markets and geographically
diverse locations.

Research findings: favoured investment locations:

UK
94%
Europe
85%
USA
47%
Middle East or Gulf region
62%
Global generally
62%
South East Asia
38%

Other countries put forward as potential locations for

Shariah real estate investment in the future are Turkey
and Russia.

Continuing trend
One point that came over strongly from the interviews
was the likely substantial increase in funds available for
Shariah investment with the increase in wealth creation in
Muslim countries. The view definitely seems to be that
most of the new investment will be through some form of
Shariah-compliant fund.

Where is the investment heading?

The commercial and industrial sectors seem to be the
most popular sectors for investment by Shariah funds,
with three-quarters of those interviewed asserting that
they already invest in industrial property and just over half
likely to continue investing. One point that came over
strongly was that the industrial sector is much better
suited for stock selection and approval by the Shariah
Board, and it is likely that more money will be allocated to
this sector in the future. It also seems as if more money is
going to be allocated to some of the emerging property
investment types, such as leisure and elderly care, which
mirrors to some extent developments in other ethical
funds.

Also, with the increasing emphasis placed on socially

responsible investment, the growth of Shariah-compliant
real estate investment represents a further opportunity for
the real estate profession to contribute positively to a
more ethical approach to real estate investment and
development.

About the research

The research study comprised a programme of 34
interviews with key players in the field of Islamic finance
based in the UK during 2004. The work was carried out by
Dr Ali Parsa and Dr Gheorghe Multescu of London South
Bank University, with funding by King Sturge.

There is still substantial investment by Shariah funds in

the office, retail, hotel and leisure property markets due
to the type of activity in these markets, although the

CEMicircular WebWatch
The full research report is available at the RICS
website www.rics.org.

31

LAW
Expert witnesses
The courts have discredited several expert witnesses recently, causing doubts about their ability to be properly impartial.
A new Protocol has therefore been drawn up by the Civil Justice Council to define how expert witnesses should behave,
as described here by Paul Newman and Hugh James (Construction Law, December 2005, pp.2325).

KEY POINTS

Distinguish factual witnesses from experts

Court requires written reports

Lawyers look to a clear conclusion

Experts often equivocate

Experts must understand the law

Ensuring the expert knows his role

Protocol for the Instruction of Experts to give

evidence in civil claims

Much of the Protocol is commonsense.

In the English legal system expert witnesses occupy a

privileged position. In construction the expert witness
sets out his views in a written report. The preparation of
good reports requires that the expert has:

Read the instructions;

Asked appropriate supplementary questions to

establish what are perhaps the real issues;

Found and collated information;

Analysed information;

Structured the material into a report;

Chosen the appropriate style; and

Reached a conclusion.

Much of an experts reasoning is lost on the average

lawyer. It has always been the lawyers duty to ensure that
his expert understands his role and obligations to the
court. As to the form of his report, some years ago the
Academy of Experts adopted a Model Form for Expert
Reports. With or without such guidance a competent
expert report should contain:

A front sheet, identifying the case name, the

author of the report, details of the instructing
party, the experts specialist field and the subject
matter of the report.

A contents page if the report is of any length.

An introduction setting out all formal matters and

the chronology, including the personal status of
the report writer, his specialist field, his
experience, a very brief synopsis of the facts as
presented by the client, instructions provided by
the client, information gathered by the expert,
issues identified and researched by the expert, a
full bibliography of research papers, etc, relied
upon, and a full list of all photographs, drawings
and the like produced or relied upon by the
expert.

The background to the disputes and issues,

comprising a list of all those persons referred to
in the report, identifying their status and role in
the events that gave rise to the report, the
detailed background to the case and the issues
the expert will be considering.

A description of any technical investigations

carried out. Here, the expert will include details
of all site visits made, site investigations and
specialist tests carried out, dates when these
were carried out, together with details of all
those who were present or who assisted in
carrying them out.

The facts on which the expert opinion is based.

The expert will identify those facts which he has
been asked to assume, those he has observed for
himself as a result of site investigations, tests, etc,
facts ascertained by the report writers team, and
opinions which the expert has taken over from
others as his own.

The conclusion. The expert is not there to hedge

his bets. His role is not to state on the one
hand..., on the other hand....

In June 2005 the Civil Justice Council published a chunky

document of 22 pages or 5809 words, entitled Protocol for
the Instruction of Experts to give evidence in civil claims.
The Protocol was to be operative for all steps taken in
regard to experts on or after 5 September 2005. The
Academy of Experts and the Expert Witness Institute have
also produced their Code of Practice.
The CPR pioneered the use of protocols in a large range
of civil litigation specialisms, including professional
32

negligence and construction, but a general protocol

relating to experts across the civil litigation spectrum,
including construction, is slightly different. The stated aim
of the Protocol is [that]:

expert although not a party to the litigation Phillips v

Symes (2004) EWHC 2330 per Peter Smith J.
Paragraph 6.1 reminds parties of the need to review
carefully (a) if expert evidence is needed and (b) if so of
what type. Experts are often appointed either to bolster
the factual evidence where those witnesses are perceived
as being of indifferent quality or to make good the
absence of appropriate factual witnesses. The court
controls the actual admissibility of expert evidence to the
court.

It is essential that both those who instruct experts

and experts themselves are given clear guidance as
to what they are expected to do in civil proceedings.
The purpose of this Protocol is to provide such
guidance.
Readers may wonder how much further the Protocol takes
lawyers and expert witnesses than CPR Part 35 and PD 35
(expert witnesses). Paragraph 2.1 indicates that the
Protocol is not a substitute for the court rules but an aid to
their interpretation. Experts and lawyers are reminded
(para 2.2) of the general objectives in para 1.4 of the
Practice Direction on Protocols:

It is easy for lawyers not to be businesslike in the

appointment of experts. The lawyer telephones the expert
and ascertains that he has no conflict of interest in acting
for a particular client. At that stage the lawyer may give the
expert the most general of instructions and leave details
such as the scope of the instructions, deadlines and
payment terms fuzzy. In effect, the expert is left to
pinpoint his own brief, often in discussion with the lay
client. Again, there is no value in appointing an expert
who is likely to disappear for a lengthy period at a crucial
time, perhaps to another commitment. All these fairly
prosaic matters are dealt with in para 7 and are a vital
check list for lawyer and expert. Does the expert have:

(a) encourage the exchange of early and full

information about the expert issues involved in a
prospective legal claim;
(b) enable the parties to avoid or reduce the scope of
litigation by agreeing the whole or part of an expert
issue before commencement of proceedings; and
(c) support the efficient management of proceedings
where litigation cannot be avoided.
Non-compliance with the Protocol may have costs
implications (para 3.4). The basic structure of the most
significant parts of the Protocol is as follows:

Introduction and Aims of the Protocol (Parts 1

and 2)

Application (Part 3)

Expert Duties (Part 4)

The Need for Experts (Part 6)

Appointment of Experts (Part 7)

Instructions (Part 8)

Acceptance of Instructions (Part 9)

Asking the court for Directions (Part 11)

Contents of Expert Reports (Part 13)

Amendment of Reports (Part 15)

Single Joint Experts (Part 17)

Discussions between Experts (Part 18)

the appropriate expertise and experience;

familiarity with the general duties of an expert;

the capacity to produce a report, deal with

questions and have discussions with other
experts within a reasonable time and at a cost
proportionate to the matters in issue;

a description of the work required;

capacity to attend the trial, if attendance is

required; and

an absence of potential conflict of interest.

Lawyer and expert should also agree the terms of the

appointment, including (a) services; (b) time for delivery
of the report; and (c) the basis of the experts charges,
including travelling expenses and disbursements,
cancellation charges, any fees for attending court, time for
making the payment and the identity of the paying party.
Sometimes solicitors prefer to place the responsibility
with the lay client direct. In addition, solicitors should
inform an expert regularly about deadlines and promptly
send copies of all relevant court orders and directions.
The guidance provided to ensure a smooth relationship
between solicitor and expert is again banal. Lawyers
should give:

Taking a glance at a few of these categories the following

emerges. The expert is there to assist the court in
interpreting facts they should not usurp the courts role.
Experts confine themselves to the facts and do not act as
advocates. They make it known when an issue falls
outside their expertise. Paragraph 4.7 reminds experts of
the courts power to order costs as a sanction against
delay and even, in rare circum- stances, to penalise an

33

clear instructions, including necessary contact

details;

case papers;

an outline programme for the completion and

delivery of each stage of the experts work; and

court dates already allocated.

Where experts do not receive clear instructions they

should request clarification, even being prepared not to
act without clear instructions. It is doubtful that many
experts will be that confrontational with their instructing
solicitors. In similar vein, experts too must be sensible and
not merely accept instructions for the sake of it. They
must have the requisite competence to act, sufficient time
available to complete the work, and the instructions must
not compromise them. The last point is important in the
construction industry where strong-willed clients exist
and experts may be under pressure to place a gloss on the
facts.

(a) The methodology should be identified.

(b) The persons who carried out the tests should
be named and their qualifications, experience
and supervision noted.
Where experts adopt the opinions of others they should
confirm that they are doing this. They should not muddle
up fact and opinion and distinguish actual fact from
assumed fact. Opinions should always be justified and a
final summary of conclusions is mandatory. The summary
should be at the end of the report after all the reasoning.
Sometimes a short summary at the beginning of the
report might assist in complex cases and give the reader
some sense of direction.

In a short commentary two further areas merit

consideration. Cases are won and lost on the content of
the expert reports. Paragraph 13 deals expressly with the
contents of a report, which should be prepared in light of
the overriding duty to the court and the contents of CPR
35 and PD35. Beyond that, experts should maintain
professional objectivity and impartiality at all times:

Finally and very briefly, when experts meet, the purpose

of each meeting should be clearly stated and experts
should usually attend without lawyers. Lawyers should
refrain from asking the expert not to agree with his
opposite number and a clear list of agreed and not agreed
issues should be drawn up at the conclusion of the
meeting.

Lawyers should ensure that experts understand

the requirements in PD 35, para 2 concerning
experts reports.

Experts reports must contain statements that the

expert understands his duty to the court and has
complied and will continue to comply with that
experts duty.

Reports must be verified by a statement of truth,

the wording of which is mandatory and cannot be
modified.

Expert qualifications, including special training

relevant to the subject matter, should be
identified.

Important for the construction industry where

tests are routinely carried out:

There is nothing startlingly new or surprising in the

protocol. It is entirely workmanlike. It brings together a
number of well-established principles from earlier cases,
including the Ikarian Reefer principles, but places the
mutual responsibilities of lawyer and expert in a single
document. Every practising expert should have a copy
even without asking his instructing solicitor for one.
Contact:
Construction Law is published by LexisNexis
Butterworths, tel +44 (0) 20 7347 3549. See the publishers
website www.lexisnexis.co.uk for orders, subscriptions
and online trials.

Adjudication
Is adjudication doing the job for the people it was intended to help? That is the small contractor with a low-value claim
that needs a quick and cheap decision. Rudi Klien, barrister and chief executive of the Specialist Engineering Group,
explains why hes afraid its all A fat lot of good (Building, 2 December 2005, p.53).

Most of my commentaries on the review of the

Construction Act have concentrated on payment.
However, I am becoming increasingly edgy about the
future of adjudication. As I go around the industry, Im
often confronted with tales of woe about the costs
involved both the legal costs and the adjudicators fees.

claimed 10,000. Its legal costs were 2400 and the

adjudicators fees were 2400. Its award was 0.
Or the small ceiling contractor that claimed 46,000 plus
interest. Legal fees rose to 8700 because of the large
number of jurisdictional challenges from the other side.
The adjudicators fees were 4200, split 50/50 with the
other side. The contractor was awarded 21,000. Or the
small building contractor owed 10,000 for preliminaries
arising from delays. Its total legal fees were 4000 plus the

Mary Cross, a barrister working for an international

disputes consultancy, has supplied me with some
interesting vignettes, such as the building contractor that
34

adjudicators fees and costs, which are likely to be greater

than 2000.

I would reject the notion that the losing party should pay
the legal costs of the winning party in an adjudication.
Supporters of this idea do not appreciate the fundamental
nature of adjudication. It is a stop-gap, not a forensic
inquiry aimed at establishing the ultimate winner or loser.

These figures serve to reinforce the conclusion reached

by Hammonds in its survey earlier this year: that the cost
of adjudication, particularly adjudicators fees, had
increased disproportionately for low-value disputes (4
February, page 52). This was not necessarily the result of
adjudicators having to pay more for their BMWs. Their
time is often taken up with too much lawyerising over
jurisdiction. Fourteen percent of adjudications involve
sums of less than 10,000, but the average fee for these
disputes is 12.4% of the sum claimed, compared with an
overall average of 5%. Half of all adjudications are for
sums of less than 50,000. Have we now, therefore,
reached the point where it is no longer cost-effective to
go to adjudication for claims under this amount?

There is an overwhelming case for increasing

adjudicators jurisdiction to deal with matters such as
whether there is a dispute. A single adjudication
procedure would also eliminate disputes about whether a
bespoke procedure complies with the Construction Act.
Cross has developed a DIY toolkit to help prospective
adjudication users achieve the confidence to conduct
their own disputes through adjudication.
I tend to be wary of toolkits because they never seem to
have the answers for the particular problem one is trying
to address. This is certainly is not the case here; Cross has
developed an interactive web-based program. If you are
unfamiliar with IT, dont be put off. The program is simple
and if you get stuck there is a technical helpline. And if
you have a small claim, this could be a godsend email
info@adjudicationtoolkit.com to find out more.

According to Cross, the answer is yes. She referred me to

the case of an M&E contractor that went into
administration after more than 40 years in business. One
of the administrators examined the accounts and found its
unpaid retentions came to more than 1.5m. This was
made up of hundreds of small amounts ranging from 500
to 5000. It would have been pointless to refer these
matters to adjudication.

Finally, it was clear that the legislators had in mind a quick

and cheap procedure that could easily be conducted by
the parties. That is what the industry wanted too. In that
respect, the views of my own profession or of Mr Justice
Jackson and the Technology and Construction Court
judges do not necessarily count.

The DTI is committed to outlawing provisions requiring

the referring party to pay all the costs of the adjudication
the Tolent clause. The DTI is also committed to banning
adjudicators from awarding party and party costs,
although it is relaxed about allowing the parties to reach
agreement on this after the referral of the dispute.

35

RESIDENTIAL
Home information packs
Home information packs will become a compulsory part of the UK housing market next year. But if the draft regulations
are anything to go by, they are a nightmare in the making, says Katharine Fenn, professional support lawyer at Denton
Wilde Sapte (Estates Gazette, 21/01/2006, p.115).

In November last year, the government announced that

home information packs (HIPs), which will reform the
conveyancing process, will be mandatory from 1 June
2007.

Lenders will probably still want a valuation of the

property, so it is likely that a separate mortgage
valuation will have to be carried out. Buyers may also
want a full structural survey.

A HIP has to contain certain items, may contain other

items, but is not allowed to contain anything else. The
draft regulations set out what is allowed, but the
proposals for the layout and content of HIPs are both
confusing and muddled (see box).

HIs will be regulated by four different certification

authorities, which is likely to lead to confusion. Each
authority will regulate its own HIs and will be
responsible for storing the HCRs prepared by its
members. Conveyancers will have to make yet
another search in order to ascertain what other HCRs
(if any) have been prepared for a property.

The seller cannot use a previous sellers HCR. For

example, should a housebuilder take a property in
part-exchange and immediately market it, it must
prepare its own HIP and HCR, even if those of the
seller are very recent.

Equally, it should be made clear that (generally)

properties sold without vacant possession are
exempt from the requirement to provide a HIP. At
present, this detail is tucked away in the Act, rather
than in the regulations.

The home use form (one of the required items in a

HIP) and traditional pre-contract enquiries overlap.
The form attempts to cover some pre-contract
enquiries, but does not do so comprehensively.

The home use form and the contents form (both of

which are compulsory) may be the only documents
in the HIP that a layperson will understand (and they
will be of great interest to him or her) but they can
be left blank.

The home contents form is muddled and does not

follow the long-established format of the Law
Societys equivalent form. The seller can leave it
blank, but the form states that, unless indicated
otherwise, it will be assumed that the items remain.
But what seller would take out the windows or
central-heating boiler? And trees and other garden
plants appear twice. Other mirrors appears in the
bathroom section, which might be misleading
rooms other than the bathroom may have mirrors.

The level of detail requested for a property that is

not physically complete, eg a new home under
construction, for example, is too great.

The Office of the Deputy Prime Minister (ODPM)

published a consultation on the draft HIP regulations
(www.odpm.gov.uk/homeinformationpacks). The closing
date for comments was 30 December 2005. We can only
hope that the ODPM takes note of the responses of the
property industry.

Problems with the draft HIP regulations

The regulations are not (but need to be) clear about

the meaning of a property being put on the market.
For example:
(i)

(ii)

if one does not put the property on the market

but merely sells it, such as a person buying a
new house and transferring his or her old
house to the housebuilder in part exchange,
without having first marketed it; or
in the case of a boundary dispute involving a
small transfer of land that is sorted out between
neighbours,

a HIP will not be required because the property is

never on the market. It would be helpful if the
regulations gave examples of transactions that do not
constitute marketing such as Islamic finance so
that the matter is clear-cut.

A HIP has to contain a home condition report (HCR)

prepared by an accredited home inspector (HI).
Since the HCR is neither a full survey nor a valuation,
it is unclear whether buyers or lenders will be
prepared to rely upon it. The idea of having an HCR
at the outset is to identify a potential problem with
the property early on, to save buyers making an
offer, spending money on a survey and then pulling
out because of an adverse survey report.

36

Housebuilders often provide vast amounts of

relevant information in their sales packs, only some
of which is required or authorised within the HIP. It
would be sensible if the information was allowed to
be in a HIP.

Housebuilders should be able to provide a global

HIP for all properties on a new development,
providing details of specific house types alongside
the standard information. Under the draft
regulations, a separate HIP would be required for
each unit.

for a search, including details of liability and

methods of redress for incorrect results
information that is not available to practitioners.
Schedules 12 and 13 specify the information that
must be reported on by the searches. This goes far
beyond what is returned by standard searches.

A HIP will have to be provided for a property sold on

insolvency. The insolvency practitioner will have no
idea about the property and may sell at a low price to
reflect the fact that it is a fire sale. Such sales should
be expressly excluded from the requirement for a
HIP.
The terms of Schedules 11 to 13, which regulate the
provision of information in the HIP concerning items
such as local searches, are a nightmare. Schedule 11
sets out terms that must be contained in a contract

There appears to be no exemption for properties

sold at auction. HCRs will surely not have to be
prepared for auction sale properties? That could
destroy the auction sale market.

It is inconvenient that a seller cannot send out an

incomplete pack and send missing items later. He
has to have tried to get the missing information and
comply with all the detailed requirements for what
has to be provided and in what format.

The regulations are confused. It is necessary to crossrefer to the Act, regulations and guidance. The
information should be clear and be in one easily
accessible place.

The regulations are so complex that no DIY

conveyancer will be able to prepare a HIP.

Retirement housing
The UK population is ageing, but retiring later. The market for retirement homes is therefore also changing, but people in
their 60s now regard themselves as still too young to be old, explains Graham Norwood, in this look at how well the
sector is adapting (Estates Gazette, 11 February 2006, pp.9698).

currently targeting buyers aged 55 and over, working

effectively?
In the early 1980s, retirement housing was seen as
functional, low-cost and low priority.
Kevin Holland of English Courtyard, one of the UKs most
upmarket players in todays more diverse retirement
sector, says: Aimed at what can be best described as C2 or
C1, it attracted a very specific type of customer typical of
an emerging market female, widowed, mid-70s and
driven by a need. It was referred to as a sheltered housing
market. This closed the concept to many younger, aspiring
elderly.

Eylesden Court, Kent: Retirement housing developer English

Courtyards most recent development comprises 22
cottages, houses and apartments in a parkland setting

Now, though, the market has changed out of all

recognition. Its target audience is wide from the active,
young retired to the infirm elderly and it has buildquality and price differentiation, like any other new-build
sector.

In 2001 there were 9.4m people in the UK aged over 65,

but by 2011 the figure will be 12m, and by 2040 it will hit
15m. Next year, for the first time, there will be more over65s in the UK than those under 18. The number of people
living beyond the age of 80 will double to almost 5m
within 30 years and will reach 7m by 2050.

But although anecdotal evidence shows that retirement

properties are quick sellers and have bucked the wider
slowdown in the new-build market, some believe that the
sector is missing two tricks.

No one can dispute the demographics that justify the UKs

burgeoning retirement property market. But is the sector,
37

First, the sector persists in trying to market developments

to what many consider to be too young a market.

Adapting to a rising age

Sometimes this is because local planning authorities put a

minimum age requirement, usually 55, on residency. But
often it is because the sector wants to cash in on the
newly rich, newly free couples who suddenly find
themselves in a house that is too big for their own
requirements when their children grow up and leave
home.

Pegasus Court, Acton: Mistral offers one- and two-bedroom

apartments close to the town centre.

Raven Audley Court, a specialist retirement builder

operating for little more than a year, says that the average
age of its owners is 78. Managing director Nick Sanderson
says: I would agree 55 is too young and the 55-to-70 age
band needs a different product.
Pegasus, another leading retirement developer, has a
clientele with an average age of 77. 55 is a non-starter for
most, says the firms chief executive, Peter Askew.
This trend may accelerate if the government pursues its
agenda of reforming pensions and changing a culture in
which people expect to retire in their early 60s. English
Courtyards Holland warns: As the retirement age
increases, then developers will simply raise the entry age
limit or adapt the product to meet the changing needs.
Adapt or die.

Hollins Hall, Harrogate: Built by retirement specialist Raven

Audley Court, which says the average age of its owners is 78
years.

The second problem for the retirement sector is that

surveys by organisations, ranging from the Home Builders
Federation to sales website Propertyfinder, suggest that
most older buyers want small, manageable houses, not
flats. Yet the typical retirement development now has a
majority of apartments.

Why should a couple in their mid-50s, who may still have

teenage children anyway, choose to live in a scheme that
has people getting telegrams from the Queen on their
100th birthday? asks the chairman of one mainstreamvolume house-builder. Then theres the cost. The
overheads of community facilities, medical support and
wardens is passed on to anyone in their fit 50s who buys
next door. Its mad.

Planners obliged to adhere to Whitehalls pro-high density

planning guidance have a share of the responsibility for
this problem.

The buying public seem to agree.

We completed 10 apartments in Cheltenham specifically
targeted at the over-55 market, yet all were sold to
individuals who were 70 or over, admits Jonathan Flint of
Chase Homes. Fifty-five is just no longer an age when
people think about moving into a retirement property. We
received little or no interest from this market. The
company had never before ventured from the mainstream
into the retirement sector and says it will not repeat the
exercise, given the response.

Care and accommodation: Sunrise Senir Living is one option

for the growing number of elderly in the UK

38

Norman Ewen, financial director of Hallmark, a

retirement-sector builder for the past 20 years, explains:
Traditionally, retirement developments are situated in
centres, to be close to amenities. A town-centre site is
expensive, so high density is required to make it viable. In
our experience, less than 20 units are not viable, and thats
why apartments are more likely than separate units.

Retirement sector players

The retirement sector has been one of the residential
industrys fastest growing in recent years. It consists of
three groups of players appealing to different markets.
The high-volume, relatively low-cost submarket is
typified by sector leader McCarthy & Stone, which
has an estimated 65%-plus share of the overall
retirement market. Other firms such as Churchill
and, to some degree, Pegasus are also in this
submarket, where typical prices lie between
80,000 and 200,000. Most units are small
apartments, and a typical development with 2550
units will include a warden living on site.

Notwithstanding these problems, the retirement property

sector has mushroomed, with an estimated 115,000
retirement units in three main submarkets (see panel).
So what of the future?
Following a spate of decisions in which schemes were
turned down by planning committees, several retirement
builders and advisers are lobbying the government on the
wider community benefits of retirement housing.

At the other end of the financial scale is the

submarket with the likes of Beechcroft and English
Courtyard, where the properties are aimed at
wealthier couples or individuals. Often, most
homes in a scheme will be houses, cottages or
duplex apartments, with greater emphasis on
horizontal development, open spaces and
landscaped grounds. Prices are typically 300,000 to
650,000.

Retirees bring virtually no crime and a high rate of

volunteerism, which improves the liveability of areas, says
Russell Porter of planning consultant Roger Tym &
Partners. [They] are also less mobile and therefore more
likely to spend in the local area. Given the current
housing shortage, building retirement homes is likely to
free more family housing.

A more specialist, but growing, submarket is the care

village. This concept, imported from the US and
Australasia, is typified by Sunrise Senior Living, which
has 43,000 residents worldwide including six villages
in the UK with nine more in the pipeline. It deliberately
targets the oldest and most labour-intensive buyer for
example, 25% of homes on most developments are
reserved for individuals or couples where one person
has Alzheimers or other memory impairment.

The sector will grow, too, as the number of older people

soars in the next 20 years.
But while that is grist to the mill for the different
retirement submarkets, the government has muddied the
waters by insisting that densities should increase
significantly and social housing quotas be applied to
retirement developments as well as mainstream schemes.
As a result, it may be harder for the upmarket builders to
differentiate their products when they are obliged to
include lower-cost units.

Retirement facts and figures

Risk factor
Volume builders in the mainstream new-build market
have mastered this technique but, even so, there is little
sign that they are piling into the retirement niche.

Between 2006 and 2026, the UK population is

projected to see an overall rise of 9%, taking the
total population to 66m.

Savills head of new homes, Dominic Grace, says: Its a

risk for the volume boys. In the retirement sector, youve
got to be committed to the legacy once youve finished
building providing the care facilities, the wardens and so
on, forever afterwards.

By 2026, the number of people aged 50 or older will

rise by 29% to 26.5m. Those aged 50 or older will
represent 40% of the population, up from 34% in
2004.

The number of people in their 50s will rise by

almost 10% by 2026 to 8.3m.

The number of people in their 60s will rise by

almost 34% by 2026 to 8m.

The number of people in their 70s will rise by more

than 40% by 2026 to 6m.

The number of people in their 80s will rise by

almost 50% by 2026 to 3.4m.

It requires a total commitment to delivery, which the

Beechcrofts and English Courtyards of this world are
supremely good at providing. One bad article in The Daily
Telegraph and a developer like that is stuffed, so they
work hard to ensure that article is never written. But you
wont find a volume builder taking that risk.
So the sector will grow, but seems set to be dominated by
the existing players. They have done well so far. But can
they change to meet the demands of a world where
people in their mid-50s are no longer close to retirement,
where the numbers of genuinely old are rising rapidly,
and where almost everyone wants something the sector
cannot deliver in great numbers houses, not flats?

The number of people aged 90 or older will almost

double by 2026 to around 800,000.
Source: Gerald Eve
39

MANAGEMENT
Shopping centre definitions
There are many different shopping centre definitions across Europe, but what the property industry needs is a set of
standards to enable cross-border analysis of performance. A study by the International Council of Shopping Centers
(ICSC) is therefore leading the way in creating a Europe-wide set of classifications. Dr Yvonne Court, head of European
retail research and partner at Cushman Wakefield Healey and Baker, explains how the definitions are being developed
(British Council for Shopping Centres and Estates Gazette supplement Centre Retailing 2006, pp.4449).

When is a shopping centre a shopping centre? When it's a

. Most people would think, initially at least, that there
has to be a simple answer to this question. To the shopper
on the street, a shopping centre is a place to which they
travel to buy the goods and services they think they need
or increasingly desire. They are not overly concerned with
whether the retailer they plan to visit is in their closest city
centre, on a retail park or in a cluster of retail warehouses
on the edge of town or a purpose-built shopping centre in
or out of town. All they know is that this is where they can
buy the goods they want.

IPO uses a threefold size segmentation to standardise

definitions across Europe (see table: IPO shopping centre
definitions). This is similar to the classification used by
the Spanish Council of Shopping Centres (Asociacn
Espanola de Centros Comerciales). This segmentation
includes a small, medium and large category breakdown,
with thresholds at 20,000m2, 40,000m2 and above.
This was clearly a start, but the International Council of
Shopping Centers, which represents the interests of
owners, developers, investors, managers and occupiers of
shopping centres, felt that there was an opportunity for it
to fill a gap in the marketplace for the greater good of the
industry as a whole. The following outlines the road taken
to creating a standard set of definitions.

However, to property professionals working in an

international market and across national borders, the
need for some form of pan-European shopping centre
property classification has become increasingly obvious
over the past decade. This would be of great benefit to the
retail property industry as a whole to facilitate crossborder analysis and benchmarking of both financial and
operational performance.

The road to a standard set of definitions...

In early 2005, the ICSC commissioned Cushman &
Wakefield Healey & Baker to undertake a study to review
existing national definitions used to describe shopping
centre types in 32 European countries (see table:
Countries reviewed), with the goal of distilling the
common centre types and their characteristics into a panEuropean international standard.

There are numerous definitions of benchmarking but,

essentially, it involves learning, sharing information and
adopting best practices to bring about changes in
performance. However, it is also beyond just a mere
competitor analysis, comparisons of league tables, one-off
assessments or copying competitors (they are not
necessarily better just because they are different). It relies
on transparency and an openness to sharing information.
There are ways of sharing commercial information
without confidential data being compromised. The
underlying tenet of this is: what you cannot measure you
cannot hope to effectively manage.

This involved a process of consultation in each country

with a range of organisations and companies, including
the national shopping centre councils (where they exist),
key developers and investors, a selection of retailers,
national planning regulators, regional planning authorities
(where appropriate), other relevant organisations (for
example, IPD in the UK and elsewhere in Europe), other
consultancies, and the ICSC (for comparison purposes
and also to review work that had already been undertaken
by the ICSCs European Research Group). The following is
largely taken from the report to be published by the ICSC
in November.

This need was recognised by Investment Property

Databank (IPD), and its recent pan-European attempt to
classify the shopping centre was to use size and units
only. IPD developed a set of definitions on this basis. It
first defined a shopping centre as:

The review results

A purpose-built centre of at least 5,000m2 with five

units or more. The property should have a public
area for pedestrians and be managed as a single
entity by a property team.1

Just 12 countries across Europe have a generally accepted

definition of a shopping centre. Not surprisingly, it is in
the more mature markets of Western Europe where
generally accepted definitions are most common. There
are 13 countries (Central and Eastern Europe, Turkey,
Greece and Iceland) where no such definition exists. In

IPD assumes there is no maximum age for a shopping

centre.
40

This may require weighting one characteristic more than

the other when applying international standards.

another six countries there are definitions used by various

groups, but there is no obvious generally accepted
definition. New definitions are being sought in Russia and
the Netherlands.

Even with strict size bands, variations exist across Europe

for the same type of centre. This is illustrated by the
difference between a regional scheme in Germany (above
15,000m2) and Portugal (above 40,000m2). However, there is
some consistency at either end of the size spectrum.
Among the largest centres, regional schemes are defined
as being more than 40,000m2 or 50,000m2 in seven
countries (Denmark, France, Italy, Ireland, Poland,
Portugal and Spain). The exceptions are Russia: over
30,000m2; Belgium: over 25,000m2; Sweden: over 20,000m2;
and Germany: over l5,000m2. Among the smallest centres,
most schemes referred to as neighbourhood/community
are 5,00010,000m2, although some are smaller and some
larger. Clearly, the size criterion used in different
countries reflects their own market.

Shopping centres tend to be defined most rigorously in

Western European countries, such as Germany, Portugal,
Spain, France and Italy, normally by the national shopping
centre councils. There are exceptions, notably the UK,
which arguably has the most developed shopping centre
market in Europe but does not have an industry standard
definition.
In Central and Eastern Europe, where the shopping centre
industry has emerged only recently, definitions tend to be
less well defined or non-existent. (Some countries
introduced terms found in the US, which are not
comparable. For example, a modest retail warehouse park
in Turkey is referred to as a power centre.)
In general, the more mature shopping centre markets (in
terms of shopping centre space per 1,000 population)
have the most sophisticated shopping centre definitions.
The only major exceptions to this rule are Russia and, to a
lesser extent, Belgium. However, some European.
countries have enacted their own definitions for the
industry.

Unit store numbers

The number of stores in a centre is typically less critical
than retail size. However, there are eight countries where
the number of units helps in the classification. In addition,
there are minimum unit requirements generally used,
ranging from three in the UK to 20 in Poland, Austria and
France.

Legal definitions

Concepts

Germany and Portugal have defined shopping centres by

law. The Netherlands has legal definitions of retail areas.
In Italy, there is a legal shopping centre definition at
national level and most of the 21 regions have additional
legal definitions.

Almost all European countries have some traditional form

of shopping centre, but many do not have retail
warehouse parks, factory outlet centres or other
specialised retail formats. In general, even national
definitions for specialised formats, such as retail
warehouse parks and factory outlet centres, are
incomplete, even though these formats are simple to
describe and there are relatively few of them.

Total size
In a number of countries, the generally accepted
definition provides a minimum size requirement, most
commonly 5,000m2. This can vary significantly though. In
Germany it is 3,000m2, in Austria 4,000m2 and in
Switzerland and the Netherlands 2,500m2. ln other
countries a minimum size requirement is not included
within the generally accepted definition but is implicit in
terms of the size bands for the smallest type of scheme
for example, the Belgian Council of Shopping Centres
does not include size criterion in its general definition,
but it describes a convenience/ neighbourhood centre as
being larger than 5,000m2. The Belgian register includes
schemes down to 1,000m2 and below, but these are not
defined.

As new concepts emerge, definitional problems may

occur making classification more difficult. In addition,
combinations of existing shopping centre formats on the
same property further complicate the classification issue.
For example, in France there is a tendency to develop
factory outlet centres alongside traditional: shopping
malls. There are also some formats that are unique to
certain countries, such as leisure parks and fashion parks
in the UK.

Anchors
The use of anchor stores as a criterion to define a
shopping centre format in Europe is not very helpful in
most countries. Although anchors are referred to in the
shopping centre definitions of countries such as Austria,
Belgium, Finland, Hungary and Latvia, the term is often
vague.

Size bands
Size is often used to describe different types of centres.
About half the countries in the study refer to size bands
and in most cases each size band is given a name
community, district, regional, and so on. Often size bands
are used In conjunction with unit numbers (number of
stores). This can create a problem if a centre conforms to
one element of a definition for example between
20,000m2 and 40,000m2 but not another (say, 5080 units).

However, the anchor criterion can still playa role as an

additional marker for distinguishing centres from one
another. For example, in Central and Eastern Europe the
presence of a hypermarket (an anchor) and the size of the
adjoining retail are helpful in defining a centre.
41

usually found in convenience-based centres include

pharmacies, convenience stores and retailers selling
household goods, basic apparel, flowers and pet supplies.
Those centres are typically located at the edge or out of
town.

Trade area and catchment population

The trade area dimension is rarely used as a criterion to
define a shopping centre, although there are exceptions,
such as in Austria and Denmark. As the demographic
structure of a population changes overtime, it is difficult
to use trade areas on a consistent long-term basis. Once
again, it is often used in conjunction with other factors
(size bands, unit numbers) to assist in classification.

A retail park, also known as a power centre, is a

consistently designed, planned and managed scheme that
comprises mainly medium- and large-scale specialist
retailers big boxes or power stores.

Another step towards standardisation of

definitions

A factory outlet centre is a consistently designed,

planned and managed scheme with separate store units,
where manufacturers and retailers sell merchandise at
discounted prices that may be surplus stock, prior-season
or slow-selling.

Until now, national trade associations or other

organisations, such as shopping centre councils, that
define shopping centres in their own country have had
little concern about how schemes are defined elsewhere.
There was simply no need. Interestingly, many of the
emerging markets have adopted definitions based on the
ICSCs definitions defined in the US to fill their void.
Clearly this is due in part to the lack of domestic councils,
but also it suggests that operators in these countries view
shopping centres as an international product.

A theme-oriented centre is a consistently designed,

planned and managed scheme that can be leisure-based
or not. This scheme includes retail units and typically
concentrates on a narrow but deep selection of
merchandise within a specific retail category.
A leisure-based centre is usually anchored by a
multiplex cinema and includes restaurants and bars with
any combination of bowling, health and fitness and other
leisure-concept uses.

Although no two centres are alike, most countries do have

an accepted definition of a shopping centre that includes
common features. They are: centrally managed; planned
and developed as a single entity; and purpose-built.
Therefore, taking account of the existing definitions in
different countries (including IPDs definitions), it can be
argued that a consistent pan-European definition of a
shopping centre is a scheme that is planned, built and
managed as a single entity, comprising units and
communal areas, with a minimum gross leasable area
(GLA) of 5,000m2.2

A non-leisure-based centre concentrates on a niche

market for fashion/apparel or home furnishings or can
target specific customers, such as passengers at airports.
There has been considerable debate among the lCSCs
European Research Group reflecting the various markets
each researcher operates in. This culminated in a
recognition that, as with all definitions, they need to be
flexible and recognise that retail property formats evolve
over time in response to the supply and demand factors.

Pan-European shopping centre standard

definitions

The table Shopping centre concordance maps the

commonly found national shopping centre types found in
Europe to the ICSC International Standards for European
shopping centre types.

With a working definition of a shopping centre in place,

the next challenge was to extract common elements from
centre types throughout Europe. The following
framework, which embraces those elements, classifies
shopping centres into 11 broad-based international types,
grouped into two broader categories traditional and
specialised (see table: International standard for
European shopping). A traditional centre is an all-purpose
scheme that could be either enclosed or open-air and
classified by size. Specialised centres include specific
purpose-built retail schemes that are typically open-air
and could be further classified by size.

The next steps...

The lCSCs international standard for shopping centre
definitions, Towards a Pan-European Shopping Centre
Standard: A Framework for International Comparison in
Europe, is being launched at the fifth European Research
Seminar in Berlin in November. It includes a review of 32
countries and lists the definitions in use and the panEuropean definitions outlined above. National councils
are endorsing these international definitions, which will
co-exist with national definitions. Key developers and
other members of lCSC have also agreed to use the
definitions.

There are two types of small traditional centres:

comparison-based and convenience-based. Comparisonbased centres include retailers typically selling fashion
apparel and shoes, home furnishings, electronics, general
merchandise, toys, luxury goods, gifts, and other
discretionary goods. Comparison-based centres are often
part of a larger retail area and are most likely found in city
centres. Convenience-based centres include retailers that
sell essential goods (those items consumers buy on a
regular basis) and are typically anchored by a grocery
store (supermarket or hypermarket). Additional stores

Globalisation, increased inflow of capital, and information

technology are increasing opportunities for international
projects. While time and resources are undoubtedly
required to set up benchmarking projects, there also has to
be a will to participate and to share information. With this
work, the ICSC has taken a major step forward in the drive
to facilitate cross-border analysis on a comparable basis.
42

International standard for European shopping

Format
Traditional

Specialised

Type of scheme
Very large
Large
Medium
Small
Retail park

Comparison-based
Convenience-based
Large
Medium
Small

Factory outlet centre

Theme-oriented centre

Leisure-based
Non-leisure-based
Source: International Council of Shopping Centers

GLA
80,000m2 and above
40,00079,999m2
20,00039,000m2
5,00019,000m2
5,00019,999m2
20,000m2 and above
10,00019,999m2
5,0009,999m2
5,000m2 and above
5,000m2 and above
5,000m2 and above

IPD shopping centre definitions

An initial threefold size segmentation standardised definitions across Europe
Definition
Type of scheme
Large
Large shopping centre of more than 40,000m2 GLA
Medium
Medium-sized shopping centre of 20,00140,000m2 GLA
Small
Small shopping centre of 5,00120,000m2 GLA
Source: Investment Property Databank
Countries reviewed
Cushman & Wakefield Healey & Bakers study covered 32 European countries
Austria
Estonia
Lithuania
Belgium
Germany
Luxembourg
Bulgaria
Greece
Netherlands
Czech Republic
Hungary
Norway
Croatia
Iceland
Poland
Denmark
Ireland
Portugal
Finland
Italy
Romania
France
Latvia
Russia
Source: International Council of Shopping Centers

Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
Ukraine
UK

Shopping centre concordance

Identifying European shopping centre types with the ICSC international standard
National shopping centre type
International standards for Europe
Centre intercommunal
Typically traditional
Community centre
Traditional
Convenience centre
Traditional
District centre
Typically traditional
Fashion park
Theme-oriented, non-leisure-based
Local centre
Typically small traditional
Neighbourhood centre
Typically small traditional
Regional centre (mall)
Traditional
Retail mall
Traditional
Retail cluster/trading centre
Not a shopping centre as such
Shopping gallery
Excluded as they are usually below 5,000m2
Speciality centre
Theme-oriented, leisure- or non-leisure-based
Strip centre
Typically traditional
Suburban shopping centre/out-of-town
Typically traditional
Super- or supra-regional centre (mall)
Traditional
Town centre
Typically traditional
43

Theme centre
Theme-oriented, leisure- or non-leisure-based
Urban entertainment centre
Theme-oriented, leisure-based centre
Urban shopping centre/in-town centre
Typically traditional
Source: International Council of Shopping Centers

Onerous lease terms

The last edition of CEMicircular carried an article about good estate management (Autumn 2005, p.37), showing how wellthought-out lease terms can help the landlord maximise investment performance from commercial property. However,
when lease terms that seem like a good idea to the landlord are viewed as too onerous by the tenant, then they can
undermine the value. Chris Harvey, solicitor in the real estate department of CMS Cameron McKenna LLP, and Nigel
Panton, director of Briant Champion Long, discuss the importance of taking a balanced view (Estates Gazette, 5
November 2005, pp.130131).

Landlords can insist upon onerous provisions in

commercial leases without appreciating their potential
negative repercussions on rent review. Some refuse to be
flexible on the basis that the proposed terms are either
market practice or standard wording for the particular
property. Is this the case, and are these good reasons?
Such landlords may live to regret their inflexibility.

The British Property Federation has recently

recommended that landlords should allow underletting
below the passing rent, provided that the underlease rent
is not less than the market rent. This article looks at the
effect that some of the other more common onerous
provisions could have on review (assuming that a tenant is
not prepared to agree that these provisions can be
ignored on review).

The terms of the actual lease are normally incorporated

into the terms of the hypothetical lease on review. Thus,
the more onerous the actual lease terms, the less
attractive the lease becomes from the hypothetical
tenants point of view and the lower the rent it would be
prepared to pay.

User provisions
The more flexible the use, the more attractive the
premises will become to the hypothetical tenant, because
it will enable the tenant to accommodate changes to its
business and make it easier to assign the premises.
Ironically, tenants often seek to narrow their user
44

provisions on the basis that a wide permitted user could

inflate the rent on review. Depending upon estatemanagement considerations, a wide permitted user might
reflect the opportunity value to the landlord, which will
want to rentalise the wider use.

these go beyond mere repair, since the burden could

outweigh the benefit.
The effect of an onerous repairing obligation on review
will depend upon the length of the lease term and the
nature and location of the premises. For example, a full
repairing lease in an historic city might not be considered
to be onerous if comparable properties are let on the
same basis. The landlord could justifiably refuse to soften
the tenants repairing liabilities without losing out on
review. On the other hand, allowances of between 20%
and 25% have resulted from arbitration where the
building is run-down and a tenant can be required to
rebuild.

Where the lease provides that the tenant cannot change

its use without the landlords consent, there is no
assumption that consent will not be unreasonably
withheld. The landlords right to refuse consent is
unfettered, subject to the provisions of the Landlord and
Tenant Act 1927, and the possibility of obtaining consent
must be ignored on review. Where the words
unreasonably withheld are omitted, the user clause can
then be regarded as restricted with an adverse effect upon
rental value. However, where the lease expressly provides
that consent must not be unreasonably withheld, the
landlord will arguably be entitled to value the premises on
the most profitable use for which consent could not be
unreasonably withheld.

Alterations provisions
The easier it is for a tenant to carry out alterations, the
higher the rent will be, initially and on review. The tenant
will want to ensure that it can update the premises and
adapt to the changing needs of its business throughout
the term of the lease. The alterations provisions could
affect the tenants ability to assign the lease, because a
potential tenant would have the same requirements.

The landlord should not link the user clause to the

tenants business. In Plinth Property Investments Ltd v
Mott, Hay & Anderson (1978) 249 EG 1167, the lease
provided that the premises could not be used otherwise
than as offices in connection with the tenants business of
consulting engineer. This clause confined the class of
hypothetical tenant to consulting engineers and
diminished the rent from 130,000 to 89,000.

If the lease contains a covenant against tenants

improvements without the landlords consent, it will be
subject to the statutory proviso that such consent is not to
be unreasonably withheld (even if it is not expressly
stated). But will this increase the letting value? That will
depend upon factors such as the nature of the premises
and comparable properties, the permitted uses and the
likelihood of obtaining planning consents for future
alterations. However, any absolute (or unduly restrictive)
ban could have a negative effect on rent review. For
example, where the tenant is prohibited from making
external alterations to retail premises, the landlord should
ensure that the shopfront is excluded from the restriction.

The permitted user can be phrased either positively or

negatively. Negative provisions provide that the premises
may not be used other than for a specific purpose. Under
positive provisions, the premises must be used for a
specific purpose. The former are not breached if the
tenant does not use the premises for the permitted use;
they are breached only if the tenant uses the premises for
some other use. The latter expressly require the premises
(or part of them) to be used for a particular use, which
could have an adverse effect upon review if such use is
unprofitable.
From a practical perspective, location is key. Certain uses
might have a premium value in a prime location and the
landlord will not want to lose this by having a generally
open user clause. Likewise, anything other than the
broadest user clause could have a negative effect in a
tertiary location.

The flexibility of these provisions will depend upon the

nature of the property and whether it is a stand-alone unit
or forms part of a larger estate. Franchisee tenants of car
showrooms, for instance, will be driven by the obligations
in their franchise agreement and will require greater
flexibility to accommodate their corporate identity. The
landlord will need to balance the potentially adverse
effect on rent review against estate-management
considerations.

Repairing obligation

Keep-open covenants and break options

Many commercial lease precedents include obligations to

renew, reconstruct, rebuild and reinstate the premises.
But are these really necessary?

Landlords should decide whether they need to place

tenants under keep-open obligations, since their
inclusion in the lease could result in a 20% discount on
review. Landlords might want to place an anchor tenant
under such an obligation, but this type of tenant is less
likely to agree to the restriction. Keep-open covenants are
more common in multi-let retail properties, but they are
potentially onerous because a tenant might want to close
its premises for good business reasons. They are difficult
to enforce, and to obtain damages the landlord would
have to demonstrate damage to its reversionary interest.
Again, the burden could quickly outweigh the benefit.

In Norwich Union Life Insurance Society v British Railways

Board (1987) 283 EG 846, the judge upheld a 27.5%
discount on review on the basis of a covenant to when
necessary rebuild, reconstruct or replace the premises.
This was considered to be onerous because it extended
beyond the usual covenant to keep the premises in good
repair. Landlords should consider revisiting the extent of
the repairing obligations within their precedents, where
45

The initial rent will usually take account of whether the

tenant has the benefit of a break clause. However,
whether such a clause can be rentalised on review will
depend upon, among other things, the conditions
attached to its operation. Break clauses can provide that,
prior to the lease being terminated, the tenant must have
complied with its covenants. This precondition will be
strictly interpreted by the courts and it could therefore be
difficult for the tenant to operate a break clause even if it
has been factored into the rent. In such a case, the tenant
will doubtless argue that it should not be rentalised on
review. The break clause would, from the tenants point of
view, become a virtual rather than a real benefit and the
rent should be adjusted accordingly.

review because such concessions are not yet the norm.

But if these clauses become more common, a tenant
whose lease does not contain such provisions might argue
for a discount on review.
Factors other than tenants covenants could affect review.
For example, the question of the hypothetical term on
review is a topic of considerable debate in the retail
property market. Wording that benefits the tenant could
secure a deduction of between 5% and 10% at review. On
the other hand, positive wording for the landlord could
increase the rental value by up to 5%. In shopping centres
and new retail schemes, 15- to 20-year terms are common;
the review clause should offer flexibility to cater for
further market changes.

Uninsured risks and other lease provisions

Conclusion
When negotiating leases, landlords must think about the
potential long-term effects of these clauses. They will
need to balance the requirement for consistency within
their building, estate or centre and the need to maintain
control against the negative effect on rent review.

Tenants often require protection against damage caused

by uninsured risks such as flooding or acts of terrorism.
Terrorism is quickly becoming a deal-breaking issue; a
tenants protection against uninsured risks may soon
become the standard market position. Where the tenant is
not protected, there will arguably be no effect upon rent
Examples of allowances
Permitted user

2.510%

Repairing obligation

up to 25%

Alterations

up to 5%

Keep open

2.515%

Break options

510%

Hypothetical term

+/2.510%

Uninsured risks

No evidence as yet

FM and multiskilling
Persuading workers to multiskill might be a good way to improve facilities management services, but what is multiskilling
and how can it be achieved? College of Estate Management student Lee M McLean addresses this question in his MSc
research dissertation for the Facilities Management course, entitled Delivering results through a multiskilled
workforce in the UK FM industry, submitted in November 2005. His research findings have been summarised for
CEMicircular by Frances Plimmer, who is a Senior Research Officer with the College and also responsible for research
methods modules within College courses.
This is the first time that the results from a student dissertation have been presented in CEMicircular. There will be others
in future and course tutors are asked to recommended suitable candidates. Bound copies of student dissertations are
held in the College library at Shinfield Grange.

being multiskilled, and whether there are any

disadvantages in using a multiskilled workforce, based on
the following research hypothesis:

Introduction
FM companies are constantly looking to deliver improved
services to their clients, while lowering costs. Multiskilling
is seen as one of the options available to employers to
achieve this. This research seeks to establish what exactly
multiskilling means, whether all skill sets are capable of

Creating a multiskilled workforce in an FM delivery

contract can only be created from certain single-skill

46

sets as some single-skill set employees cannot be

multiskilled.

Four types of multiskilling are identified:

a vertical multiskilling taking on tasks generally done
by those higher up or lower down in the management
structure;

It is clear from the available literature that there is no

accepted industry-wide definition of multiskilled, with
existing definitions falling into two camps:

b horizontal multiskilling learning skills from other

disciplines or functions, eg an electrician learning
some mechanical tasks;

a multiskilling is being able to complete another

persons job in its entirety; and
b multiskilling is being able to offer support and help in
another area of work and perhaps completing an
element of another skill sets work, but not in its
entirety.

c depth multiskilling the acquisition of more complex

specific skills within the same trade or discipline; and
d multiskilled teams a group of individuals who
collectively have a range of skills, the intent being to
have a team which is competent in all of the skills
required to complete a job.

The objectives of the study are to:

a Ascertain which traditional skills can be multiskilled;
b Analyse whether up, down or vertical multiskilling has
an effect on a skill sets ability to multiskill;

Issues of concern raised by the literature include the level

of training to be able to perform another job; the amount
of time involved in undertaking another job; the extent to
which familiarity with another job is maintained by
frequent repetition of its performance; the impact of such
multiskilling on performance and safety; and the different
perceptions of managers and employees of multi-skilling.

c Make recommendations on the single-skill set that

companies can multiskill; and
d Provide a workable definition of multiskilling that
may be used to compare published benefits from
multiskilling and allow a clearer understanding as to
what the term means.

In addition to an extensive literature review, surveys were

undertaken. Ten interviews with managers of an FM
operation which delivered services using a multiskilled
team, comprising one of the six skill sets used in this
research, were conducted in order to get a better
understanding of the performance of their teams.

The research focused on six key skill sets within the

workplace, being:
a cleaning;
b electrical;

In addition, 62 questionnaires (18% response rate), which

were returned from participants within the chosen skill
sets, sought to establish how people working in a
multiskilled environment interacted with multiskilling in
terms of performance, competence level, ability and the
likelihood to undertaking multiskilling activities.

c ground site maintenance (GSM);

d plumbing;
e joinery; and
f

security.

These were chosen because they account for 80 percent

of the planned and reactive tasks delivered across the
organisation (a support service and construction
company) which sponsored and collaborated with the
research.

Conclusions
Even though there is no standard definition of
multiskilling, it is clear that many UK FM companies are
now using multiskilling to deliver services effectively and
save costs, and thus there is huge variation as to what this
means to the different companies. The conclusions
reviewed the research objectives:

Research methodology
The literature revealed several industry descriptions of
multiskilling, (including multi-tasking, generic working
and cross training), and varying definitions, which
indicate two basic perspectives: skill broadening and
building on additional skills, or the undertaking of
separate tasks/roles/jobs. The literature also reflects the
most common form of multitasking, that of craftsmen
(skilled skill sets), thus recognising the paucity of any such
research relating to the non-skilled workforce. Depending
on the source, reducing labour costs, and/or contributing
to the running of the business, are either implicit or
explicit within the definitions.

1 Ascertain which traditional skills can be

multiskilled.
Of the six skill sets tested, evidence indicates that
plumbing, electrical, joinery and GSM are undertaking
more multiskilled activities, not because the other skills
sets will not multiskill, but probably because these are the
best skill sets to multiskill, because of their structured
working arrangements, competency levels, work flow and
the nature of their jobs. Of more significance is the issue
of multiskilling lower paid employees.

47

2 Analyse whether up, down or vertical

multiskilling has an effect on a skill sets ability to
multiskill.
Employees understand the relationship between their
own skill set and other skill sets and there was evidence of
a reluctance to acquire what they would consider skills
that are below their current competency level, even when
rewards were offered. This can only be accounted for by
perceived workplace and job status. However, workers
from skill sets that are seen as being of a higher skill level
would undertake additional work from similar skill sets,
especially if rewards were offered, indicating that
additional rewards and increased skills are incentives.

Multiskilling is the ability of a worker to complete a

task that traditionally was completed by another skill
set or work group to a defined standard and that
activity is frequently planned into his/her working
hours.
This definition gives a clear and concise understanding
which allows companies to make the most of their
employees by working to an agreed definition, and
allowing clear identification of savings made through
implementation of a multiskilled model. It will also lead to
transparency and clarity in contracts for clients and
employees alike.
Note that the definition identifies multiskilling as
involving tasks which are part of the employees working
hours and not training people to cover for absences
(which would allow a company to continue to operate but
does not necessarily guarantee that work will be delivered
to the same standard). Multiskilling people is about
training a workforce to deliver multiple activities that
would have normally crossed several skill sets, with the
key difference being that the employees actually do it
regularly, as part of their working week.

The type of activities and the skill set from which these
come are crucial to the employees desire to accept the
increased roles and activities. Thus managers undertaking
a multiskilling programme must focus on the tasks and
additional duties that will make up that role and recognise
that forcing employees to complete those activities
considered by their employees to be less skilled than
their core skills will result in conflict and, potentially, a
reduction in performance of both core and multiskilling
activities.

Research hypothesis reviewed

Skill sets cannot be grouped together and ring-fenced
into those which can multiskill and those which cannot
multiskill. What is apparent is that in order for
multiskilling to be successful, a certain environment must
be created. The research has demonstrated that,
regardless of skill, full-time employees who have received
training that allowed them to complete tasks competently,
who were rewarded for being multiskilled and were upskilled, were more likely to complete multiskilled
activities effectively. When such workers undertake these
additional activities on a regular basis, multiskilling is
effective both in terms of willingness and perceived
performance.

3 Make recommendations on the single-skill set

that companies can multiskill.
Cleaning, security and GSM skill sets have not performed
as well as the skills sets that are traditionally considered to
be skilled (ie joinery, plumbing and electrical), but that
should not imply that such skills should not be
considered for multiskilling activities. Many of the
principles used to mobilise multiskilling models have
been based on research which considered only skilled
skill sets. The evidence from this research is that many of
the cleaning, security and GSM employees are
undertaking reactive multiskilling, which they do not
complete on a regular basis. Also, nearly all of these
employees are willing to undertake multiskilling activities
but have not received appropriate training and therefore
do not feel confident in completing them; thus greater
emphasis needs to be placed on training and developing
multiskilled roles more suited to them.

The research has identified barriers to multiskilling, the

removal of which will help to create an effective
multiskilling environment. Thus, the focus should not be
placed on skill sets which cannot be multiskilled, but on
the barriers which impede multiskilling.

Creating a multiskilled environment

4 Provide a workable definition of multiskilling

that may be used to compare published benefits
from multiskilling and allow a clearer
understanding as to what the term means.
The literature review indicated no one clear definition of
multiskilling, although several key factors were evident,
specifically, the time spent on the activity, the nature and
level of the task undertaken, and the issue of whether
multiskilling broaden an existing skills base or the ability
to complete multiple tasks previously completed by
another skill set.

The four key barriers which hinder the creation of a

multiskilling environment are:
a Working environment the hours worked, full or parttime position, the expected multiskilling role, amount
of pressure on performing existing skill set duties and
the frequency of performing additional skills;
b Rewards nature of the rewards, eg extra pay, more
holidays or shorter working week;
c Training what training is provided, how this ensures
effective delivery of the service, ensuring employees
are competent to complete the task; and

In the light of the research, the following definition is

proposed:
48

d Type of multiskilling vertically, horizontally, depth or

as part of a team.

b Why employees are reluctant to perform activities they

consider to be below their core skill;

Potentially the hardest barrier to remove is the reward

element. The research has identified that the key benefits
of multiskilling are both financial and workplace
efficiency. Increasing the cost base in order for employees
to buy into multiskilling is in direct conflict with why
multiskilling was developed.

c The actual effectiveness of a multiskilled team as

compared to a single-skill operation;
d Aspects of multiskilling linked to non-skilled workers;
e The effect of part-time working on skilled workers and
whether this has any effect on the ability of a skilled
worker to be multiskilled;

While the characteristics of each of the four barriers may

change, it is important that businesses and managers
understand that the removal of these barriers will impact
on costs and this will vary depending on the skills sets.
Companies decisions as to whether to multiskill certain
skill sets will be based on these costs.

The effect time spent on the multiskilling has on the

ability of an employee to be classed as multiskilled.

This paper summarises the dissertation submitted to the

College for a Masters Award. Further such papers based on
appropriate dissertations will be forthcoming. However,
readers should be aware that not all dissertation topics
lend themselves to such presentation.

Further work
a Whether different reward levels have an effect on the
level of willingness to undertake multiskilling
activities;

49

PLANNING
Planning and flooding
Changes in the climate are expected to put more of the UK at risk of flooding. With the increased pressure for new
development, carrying out a flood risk assessment before commencing a building project is therefore becoming even
more important. However, while new planning rules are being considered for England to guard against flooding, there are
fears that more regulation will unnecessarily hinder development, reports Mark Jansen (Property Week, 7 October
2005, pp.7476).

Property developers in England will soon be affected by

tough new planning rules designed to protect against the
risk of flooding.

development is in a vulnerable location, but also whether

it will increase the flood risk for surrounding areas.
For example, the construction of a large building can
greatly increase the volume of surface run-off water that
needs to find a home when it rains. Every new building in
a flood plain reduces the amount of absorbent space that
is left to soak up water. The developer must include
measures to deal with these risks in the planning
application.

Following the floods in New Orleans caused by Hurricane

Katrina in early September, public awareness of flooding
dangers has never been higher, but the British
government has already been working for several years to
improve our defences. This autumn it is due to consult on
a radical strengthening of the existing planning guidance
to control development in flood-prone areas, known as
PPG25.

The planning guidance also suggests that both developers

and local planning authorities should consult the
Environment Agency if there are flood risk issues with any
new schemes.

Climate change is now accepted as a fact by the UK

government. Warmer, wetter winters and hotter, drier
summers are predicted by bodies such as the UK Climate
Impacts Programme, which is funded by the Department
for Environment, Food and Rural Affairs.

PPG25 is working to some extent, but the government

wants to do more. Many developers are failing to carry out
a flood risk assessment for new schemes. In the year April
2003 to April 2004, the latest for which figures are
available, the Environment Agency objected to around 700
applications on the ground that there was no flood risk
assessment.

Although no one is certain about how much the climate

will change in the UK, more intense bursts of rainfall are
expected. Sea levels around the UK are 10cm higher than
in 1900, while the south-east of England is sinking by 15
20cm every 100 years.

More worryingly, the agency says 323 planning

applications, representing 22.5% of the total in England,
were granted against its advice on the flood risk, although
only 21 of these were major developments, comprising
10 or more houses or a commercial development of more
than 10,764 sq ft (1,000 sq.m).

Defence mechanisms
Annual spending on coastal and river flood defences has
increased, from 332m five years ago to 564m in 2005, and
the government has promised to spend the same amount
again each year until at least 2008. The Environment
Agency says between 22bn and 75bn needs to be spent
on our flood defences over the next 80 years to keep up
with climate change.

There are also fears that the agency is not being consulted
on many planning applications. Its own research suggests
that, in some parts of England, its advice is sought in only
slightly more than half of flood plain planning
applications.

Water companies have promised to spend almost 1bn on

reducing the risk of sewer flooding, following an
agreement reached with the water regulator OFWAT in
December. The Association of British Insurers says that
more than 10,000 homes are at high risk of sewer flooding,
which is defined as a 10% annual chance. More than half
of them are in London and the Midlands.

The Office of the Deputy Prime Minister cannot confirm

exactly when a new draft PPG25 will be issued for
consultation, although it is expected this autumn. But
former planning minister Keith Hill made it clear that a
radical shake-up is on the cards when he announced the
review in March.

Introduced in 2001, PPG25 requires developers to

undertake a flood risk assessment for all new
developments, appropriate to the scale and nature of the
scheme. This should examine not just whether the

He said there would be a stronger and clearer emphasis

on the need for flood risk assessments to be prepared for
all applications in flood risk areas. The new PPG25 would
also emphasise the need to consider climate change when
flood risk is assessed.
50

In addition, local authorities that want to approve large

developments in flood risk areas against the advice of the
Environment Agency will be forced to refer them to the
secretary of state for a possible call-in. Finally, Hill hinted
that the government was in favour of making
consultations with the agency compulsory rather than
voluntary.

defences are rated highly, and the probability of a flood is

once every 1000 years.
Andrew Warner, chairman of the RICS planning and
environment policy panel and a partner at property
services firm Dalton Warner Davis, believes the new
PPG25 will be pretty tough. Its going to make life
extremely difficult for developers and its going to result
in some sites being undevelopable, he says.

The Environment Agency and the Association of British

Insurers have warmly welcomed these proposals,
although developers are noticeably less keen. We
welcome the review of PPG25, says the agencys head of
planning and local government Mark Southgate. We
welcome the proposal to make us a statutory consultee
[and] the call-in direction for major developments in flood
risk areas.

Warner believes the new PPG25 for England could be as

strict as the new rules that were introduced in Wales in
July 2004 to control development in flood risk areas
(known as TAN15).
He relates how one of his clients was recently refused
permission for a residential development in Wales
because of flood risk, even though the developer had
offered to build both water storage tanks and a drainage
system to contain any flood threat. The team considered
launching an appeal but abandoned the idea after
studying recent appeal decisions by the Welsh Assembly.
It was clear we wouldnt stand a chance, says Warner.

The Association of British Insurers (ABI) has spent many

years lobbying the government for stronger flood defence
measures. In April, just before the general election, it
published its own flood manifesto calling for a continued
increase in spending on flood defences and urban
drainage.

Eric Hall, planning director at developer Castlemore,

believes the Environment Agency already has all the
power it needs to block unsafe development and cannot
see the need to strengthen PPG25 any further.

Living in peril
Dr Sebastian Catovsky, the ABIs policy adviser for natural
perils, welcomes the changes the government has already
promised to PPG25, but says more needs to be done.

Its hard to contradict the objective behind it, he says,

but I would have thought the existing PPG25 has
everything the Environment Agency wants. I wonder
whether its just window-dressing, really.

The ABI is particularly concerned that climate change

should be taken into account when flood risks are
assessed. For example, climate change over the next 80
years could raise the probability of a flood in some areas
from once every 200 years to once every 100 years,
Catovsky says.

Slow motion
Halls main complaint is that he finds the agency difficult
to deal with. He says that Castlemore comes across
development sites with a possible flood risk maybe three
times a year, but the agency is too slow in responding to
requests for advice before a planning application is made.

In the flooding that occurred in Carlisle in January this

year, when two people died and 1,900 properties were
damaged, river levels rose to one metre above the mark
made by the last big flood in 1822. The river flows were of
a scale that would be expected every 150 years.

Castlemore will want to know quickly whether the site is

considered at risk and whether flood modelling will be
necessary, but the advice usually takes four to six weeks
to come through.

The ABI wants planning authorities to think more about

the possible human and economic consequences of a
flood as well as the probability of it happening. Wed like
to see a policy that looks at both, says Catovsky.

Hall says that by that time the developer must already

have taken a decision on whether or not to buy the site,
and that once a planning application has been made the
agency will often ask for the same information all over
again.

The ABI also wants the sequential test whereby

preference is given to development sites with the least
risk to be applied just as rigorously in areas where
defences are strong, such as London and the Thames
Gateway, as it is in areas where defences are weaker. Even
in well-defended areas, there are better and worse places
to build, says Catovksy. Many London boroughs are of
the view that theres a flood defence there, so they dont
need to worry about flooding.

Hall also complains that the agency is a law unto itself,

paying less regard to balancing arguments over planning
decisions than highways authorities or local planning
committees. It is much harder to engage them in a debate
about the pros and cons of a scheme, he adds.

When the ABI submitted its thoughts on the draft southeast plan in April, it argued that a sequential approach
could reduce potential losses in the event of a flood by
half. In the Thames Gateway 90% of development land lies
in the flood plain, although Catovksy points out that the

Yet, as Hall has acknowledged, the political mood

following the New Orleans disaster means that antiflooding policies are likely to be pursued vigorously. As
Andrew Warner predicts, the Environment Agency is
going to have to be very responsible in assessing risks.

51

Stemming the tide: How the planning law could

change

Climate change to be taken into account when

assessing flood risk.

The expected changes for planning policy in flood risk

areas are:

Consultation with the Environment Agency may

become compulsory for all flood risk applications,
instead of voluntary.

Secretary of state to be given the final say over

applications for large developments in flood risk
areas that are supported by local authorities but
opposed by the Environment Agency.

Stronger emphasis on the need for a flood risk

assessment to be undertaken for every planning
application in a flood risk area.

Planning permission life span

New regulations recently introduced under the Planning and Compulsory Purchase Act 2004 reduce the life of a planning
permission from five to three years, unless the local planning authority agrees to an alternative period. The development
industry is none to happy about the changes, which are likely to have major implications, particularly for large and
complex projects, forecasts Duncan Parr, a director at Hepher Dixon (Planning, 30 September 2006 p.19).

standard period for this was five years. However, under

section 51 of the Act, this period has been reduced to
three years, unless the planning authority agrees or
decides that there should be a different time period.

Development control provisions now in force

Commencement orders have instigated five important
parts of the Compulsory Purchase Act 2004:
Reducing the default period for the life of a
planning permission from five to three years

The Act also dispenses with section 73 applications, which

were previously used to extend the lifetime of
permissions already in existence. A key reason behind this
change was that the government felt that developers were
securing permission only to bank the consent rather than
bringing the proposal forward. Not only did this leave
derelict sites in limbo, it also caused potential blight and
hindered the delivery of housing. It is hoped that by
reducing the period for implementation to three years
and removing the ability to extend permissions,
developments will be brought forward more quickly.

Giving planning authorities the power to decline to

determine repeat and subsequent applications
Establishing an obligation on statutory consultees to
respond within 21 days when commenting on
planning applications
Setting new procedures with regard to the inquiry
process for major infrastructure projects
Statutory consultees to include regional planning
bodies where a planning application may impact on
a regional spatial strategy

Unsurprisingly, the development industry is concerned by

these changes. It has argued that three years does not
leave enough time to make a start on complex proposals.
The industry believes that finalising land deals, arranging
finance and development partners, securing perspective
tenants, producing working drawings and discharging
conditions on major projects can often take longer than
the default three-year period.

Last month [August 2005] the government instigated a

series of controversial commencement orders to bring
into effect a number of key development control
provisions under the Planning and Compulsory Purchase
Act 2004.

The government argues that the Act allows authorities to

vary the period, allowing a longer timescale when
appropriate. While this is already accepted practice on
very large projects, there is concern that promoters of
medium-sized proposals of around 200 homes will now
struggle to convince authorities of the need for a longer
period within which to commence development.

The orders triggered five important parts of the Act (see

panel) including reducing the lifespan of a planning
permission from five to three years and handing planning
authorities the power to decline to determine repeat or
subsequent applications. It is hoped that these initiatives
will help to speed up the planning system and support the
governments strategies to deliver more homes.

It is unclear who will be right. Developers will need a

period of adjustment as they adapt to the system. No
doubt there will be less scope for developers to sit on
land once permission has been granted and this could
help to bring forward proposals and deliver schemes.

Up until 24 August, planning authorities granting

permission gave consent subject to a condition imposing
a time limit within which the development must start. The
52

However, the flip side could be more applications for

authorities to deal with as applicants run out of time to
start a development. This could increase workloads and
cause delays. The planning industry will need to monitor
the situation carefully, although it will take a number of
years before the impact is truly evident. Before the
commencement orders were introduced, authorities only
had the power to decline to determine applications if they
had been dismissed by the secretary of state in the
previous two years. Under section 43 of the Act, planning
authorities now have the ability to refuse to determine
applications for proposals that are similar to ones they
have rejected in the previous two years, or if an
application has been dismissed at appeal within the same
timescale.

resources to deal with other issues. This provision gives

authorities considerable powers to decline to consider
subsequent applications and with little recourse to
applicants.
The guidance also gives advice about considering
applications that are genuinely trying to overcome
concerns. A potential source of disagreement will be
whether or not the subsequent application is deemed
similar. What an applicant believes to be a valid attempt to
overcome previous objections could be seen by a
planning authority as a repeat application that is a waste of
their time. Clearly there are occasions when applicants
will try to wear down the system, but is this really a
frequent occurrence? It will be interesting to see how this
unfolds over time.

ODPM Circular 08/2005 advises planning authorities to use

these powers only when they believe that applicants are
trying to wear down the opposition by submitting
repeated applications. But the circular also advises that if a
proposal has been revised in a genuine bid to overcome
previous objections, the authority should determine the
application.

Such measures are part of a wider picture that the

government hopes will speed up the system and deliver
urgently-needed homes. As such they should not be
assessed on their own, but rather as part of the package
brought in with the Act. A reduction in the duration of
permissions will not be felt for another three years or so,
but it could speed up some proposals coming forward,
while causing more follow-up applications in three years
when developers run out of time.

There is no right of appeal if an authority declines to

determine an application. Although a judicial review may
be possible, this can be very expensive and is not a
straightforward process. If there is doubt as to whether a
subsequent application is similar, authorities are advised
to give the benefit of the doubt to the applicant and
process the application. Overlapping and twin-tracking
applications is still permitted, although it will be tackled
by a future commencement order.

The power to decline to determine repeat applications

gives authorities another string to their bow, but it could
also cause difficulties for applicants when they feel that
they are genuinely attempting to tackle concerns that the
authority has raised on earlier proposals. It may not be
possible to assess the outcome of these particular
measures for several years, but it will be worth watching
the reactions of different planning authorities across the
UK.

The government hopes that by preventing what it sees as

unnecessary repeat applications, authorities can free up

Planning gain
UK government proposals for a levy on the uplift in development land values, following the grant of planning
permission, have resulted in a flurry of comment in all the professional journals recently. This article, Planning gain fuels
anxiety, is by Ben Kochan (Planning, 28 October 2005). See Webwatch below to source RICS representations on this
subject.

The governments fundamental objective of boosting the

supply of new-build housing has given added urgency to
sorting out the vexed question of planning gain once and
for all. The last few years have seen authorities search out
developer contributions for an ever wider range of
projects. Developers blame negotiations for causing
inordinate delays in securing planning permission.
Economist Kate Barkers Treasury-sponsored review of
housing supply (Planning, 19 March 2004, p.1) has given
added momentum to the hunt for a solution.

Prompted by Barker, the ODPM is seeking to unravel the

two elements of planning gain. Securing a contribution
from developers towards the direct infrastructure
requirements of their schemes is established practice.
Securing a share of the increase in a sites value following
the grant of planning permission is not.
Circular OS/2005, published by the ODPM in July as a
replacement for Circular 1/97, seeks to streamline
planning gain negotiations by defining eligible projects
more clearly and limiting section 106 contributions to
schemes that mitigate the direct impact of development.
53

permission is granted does not mean that the land

changes hands and the increased value is realised,
Treheame points out.

The latest circular (Planning, 22 July, p.1) seeks to speed

up negotiations by setting out five tests that any
obligation must fulfil. While the tests reflect those in the
previous circular, the update also insists that obligations
should be necessary from a planning point of view to
bring a development in line with the objectives of
sustainable development as articulated through the
relevant local, regional or national planning policies.

Denton Wilde Sapte partner Margaret Casely-Hayford

argues that the levy should not be a straightforward tax.
She proposes a banding system to reflect developer
interest, profit levels and variations in investment
requirements. Funds could be hypothecated for major
infrastructure projects managed at regional level. But she
recognises that this raises issues about accountable
agencies to manage the funds for regional infrastructure
projects. Many organisations are adamant that local
benefits need to be guaranteed. We are particularly
concerned that developer contributions towards
affordable housing could decline as a result of a
supplement, says RTPI director of policy Kelvin
MacDonald.

Berwin Leighton Paisner partner Ian Trehearne warns that

councils must be prepared to justify their requirements
explicitly at public inquiries. The circular is trying to tie
planning obligations back to policy, but planning
inspectors are unlikely to be happy with that. They will
want to look at the basis on which a planning obligation
requirement has been calculated, he argues. It will be
very difficult to write sufficiently precise policy to cover
every possible proposal.

The tariff system being introduced by authorities such as

Milton Keynes Council to fund infrastructure directly
associated with housing could be extended to fund
regional and national infrastructure. This would build on
the governments attempt to regulate the planning gain
system initially proposed in the 2001 green paper but
subsequently abandoned.

The British Property Federation (BPF) is worried that

developers could be obliged to cover long-term revenue
costs for the education or health facilities needed for their
schemes. Director of regeneration and development Faraz
Baber says that the requirement does not reflect the way
the industry works. House builders put up homes then
tend to give up any interest in the development They do
not want any continuing liability, he observes.

In a policy statement at the end of August (Planning, 9

September, p.2), the BPF accepted that developers are
accustomed to contributing to the infrastructure
associated with their schemes. The property industry
accepts that it must play its part in making a sensible
contribution to the delivery of essential infrastructure
requirements, it acknowledged. Baber recommends an
additional precept for regional infrastructure alongside
the local tariff contribution.

More contentiously, the ODPM is preparing proposals for

a planning gain supplement that could fund projects
tackling the wider impact of development schemes. The
suggestions are likely to be published around the same
time as chancellor Gordon Browns pre-budget statement
in late November.
The Barker review saw the supplement as a levy on the
increase in land value as a result of permission. It argued
that since ministers are seeking to increase the supply of
land for housing development, there is a strong case for
government to consider the use of tax measures to allow
the community to share in the increase in development
gains its actions will create.

However, the federations main concern is that there

should be a consistent methodology to calculate tariffs.
This reflects a general note of caution over the dangers of
local authorities becoming too involved in negotiating a
wider definition of planning gain from which they would
benefit.

Trehearne points out that a national tax would need to be

at a level that realises substantial income without
endangering schemes hovering on the margins of
viability. The result could be that it will not be high
enough to tax those greenfield schemes that could
generate super profits, he warns. Barkers suggestion that
the tax could be levied on the uplift in land value resulting
from a permission is not foolproof either. Just because

It could offer a perverse incentive to approve schemes to

secure the supplement, cautions Richard Bate of the
Green Balance consultancy. For the system to retain its
credibility there should be a separation between the
consideration of the planning merits of a scheme and the
recovery of development value.

CEMicircular WebWatch
The RICS report on the Barker Review of housing supply and planning gain
supplement issued on 14 October 2005 can be found at this link:
http://www.rics.org/Environmentalandlandconsultancy/Planninganddevelopment/plan
ninggainsupplement.htm
Searching planning gain on the RICS website, www.rics.org.uk will also bring up a
number of interesting articles on this subject.

54

Housing strategy
Providing more homes where they are needed and at a price people can afford is currently a central theme of UK
government policy. Local authorities have a key role to play and a local housing strategy can be central to success, if the
uncertainties over its status can be resolved, suggests Mark Smulian (Planning, 25 November 2005, pp.1415).

For a council, a housing strategy is a bit like a new

domestic appliance. You can see it is useful and you know
you ought to have one, but you cannot decide where to
put it and are unsure how it works. Planning departments
are expected to work with housing strategy teams. In
some cases they have absorbed them almost by accident.
The functions physical and organisational location is
haphazard. But it can give planning a sound basis from
which to manage the land and infrastructure needed for
new homes by predicting the numbers needed and tying
together the finance required for affordable homes.

Housing Corporation chief executive Jon Rouse sees such

strategies as a better way to direct social housing
investment. The Housing Act 2004 opened the way for the
corporation to give grants to ALMOs and private
developers to build social homes as well as housing
associations. Rouse told an LGA conference last month:
We cannot deliver without your help, participation and
partnership.
Rouse accepts that local authorities are the bodies best
placed to predict housing need and demand. Government
policy now includes a clear expectation that local
government will use all of the resources and powers at its
disposal to find new ways to deliver the necessary new
housing, increase tenant choice, reduce homelessness
and ensure balanced communities, he points out.

There is growing recognition that the uncertain role of

such strategies and their erratic links with planning are a
wasted opportunity and that strategies agreed by all
interested parties would be valuable. This autumn [2005]
the Housing Corporation, the Local Government
Association (LGA), the Chartered Institute of Housing
(CIH) and the Housing Quality Network consultancy have
all set out their stalls on how housing strategies should
progress.

Since his organisation holds the purse strings for social

housing, Rouse carries clout and he has some robust
opinions on planning. He urges housing and planning
officials to collaborate where council-owned land can be
used for affordable homes. The effective use of
authorities land assets is critical to the delivery of our
programme, he insists. He accuses some councils of
failing because there are still sites locked into wishful
employment uses that are unlikely to ever materialise.

Most councils have transferred housing management to a

housing association or arms-length management
organisation (ALMO). That leaves strategy as a remnant of
the housing department, rarely large enough to form a
separate team. Planning Officers Society communications
director John Silvester insists that close links with
planning are desirable. We need cross-fertilisation, he
argues.

Rouse may find less than universal favour among planners

for his view that there are a lot of great infill opportunities
and chances to repair tears in the urban fabric that only
the local authority can unlock. One persons great infill
opportunity can be anothers vision of over-intensive
development. However, the corporation is in a position to
tempt councils to see things its way on rezoning and infill
sites by backing its opinions with hard cash. This is the
sort of tension that a housing strategy can help to mediate
by providing an agreed programme. Planning powers are
important to the corporation because a high proportion of
its homes up to 40 percent in the South East will be
delivered through section 106 agreements.

Bob Livermore is executive manager for housing services

at West Lancashire District Council, which is conducting a
stock transfer ballot. We have not taken a final decision
on where housing strategy should go, he admits. We
could see a case for planning, but also for regeneration, or
we could see it as a matter for the policy unit. There were
even suggestions that it should join environmental
health.
Despite such differing views, there is a degree of
unanimity that housing strategies should be the tool that
identifies housing need, pulls together resources and
helps planners to decide what land and supporting
infrastructure will be needed. They could also be useful if
the governments proposal to tie building land releases to
local housing market conditions takes effect, since they
can develop an accurate picture of this market. Guidance
from the ODPM will require better and more effective
understanding of how markets affect housing demand,
says Silvester. Planners will be charged with identifying
land and releasing it over time, triggered by market
demands. So we must all understand what is going on in
them and we need a close relationship.

Rouse criticises planners for delaying permissions. It does

not matter how much money we and government put into
development if the sites do not come on stream, he
warns. Where planning decisions are held up it means
that affordable homes do not get built. The problem is
worst in London, where far too many schemes are
delayed as a result of hold-ups in the planning system.
His suggested solution is that where resources need to be
prioritised on the planning side, they go towards people
in the most critical housing need. Faced with competing
demands, planning directors might raise their eyebrows at
that prospect. Yet housing strategies could be the weapon
to sort out these conflicting demands because they would
55

show the scale of resources needed for housing to meet

council objectives.

custodian of the community and not just a custodian of

some of its housing.

Silvester says that Rouse gives too little weight to the

effects of the planning skills shortage and legal issues that
fall outside planners control. Affordable housing section
106 agreements require complex negotiations between
solicitors and these take time, he says. It is true that the
system does not fast track these agreements, but the legal
issues are time-consuming.

This view ties housing strategy to the sustainable

communities plan by emphasising that those working on
it should move beyond the housing professions
preoccupation with social housing. But it also implies that
planners should pay more heed to affordable homes.
Indeed, the CIH and LGA paper argues: Planning for
housing provision is essentially a new element of crosstenure housing strategy that is not carried out fully by
housing or planning functions. It should be closely
aligned with the planning function and inform local plans
and it requires particular knowledge and new skills.

A paper published by the CIH and LGA this month seeks

to put some flesh on the : bones of housing strategy. The
two groups suggest that councils should draw up two- to
three-year investment plans for housing and a broader 15year vision. Rouse endorses the proposals, although given
the time taken to develop schemes he acknowledges that
an investment horizon of four to six years might be more
realistic.

It calls for government support for programmes to

develop staff with the necessary skills. It says that these
are currently few and far between, and where they do
exist are largely self-taught.

Given councils habitual dislike of earmarked government

funding, the paper makes a controversial call for specific
government funding for housing strategy work so that this
small service is not lost in council budgets. LGA
environment board chairman David Sparks says: Housing
is about more than just bricks and mortar. It is integral to
our communities, a tool for tackling disadvantage, a
vehicle for regeneration, a cure for homelessness and the
heart of healthy neighbourhoods.

The government wants strategies to cover housing of all

kinds. The Housing Corporation wants medium-term
strategies through which it can plan its investment in each
area. The LGA and CIH want funding for strategy work to
ensure that councils make sense of market-led land
releases and funding for social housing.
Out of the debate emerges a future for housing strategy
close to planning, providing a framework to assess the
demand for land and infrastructure through accurate
predictions and clear priorities. Done well, a strategy
could be a powerful tool for planning sustainable
development. This somewhat neglected comer of
municipal activity could be about to come into its own.

The CIH and LGA are encouraged by communities and

local government minister David Milibands description of
the strategic role as arising from a councils ability to look
at land use in an area and the operation of the housing
market across all tenures in other words to be a

CEMicircular WebWatch
Visionary Leadership in Housing: A New Future for
Local Housing Strategy can be viewed via
www.cih.org.
Housing Strategies Are Dead: Long Live Housing
Strategies can be viewed via www.hqnetwork.org.uk.

56

PROPERTY
Auction conditions
The RICS common auction conditions, first issued in May 2002, have already gained the status of an industry standard. A
revised edition was issued in October 2005. Like the first edition, the document will be kept under review by the working
party responsible and user comments are welcomed for an anticipated third edition (see below for contact). The latest
changes are reported by Nicholas Redman, senior professional support lawyer in the real estate group at DLA Piper
Rudnick Gray Cary UK LLP (Estates Gazette, 5 November 2005, pp.126128).

A new edition of the RICS common auction conditions

was published last month. Since May 2002, the conditions
have governed transactions in an increasingly large part of
the auction market and have gained a reputation for
clarity and comprehensiveness. The new edition covers
such changes in the law as the 2003 land registration
reforms. Crucially, it takes into account the comments
made by users in respect of the first edition, which was
published in May 2002. Users include not only the leading
auctioneers (along with the many surveying practices that
undertake local and one-off auctions) but also solicitors
and, most important, the sellers and buyers.

so govern the relationship between the auctioneer and

the interested parties. They also set out all the terms of
any deal made at the auction, either in comprehensive
general conditions of sale or in special conditions of sale.
The latter are prepared by sellers solicitors in accordance
with a pre-set template; in most cases, special conditions
need to cover only those matters that are specific to the
property. The final part of the conditions the
memorandum of sale is critical.
Although they have been prepared by those involved on
the selling rather than on the buying side, the conditions
are not entirely one-sided. As a clear distillation of the
notices once printed in various places and in catalogues
and displayed in auction rooms, they help to level the
playing field. In fact, the conditions encourage a greater
enthusiasm for buying at auction. They tackle long-held
fears that the archaic language in small print in catalogues
and in documents referred to (but not set out) in the
catalogues contained traps for bidders and numerous letouts for auctioneers and their clients. Auctioneering firms
can make changes to the conditions but, should they do
so, they must indicate that the changes have been made.

The new edition illustrates the coming together of the real

estate industry with a view to improving the liquidity of
land and buildings as an asset class by introducing a
standardised way of dealing with recurring assignments. It
follows initiatives such as the publication and continual
updating of the commercial property standard enquiries
and the plan, led by the British Property Federation (and
implemented by many leading industry players) earlier
this year, to deal with the underletting of overrented
premises. The auction process itself has long played a key
role in supplying and maintaining that liquidity. In 2004,
the top 20 commercial and residential auctioneers saw a
16% increase in properties sold at auction, with total sales
of 3.38bn. The auction market is no longer perceived as
being the reserve of the less fortunate; institutionally
owned real estate now features in almost every major sale,
and banks and building societies now use auctions to
dispose of surplus parts of their branch networks.

The new edition retains its predecessors breadth of

coverage. Lawyers preparing the special conditions for a
sale governed by the conditions will generally need only
complete the form provided in the conditions. Many
auctioneers provide sellers lawyers with an online special
conditions template in order to ease the transaction.
Other parts of the conditions invariably cover everything
else (see box below). The level of detail is sufficient to
cover all types of property, from the lock-up shop to the
sophisticated business park. This together with the
electronic supply of information on specific lots delivered
by a sellers solicitor to interested parties should reduce
the costs of selling at auction.

Inside the conditions

The new edition refines rather than recasts its
predecessor. The original reasons for launching the
conditions (see box below) remain valid and have guided
the revisions.

RICS working party

The new edition maintains the glossary of terms that

applies to each part of the conditions: defined terms
appear in bold type throughout, and the use of terms such
as you to describe those attending an auction and we to
describe the auctioneers affords accessibility. The
conditions are something of an auction almanac. They lay
down the rules upon which the auction is conducted and

The conditions owe a great deal to Richard Auterac BSc

FRICS of Jones Lang LaSalle, Paul Clark, a consultant at
Cripps Harries Hall LLP, and, of course, the RICS.
The RICS has not only facilitated and overseen the
preparation, launch and now revision of the conditions, it
has also invested the project with authority and visibility.
57

 To reduce the legal costs to buyers and sellers by

using a contract that is in common use, that is easy
to read and understand and that comes with a
simple-to-complete legal form for the propertyspecific special conditions of sale.

It has built up a larger working party, comprising

representatives from the world of property auctions and
the legal profession. That working party has other auctionrelated projects in hand. It is due to release guidance to
lawyers describing how the conditions correspond to the
terms now widely used in private treaty sales and the
standard commercial property conditions (2nd edn). It is
also planning to prepare a form of appointment of an
auctioneer, which is intended to dovetail with the
conditions.

To highlight the differences in the general

conditions used by individual auctioneers, through
the need to indicate separately any extra general
conditions of sale.

The role of consumer protection law in property auctions

is growing in importance, and the working party is looking
closely at this. The conditions are free-standing (they do
not incorporate by reference any other terms) and have
avoided technical terms. The Office of Fair Trading,
though, has argued that words such as indemnity and
title might infringe consumers rights, and the Law
Commission is advancing plans to bring a greater level of
protection both for consumers and for small businesses
(see EG, 9 July). Again, the working party is keeping this
under review and is aware that the third edition of the
conditions might have to look quite different and perhaps
refer to sellers right of ownership and the requirement
for a buyer to enter into an obligation of reimbursement.
The principal role of the working party, however, is to
collate comments on the conditions in preparation for a
third edition.

Matters covered in the Conditions

The conditions have already attained the status of an

industry standard. To retain that status, the working party
will have to demonstrate that the conditions are not only
made for the auction sector but also made by the real
estate industry as a whole.
Comments
Comments on the second edition should be sent to Kevin
Harrigan, of the RICS, at KHarrigan@rics.org.

Original reasons for the launch

To strike a balance between the contractual needs
of the seller and the buyer while recognising that
the seller will want to determine the principal terms
under which it wants to sell.
To make it easier to see all the contract terms
within one document, rather than by reference to
other documents such as the standard conditions
of sale.

Incumbrances
Chattels
Misrepresentation
Deposit
Insurance
Title (including where the title is in the course of
registration)
Transfer
Completion
Default and notice to complete
Rescission
Landlords licence
Apportionments
Arrears
Management after exchange
Rent deposits
VAT and TOGCs
Capital allowances
Maintenance agreements
Tenants rights under the Landlord and Tenant Act
1987
Sellers insolvency
Employees and TUPE issues
Environmental issues
Service charges
Rent reviews
Renewals under the Landlord and Tenant Act 1954
Warranties relating to design and construction
No dealings with the contract
Service of notices
Exclusion of third-party rights

To ensure that the contract is as user-friendly as

possible by adopting simple headings and by using
plain English.
CEMicircular WebWatch

By providing a common set of conditions for all

auctioneers in England and Wales, increasing the
convenience of going to auction for both buyers
and sellers.

The common auction conditions are available at

www.rics.org/cac; they will also be included in
Butterworths Encyclopaedia of Forms and
Precedents.

58

Property research origins

Amongst property consultancy firms, property research has gone from being a bit of a back-room activity to a mainstream
fee-earning service to clients. How we got here is the first of four articles on the value of property research, produced in
conjunction with the Society of Property Researchers, in which Adam Tinworth hears how research got into its stride
(Estates Gazette 2 September 2005, pp.7677).

needed to think about the market more deeply and

independently.

Research that matters

It seems unthinkable today that the property industry
would operate without research. Everyone from investors
to occupiers uses existing research, or produces their
own, before making major property decisions. Yet
property research as we know it now is not yet 30 years
old. And the rise in its importance can be directly traced
to the swings in the market over that time.

Indeed, excepting the boom years, through much of the

1980s property performed abysmally badly, and firms
wanted to know why it had taken a beating from the other
asset classes.
In the meantime, one of the major sources of data, the
Investment Property Databank (IPD), had been building
up its resources since it was founded in 1985. In its early
years it got a leg up from the smaller agents which needed
data that the big agents, such as JLW, Healey & Baker and
Richard Ellis, had access to from their own departments.
By the time the bust came, IPD had gathered five years of
data, making it a valuable resource.

Property research had its origins at the end of the 1970s

with Russell Schiller, who, in his lunch hour at Hillier
Parker, completed a survey of the vacant shops on Oxford
Street. The results ended up on the front page of one of
Londons two evening papers at the time, the Evening
Standard and the Evening News, and, legend has it, led to
the editor of the other paper chewing out the property
correspondent for not getting such a good story.

The bust was, essentially, a catalyst for doing things better,

for understanding how property worked as an asset. But
the agents cut back on their research capabilities, creating
a bigger void for the investors to take on.

As the 1980s dawned, it was clear that agents were starting

to see the utility of such research, and research made the
names of such as Peter Evans of DTZ and Honor Chapman
of (the then) Jones Lang Wootton. The status of research
work grew with the founding of the Cambridge Property
Research Club in the early 1980s, with a membership
pretty much all drawn from the agencies.

In 2005, a decade and a half on, how have things changed?

If another crash is on the cards, would researchers be able
to predict it? Or, as Arlington Securities deputy managing
director and head of investment strategy Andrew Smith
puts it: Would it all be different this time?
Researchers are confident that the interaction between
research and investment decisions is very different now to
what it was in the late 1980s. If the writing was on the wall
for the market, I suspect that the voice would be heard
more loudly than before, says Dr Neil Turner, head of
international investment and research at Schroeders.

However, a whole new stream of research started at the

Prudential in 1987, which assembled a big team of up to a
dozen researchers headed by Andrew Baum, now
professor of Land Management at the University of
Reading. There was a growing feeling among some
investment firms, rightly or wrongly, that agents research
was not to be trusted, as these firms commercial interests
meant they were bound to suffer from an inherent bias.

However, researchers are ever cautious. If they are giving

advice that the market is turning, it would be listened to
internally, but it would be in no ones interest for that
news to be spread publicly, at least until the investor had
disposed of the assets they needed to shed.

This was a boom time for the property industry, and the
investment industry most of all. The birth of the
Investment Surveyors Forum (which later became IPF) in
1988 marked the growth of interest in the exchange of
property information. The Society of Property Researchers
was established in 1987. Significantly, many of these
researchers were geographers, economists and
statisticians, who began to apply their skills to real estate,
recognising that property investors needed the sort of
information and financial analysis found in the equity and
bond markets.

Guy Morrell of HSBC suggests that more people have the

skills to make better decisions. Research now has to be
plugged into the deal-making part of the industry, or its
value is destroyed. When the industry went into the
downturn of the early 1990s, there was very little
confidence in the views of researchers. At least one major
agent said times would be bad and lost clients for its
courage.

And then, in the early 1990s, the market suffered the worst
crash in many peoples memories. It could have been the
end of property research, as firms had to cut costs.
Instead, it was the making of it, at least for investors. Many
had been badly burnt by the crash and realised they

The difficult truth for the industry to accept is that the

controversial view is the most valuable, because its the
most likely to provide significant commercial advantage.
However, its also the most likely to be rejected.

59

How does the commercial property market compare with

that of other assets? Traditionally it has lagged behind
other asset classes in the level of sophistication of its
research. The gap has narrowed, but the comparison was
never a true one because the industry cannot offer the
same real-time pricing information that other asset classes
depend on.

results requires a combination of traditional surveying

skills and more analytical research approaches.

Theres a lot more analysis of a portfolio at an individual

asset level, suggests Morrell. Theres a business plan for
every building.

A straw poll of researchers

And the prevalence of research has seen a change of

attitude. There is a more strategic approach, as people try
to do their deals according to predicted changes in the
markets.

This article was prepared on the basis of a discussion

between Dr Robin Goodchild, European director, research
and strategy, LaSalle Investment Management; Ian Hally,
investment director and head of research, Scottish
Widows Investment Partnership; Dr Guy Morrell, director,
property research and indirect investment, HSBC
Specialist Investments; Andrew Smith, MD, API research
and strategic services, Arlington Securities; and Dr Neil
Turner, head of international investment and research at
Schroeders.

Property is an inefficient market and creates value in a

different way from equities, says Ian Hally of Scottish
Widows. While huge strides have been made in putting
research at the heart of investment decisions, theres still
a disconnect between investment research and asset
managers, who count on their own stock-picking abilities.
The building they choose will buck the trend, or so they
believe.

The other three articles by Adam Tinworth in this Estates

Gazette series are:

And 30 years of research have allowed academic

innovations to pass into the mainstream, meaning that the
way properties perform is more widely understood.
Twenty years ago, Andy Baum was writing about
discounted cash flow valuation. Now every surveyor and
valuer is using it, says Hally.
And as property research has become more established, it
is being applied to towns and markets which have until
now gone unanalysed. If the researchers dont have high
quality data on which to base predictions, then investing
in a town relies on asset managers who know both the
towns and the agents working in it. Achieving the best

In search of an all-seeing eye, about forecasting:

1.10.2005

Lets find out where its at, about development

location: 8.10.2005

Whats the score?, about performance measurement:

15.10.2005

CEMicircular WebWatch
CEM students can gain access to these articles via the
Estates Gazette website, www.egi.co.uk. Go to
Research Centre and search EG Articles.
The Society of Property Researchers was formed to
promote and support property researchers. You can
find out more, including details about how to join, at
www.sprweb.com.

60

RURAL
Ancient rights of way
Green lanes, footpaths and bridleways are a feature of the UK countryside, established in the days before motorised
vehicles and now enjoyed by ramblers and riders. However, an increasing number of off-road enthusiasts on motor bikes
or in four-wheel drive vehicles have taken to exploring ancient rights of way because of their status as public highways.
Now the government is seeking to clamp down on this use, because of the damage to unsurfaced tracks and the danger
to users on foot or horseback. But a clamp-down could affect more than the antisocial, explains Malcolm Dowden, an
associate at law firm Charles Russell LLP, in his article Hikers win out over bikers (Estates Gazette, 17 September 2005,
pp.141142).

not being used by the public as a right of way of any

kind.

The government is committed to making the countryside

safe for urbanites. Already safe from the sight of foxes
being torn apart, weekend ramblers and the rustic idylls
they seek are also to be protected from the ravages of
4x4s, scramblers and quad bikes.

This will prevent any further green lanes and tracks from
being established as public rights of way for mechanically
propelled vehicles. Although the provisions were
prompted by complaints about illegal vehicles and
antisocial behaviour, they will also affect legitimate clubs
and sporting activities, which often go hand in hand with
the voluntary clearing and repair of lanes that are byways
open to all traffic (BOATs) and roads used as public paths.
Those who adhere to trail-riding etiquette will face the
same penalties as illegal bikers and quad riders.

Under section 34 of the Road Traffic Act 1988, it was an

offence to drive a motor vehicle off-road or on a
footpath, bridleway or restricted byway without lawful
authority. The curious term mechanically propelled
vehicles was coined in the Countryside and Rights of Way
Act 2000 (CROW), and was inserted into section 34 in
order to catch vehicles falling outside the legal definition
of motor vehicle. In particular, it was intended to catch
unlicensed or unregistered scramblers and quad bikes.

Ancient highways
Many ancient highways are not shown on the definitive
map and statement because their status has never been
asserted. Many look like, and may for generations have
been treated as, private lanes or as footpaths or
bridleways. However, if evidence of ancient highway
status can be adduced, the Wildlife and Countryside Act
1981 enables a definitive map modification order to be
obtained, adding a new way to the map or recording
additional rights over a way that is already shown.

CROW also inserted section 34A. This would, if

implemented, have prevented all but landowners and
their lawful visitors from raising a defence based upon a
reasonable belief that use of a lane or track was as of right.
By mid-2003, the government acknowledged that this
provision could not be effected because it would
preclude fair trials and so would breach Article 6 of the
European Convention on Human Rights.
Undaunted, in December 2003 DEFRA issued a
consultation paper: Use of mechanically propelled
vehicles on rights of way. In this, the then rural affairs
minister lamented the damage to fragile tracks and other
aspects of our national and cultural heritage wrought by
modern mechanically propelled vehicles driving along
green lanes, and vowed to put a stop to it. The Natural
Environment and Rural Communities Bill includes
provisions that, together with those for traffic regulation
orders in use in the Yorkshire Dales, are designed to meet
that promise. Clause 62 will extinguish any public right of
way for mechanically propelled vehicles that, immediately
before commencement of the Act, is:

not shown on a definitive map and statement, or is

shown only as a footpath, bridleway or restricted
byway; and

being used at that date for one or more of the

purposes for which a restricted byway is used or is

Off-road motoring and motorcycling clubs and green

laners have become extremely adept at identifying and
proving the status of ancient highways. These are lanes or
tracks that, at some point since the beginning of legal
memory in 1189, have been used as highways. In some
cases, evidence has related to settlements that were
depopulated and abandoned as a result of the Black
Death. The principle is once a highway, always a highway.
If a track can be shown to have been an all-purpose
highway at some point, it will have retained its character
so as to legitimise its use as a BOAT. Further, if a track can
be shown to have been a highway prior to 31 August 1835
(when the Highways Act 1835 came into force), it will
prima facie be maintainable at the expense of the highway
authority. Arguably, the success of green laners in finding
such evidence has prompted the governments intention
to block further detective work.
61

The use of historical evidence to show highway status was

attacked in the consultation, which stated that the
governments policy is to:

for sporting or leisure use of green lanes and those who

depend upon the lanes for accessing property. Clause
62(3) provides that where a right is reasonably necessary
to enable the owner of, or a lawful visitor to, land to gain
access to that land, it will be converted into a private right
of way for mechanically propelled vehicles for the benefit
of the land.

ensure that any historic evidence or use dating

from a time when it could not have been envisaged
that the way would be used by the sort of
mechanically propelled vehicles we have today,
should only enable that way to be recorded as a right
of way for vehicles that are not mechanically
propelled.

In fact, the distinction might not be as sharp as the

draftsman assumes. Green laners and off-road enthusiasts
could well be local people. There might be cases in which
a landowner and its lawful visitors use the lane or track
with mechanically propelled vehicles not only for access
but also for trials and enduros. Presumably, as in the old
Catholic joke, it will be a sin only if you enjoy it.

Protection
The bill draws an artificially sharp distinction between
those who would cite ancient highway status as the basis
CEMicircular WebWatch

A copy of the document issued 30 October 2005,

Countryside and Rights of Way Act 2000: A Regulatory
Impact Assessment in respect of the Vehicular Access
Across Common and Other Land (England) Regulations
2002, made under section 68 of the above Act, can be
found at the website of the Department for Environment,
Food and Rural Affairs, at the following link:
www.defra.gov.uk/wildlifecountryside/consult/vehaccess/ria.htm
Explanatory Notes to Countryside and Rights of Way Act
2000
can
be
found
at
this
link:
http://www.opsi.gov.uk/acts/en2000/2000en37.htm

Inheritance tax and farm property

Under UK inheritance rules, working farms have been exempt and have therefore provided a safe tax haven for wealthy
families. However, a Lands Tribunal ruling on the Antrobus case is threatening to tighten up on the definition of a
working farm, which could have knock-on consequences for the value of rural estates, reports Sinead Cruise (Property
Week, 27 January 2006, p.22).

The Noughties* property boom has placed many

homeowners under the shadow of inheritance tax for the
first time. Escalating property values combined with the
continuing craze for property investment has meant a
staggering 1.6 million people are expected to face the
largest tax bill of their lives as they lie in the grave.

year helping those facing inheritance tax to minimise their

liabilities.
The Land Registry has valued the average British residence
as being in the region of 179,000. Average property prices
in London and the south-east have hit 300,329 and
234,832 respectively.

Broadly speaking, if you own assets exceeding the value of

275,000 at the time of your death, 40% of the value of
properties outside this protected pot will be claimed by
Revenue and Customs.

The low allowance threshold means a married couple can

escape inheritance tax, depending on careful tax planning,
on just 550,000 of their combined total assets, including
their home, share portfolios, savings, buy-to-lets,
jewellery, antiques, art and cars.

The latest batch of house price data from the Land

Registry makes happy reading for both the taxman and tax
professionals, who are spending millions of hours each

*For readers outside the UK, this is the term used to refer to the
first ten years of the 21st century because of all the noughts (or
zeros) in the year date, eg 2006.

62

So while those in the property industry work harder to

maintain the healthiest market in generations, the
Treasury is destined to be a huge beneficiary.

day basis if they do not engage in some sort of daily

agricultural activity.
It is not yet known how the Revenue intends to police
this, but observers suggest a Big Brother benefit fraudstyle approach is not beyond their capabilities.

Perhaps the most popular way to shave inheritance tax

liabilities on a primary residence has been for investors to
dress up their country pile as a working farmhouse.

Harry St John, a partner at Cluttons Thames Valley and

south Midlands office, believes if the Revenue decides to
strictly enforce the precedent set by the Antrobus case
and seeks evidence for daily farming activity by the
property owners, the last will and testament of hundreds
of people could be scrutinised by the Treasury.

These have been exempt since the Inheritance Tax Act

1984 was passed. Many private investors have followed the
advice of their wealth managers and installed low
maintenance crops and livestock in land surrounding
their homes, and have thus passed on entire countryside
estates to their families.

This could repel the so-called lifestyle owner and

impact on the values of rural property, which has
benefited from money from outside of farming over many
years,' he says.

But a Lands Tribunal decision in December has threatened

to close this loophole and send shockwaves around the
rural market. The landmark case centres on the
inheritance tax-free transfer from the late Miss Rosemary
Antrobus of around 130 acres (53 ha) of land in
Worcestershire.

Whether you are the proud owner a countryside estate or

a long-term renter in one of the UKs cramped cities, the
fall-out from the Antrobus case is likely to affect all of us.

While the Revenue initially classified the land and house

as exempt, the Lands Tribunal later challenged the status
of the assets on the grounds that the farmhouse was not
occupied by a person who had worked on the
surrounding land on a day-to-day basis.

Fewer and fewer rural property owners will escape the

40% levy, dramatically reducing the tax advantages of
owning property in the countryside and putting another
nail in the coffin of the rural property market. This will in
turn drive cash-rich buyers back into urban and suburban
markets, hoisting average prices even higher and out of
the reach of smaller investors and first-time buyers.

Stricter test
If the Lands Tribunal interpretation is upheld, many more
private investors who have acquired rural property in the
hope of qualifying for tax exemption will find it much
harder to convince the Revenue.

It looks like the game that many of the UKs upper middle
classes have played with the taxman has finally come to an
expensive end.
The moral of the story is to beware of the loophole, as it
can often grow into a noose.

Even managers of farming companies, agricultural joint

ventures or owners who contract out their land to other
farmers may struggle to qualify as farmers on a day-to-

63

VALUATION
Comparable evidence
Comparable evidence is the backbone of a good valuation report. It must be robust enough to withstand court scrutiny
in the event of a challenge. Nick French, senior lecturer and Donaldsons fellow in real estate at the University of
Reading, points out where to look (Estates Gazette, 29 October 2005, pp.184185).

A valuation hinges entirely upon good comparable

evidence, but where does one find that information?

from the use to which it is put. That, in turn, is dependent

upon the demand for (and supply of) the product being
produced. Put simply, valuation is the determination of
the amount for which a property will transact on a
particular date.

Comparable evidence needs to be verifiable in order to

be acceptable in court (the potential final arbiter of the
valuation). Ideally, it should be the subject of previous
valuations that the valuer has undertaken, but that is not
always possible. The valuer therefore needs to rely upon
valuations that his or her immediate colleagues have
carried out, so the first step in data-gathering is to talk to
them and to obtain the files of any appropriate
comparables. No doubt the valuer will also try to obtain
information from other contacts in the industry.

Valuation is simply a model to determine price, and value

is the end result. It is the quantification of an
understanding of the market: the legal effect, the physical
constraints, the planning regime, the availability of
finance, the demand for a product and the general
economy all influence the value of property. Valuation is
the process of determining market value; an estimation of
the price of exchange in the market place.

This is all part of the valuation process, but the

information must be treated with respect because any
information that is used to underpin a valuation has to be
transparent and complete. If a valuer relies upon
information that is heard, say, in the pub, the evidence is
likely to be incomplete. In legal terms, this is called
hearsay. It is indicative market information, which,
indeed, might influence a valuer when interpreting more
robust comparable data. The same is true of publicly
available information. Details of lettings and sales
published on EGi or in Estates Gazette and other property
magazines is essential for providing an understanding of
the market but it cannot be used as a direct comparable.
In academic terms, verifiable comparable evidence is
referred to as hard data and indicative information is
referred to as soft. A valuer needs both in order to value
a subject property; the former to provide price
information at the time of the comparable sale/letting and
the latter to place that figure in the current market
context.

Having gathered all the information available on the

building and the comparables, the valuer is in a position
to undertake the valuation. This is where the valuation
models that were learnt at college come into play. Readers
may have been told that some methods are better than
others but this is not necessarily the case. Certain
methods can sometimes be more appropriate than others,
but mathematical precision does not necessarily equate
with superiority. The valuer will be advised by his or her
employer of the most prevalent method for the type of
property to be valued and, unless it is possible to prove
the inadequacy of such a technique in that case, this
should be the valuers chosen model since it will be
indicative of market practice.
The technicalities of the valuation are beyond the scope
of this article and it will be assumed that the valuer has
interpreted the comparable information to determine an
appropriate market rent and all-risk yield for the property.
The valuation is complete.

When inspecting a subject property, the valuer must

consider comparables in the area at the same time. Some
of these may already have been identified during the
desk-based preparation. Others will become apparent
from other agents boards, which can later be followed up
as soft information. In all cases, the valuer must check and
photograph the specification and situation of the
previously identified comparables.

Valuation report
Having completed all the above, the valuer now has to
present the valuation (via his or her boss) to the client.
The RICS has recently updated the minimum requirement
of a valuation report in PS 5.1 of the Red Book (see box
below). This sets out the minimum requirements and is
not exhaustive. The Red Book provides a detailed and
useful commentary.

Valuation
The valuation of real estate is a central tenet for all
businesses. Land and property are factors of production
and, as with any other asset, the value of the land flows
64

Further reading

Minimum content of valuation reports

(PS 5.1)
A report must deal with all matters agreed between the
client and the member in the terms of engagement and
include the following minimum information, except
where it is to be provided on a form supplied by the
client:

Baum A, Crosby N and MacGregor B (1996), Price

formation, mispricing and investment analysis in the
property market, Journal of Property Valuation and
Investment, 14:1, pp.3649.

French N (1997), Market information management

for better valuations: Concepts and definitions of
price and worth, Journal of Property Valuation and
Investment, 15:5, pp.403411.

French N (2004), A question of value: A discussion of

definitions and the property pricing process in
Sirmans C F and Worzala E (eds), Essays in Honor of
William N Kinnard Jr: Research Issues in Real Estate,
vol 9, London, Kluwer, pp.4554.

Mallinson Report (1994), Commercial Property

Valuations, Royal Institution of Chartered Surveyors.

Peto R (1997), Market information management for

better valuations: Data availability and application,
Journal of Property Valuation and Investment, 15:5,
pp.411422.

RICS (2002), The Carsberg Report, Royal Institution of

Chartered Surveyors, London.

RICS (2003), RICS Appraisal and Valuation Standards,

Royal Institution of Chartered Surveyors, London
(The Red Book can also be accessed by subscription
via ISURV).

Identification of the client

The purpose of the valuation
The subject of the valuation
The interest to be valued
The type of property and how it is used, or
classified, by the client
The basis, or bases, of the valuation
The date of valuation
The members status and disclosure of any previous
involvement
Where appropriate, the currency adopted
Any assumptions, special assumptions, reservations
and special instructions or departures
The extent of the members investigations
The nature and source of information
Any consent to, or restrictions on, publication
Any limits or exclusion of liability to parties other
than the client

Why this matters

Comparable information underpins the process of
valuation. Valuation models are only as good as the
information used. In turn, the valuer needs to be expert
in the analysis and interpretation of that information.

Confirmation that the valuation accords with these

standards
The opinions of value in figures and words and
disclosures

Users often mistake the use of historic comparables as

an indication that a valuation is backwards-looking. It is
not. A valuation is an estimate of price: the exchange
point in the open market that represents the present
value of all expected future benefits and liabilities.

Signature and date of the report

The report is the comprehensive communication of
professional judgment: a valuation without context is
just a number. It must convey all the information to
enable the client to use the valuation appropriately.
Valuations are estimates of price today. They use
historic comparable information as an anchor to
determine the price that investors paid for similar
properties in similar locations yesterday. But they do
not merely repeat those figures. A valuer has to
interpret the prevailing market conditions and
determine if the price in todays market is higher or
lower than the values of the comparables. He or she
must make the necessary assessments and judgments
of available information so as to determine todays
value.

But, by their very nature, they are an unrealisable figure

since the assumption in the definition of market value
is that the property has already been marketed. It is
therefore NOT the same as the figure for which the
property would be expected to sell in the future were
one to place it on the market today. The definition of
market value is:
The estimated amount for which a property should
exchange on the date of valuation between a willing
buyer and a willing seller in an arms-length
transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently
and without compulsion.
Mostly, the valuation date is today.

65

It is good practice for the valuer to assume that he or

she may one day have to defend his or her valuation in
court. The valuer must therefore be trained to produce
a comprehensive valuation file, since this will act as a
quality assurance document.

Determine the subject property and the legal

interest to be valued.

A good valuation file will help the valuer to structure

the report.

Inspect the subject property.

The RICS Appraisal and Valuation Standards provide a

framework for the process and a minimum content for
valuation reports: see PS 5.1.

Identify and state any assumptions or special

assumptions.

Identify the purpose of the valuation and valuation

base.
Inspect and research comparable properties.

Undertake the valuation by an appropriate method.

Valuations should use a set process:

Write the valuation report.

Agree brief with client and confirm instructions in

writing.

Research

Break clauses and valuation

Break clauses have become more common in UK commercial leases, with landlords responding to occupier demand for
greater flexibility and shorter lease lengths. However, if a tenant exercises the right to break the lease, resulting in the
property becoming void for a period, then the lost rental income translates into a lower investment value. Valuers must
therefore assess the probability that a break clause will be exercised, and the IPDs Lease Events Review 2005 suggests
that they are overestimating the likelihood of properties falling vacant. Mark Jansen discusses the implications of the
IPD research findings (Property Week, 21 October 2005, pp.7274).

Property portfolios are undervalued by 1%2% because

valuers overestimate the likelihood of the properties
falling vacant, according to research published in October
2005.

cash flow basis, which examines future incomes and

takes into account the actual rate of tenant retention.
Instead, valuers tend to provide a more traditional sum of
the parts valuation whereby the individual values of each
property are added together.

The Lease Events Review, conducted by the Investment

Property Databank and sponsored by property services
firm Strutt & Parker, examined almost 4,000 properties
with leases that were due to expire or had break clauses
that could be exercised during 2004. It is aimed at lenders,
fund managers, property companies and analysts, as well
as valuers.

The average portfolio value would be between 1% and

2% higher, which would add between 5m and 10m to
the average portfolio of about 500m, says Callender.
He claims some valuers, as well as lenders, have tended to
assume the worst when a buildings lease is due to expire,
or a break clause falls due.

The researchers claim that tenants choose to stay in their

properties more frequently than is often assumed by
valuers. When tenants do decide to leave, the properties
are often relet relatively quickly.

Some people have always assumed that a break clause

will be exercised and that every lease expiry results in a
void period, says Callender. It isnt as bad as all that.

Seventy percent of break clauses that fell in 2004 were not

exercised. In properties where the lease expired, 41% of
occupiers chose to renew. By the end of the year 24% of
the properties were relet, leaving 35% still vacant.

The research is now in its second year. People have

always made rule-of-thumb guesses about expiries and
break clauses, says Callender. The aim is to provide hard
evidence so that people can produce more robust
models.

The research has been welcomed by leading property

figures such as Francis Salway, chief executive of Land
Securities, although valuers reject the charge that
portfolios are undervalued.

Andy Martin, head of Strutt & Parkers commercial

division, says there has been a lack of hard figures about
the likelihood of lease renewals or break clauses being
exercised.

Mark Callender, research director at IPD, says portfolio

valuations would be significantly higher if carried out on a

Income from property, as well as capital growth, is

becoming increasingly important to investors, says Martin.
66

He argues that this trend will be compounded by the

future introduction of REITs (real estate investment trusts),
making the research even more relevant.

Sturge and chairman of the RICS Property Valuation

Forum, welcomes the publication of research into
retention rates but rejects claims that portfolios are
undervalued.

Income is now so important in the value of property, its

the thing that makes it attractive as an investment class,
he says. So another way of looking at income, which
might further enhance the case for property at a portfolio
level, is going to be important.

Most valuers are aware that most tenants will not walk
away when the break clause comes up or the lease
expires, says Law.
The figures in the Lease Events Review would be a useful
guide, but the likelihood of tenants leaving would still
have to be assessed on a case-by-case basis. Youve got to
look at each property on its merits, he adds.

Martin hopes that future editions of the survey will

provide more detail, looking at retention rates for
individual locations and types of property more closely.
Martin admits that many properties do fall vacant when
the lease expires. The survey found that 48% by value
were vacant at the year-end. He argues that renewal rates
will improve as the trend for shorter leases continues,
because tenants will be less inclined to move on after a
short tenancy.

Francis Salway believes investors tend to be too

pessimistic when making offers for property that has a
break clause or lease expiry coming up. My judgement is
that tenant renewal rates are slightly better than people
generally assume when they bid for property, he says.
Like Andy Martin, Salway points out that the issue of
renewal rates is becoming more critical as average lease
lengths become shorter: By the time we get to the end of
the decade, all property investors will have a higher
proportion of lease renewals or breaks in their portfolio
[because] the new leases are shorter. Data on renewal
rates and whether or not particular investors beat the
market average on renewal rates is going to be absolutely
critical.

The average length of lease in the survey was 11 years, but

Martin says they are still measuring expiries of 25-year
leases where the landlord will want to redevelop the
building.
I think as we move on, the level of lease expiries that lead
to vacancies will reduce, he says.
David Law, valuation partner at property services firm King

67

Overview of results
By number of properties
(%)

By rental value of
properties (%)

Lease expiries
Renewals
41
30
Relet
24
22
Vacant at year-end
35
48
Break clauses
Not exercised
76
70
Exercised and relet
8
7
Exercised and
16
23
vacant at year-end
More than a third of properties with leases that expired during 2004 were still
vacant at the year-end. The proportion of properties that remained empty
rises to 48% when measured in terms of rental value. Thirty per cent of break
clauses (by rental values) falling due in 2004 were exercised and 23% (by
value) were still empty at the end of the year.
Source: All tables: lease events review 2005, by IPD/strutt & parker
Percentage of tenants who default on rent
2003
2004
Standard retail south-east
1.4
0.7
Standard retail rest of UK
0.9
0.9
Shopping centres
1.7
1.3
Retail warehouses
2.0
1.9
Offices City
0.4
0.5
Offices West End
0.8
0.7
Offices rest of south-east
1.5
0.3
Offices rest of UK
0.9
0.4
Industrial south-east
2.1
1.4
Industrial rest of UK
2.0
1.7
All property
1.4
1.1
This does not allow for guarantees or reletting within 12 months of default.
All figures represent a percentage of the total annual rent.

68

Valuing gaming property in Macao

In the light of recent proposals to liberalise the licensing of gambling establishments in the UK, this article by Jazz Wong
MHKIS AISCM provides an interesting commentary on approaches to the valuation of casino assets in Macao, the
Oriental Las Vegas (Surveyor Times vol.11, November 2005, pp.3437).

Introduction

Macao in general

Throughout the past century, Macao was just linked to

Grand Prix, casinos and almond pastries. Nowadays, upon
the end of monopoly of gaming operation in 2002, Macao
started to transform to a centre of entertainment, leisure
and amusement for families and casual visitors. With the
aid of China FIT scheme, Macao recorded a historical high
visitors arrival number (16.7 million) and local economic
growth (nearly 51.3% on 2Q2004) in 2004. In view of this
tremendous growth, some HK listed companies actively
participated in some Macao-related business and relevant
listing matters. This article will discuss the general
environment of Macao gaming market and go through
some casino assets valuation approaches for different
purposes of valuation.

Macao is one of the two Special Administrative Regions in

China. It is approximately 60 km southwest of Hong Kong
and counts 27.3 km2 in area. It consists of the Macao
Peninsula, Taipa Island and Coloane Island; the Macao
Peninsula is connected to the Taipa Island by three
bridges and the two islands are connected by an artificial
isthmus. After the handover of Macao governance from
Portuguese to PRC, the Chief Executive Officer of Macao
SAR Hon Edmond Ho intended to transform Macao
from a place of gambling to a paradise of entertainment
and leisure in Asia.

FIGURE 1: Macao figure: gaming revenue, tourism, hotel occupancy & GDP growth
Items / Year

1995

1996

1997

1998

1999

2000

2001

2002

2003*

2004 **

Revenue from Games

of Fortune ($MOP
Million)

17,480

16,412

17,784

14,566

13,037

15,878

18,109

21,546

27,849

40,187

No. of Gaming Tables

No information available

339

424

1,092

808

814

2,254

No. of Slot Machines

Total No. of Tourists
Arrivals (`000)

7,753

8,151

7,000

6,949

7,444

9,162

10,279

11,531

11,888

16,673

Hotel Occupancy

57.0%

60.8%

50.2%

51.3%

53.7%

57.6%

60.7%

67.1%

64.3%

75.6%

- 4.6%

- 2.4%

5.7%

2.9%

10.1%

14.2%

28%

Real GPD Growth

(Source: DSEC & DICJ Macao SAR)

*SARS outbreak in Hong Kong, Macau & PRC
** Opening of Casinos Les Vegas Sands & Galaxy Waldo
MOP$ 1.00 = HK$ 0.971

government in June 1962, which subsequently extended

to 2001.

Development of Macao gaming market

Macao has a long history of gambling. Before 1937, no
company was granted the monopoly franchise to run
casino operation in Macao. Only in 1937, when Kou Ho
Neng and Fu Tak Ian formed the Tai Heng company and
transformed the Central Hotel into a casino, the gaming
industry in Macao then started its development and
formed its preliminary structure. Until 1961 when its
monopoly franchise was expired, the gaming licence was
opened for public bidding. During that time, Stanley Ho,
Herry Fok, Ip Tek Lei and Ip Hon jointly formed a
company and entered into the competition, which
consequently won the bidding and established the
Sociedade de Turismo e Diversoes de Macao (STDM).
STDM signed the gaming concession contract with the

Great revolution 2002 from monopoly to

oligopoly
In 2002, Macao government ceased the 64 years monopoly
of gaming operation and promulgated three companies
that were granted the gaming concession, namely the
Sociedade de Jogos de Macau SA (SJM), Wynn Resorts
(Macau) SA and Galaxy Casino SA consortium with
Venetian Group from Les Vegas. In 2004, Venetian
separated from Galaxy as a joint concession licensee and
another American casino tycoon, MGM, joined the
venture, with SJM as sub-concessionaires in 2005. At the
end of 2004 there were 15 licensed casinos in Macao, 13
under SJM, 1 under Galaxy and 1 under Venetian.
69

FIGURE 2: Fact sheet of different gaming concessionaries in Macau 2004

Gaming

Total No. of
Table

Concessionaires

No. of VIP Table

Annual Gaming Revenue

(before tax by End of 2004)

(Mass & VIP)

SJM

713

217

MOP$ 35.2 Billion

Galaxy

63

41

MOP$ 3.08 Billion

Venetian / Sands

316

40

MOP$ 3.18 Billion

Wynn

MGM

1,092

298

MOP$ 41.46 Billion

(Source : DSEC & DICJ Macao SAR)

Oceanus project are going to change the Macao city

landscape in the future. Meanwhile, in the face of keen
competition, most old-fashioned and small casinos will
take renovation or merge with other casinos in order to
compete with those American gaming veterans. It is no
surprise that the scale of the Macao gaming industry will
double its size for the coming years.

Gaming revenue elixir of Macao growth

The annual Gaming Revenue of 2004 is about MOP$ 41.46
billion of which nearly 96.9% is from the Game of Fortune
(casino table game and slots). The annual Gaming Tax for
2004 is MOP$ 14.7 billion, while the Macao government
budget for 20045 is just about MOP$15.7 billion. In this
mean, Gaming Tax has contributed nearly 93.6% of the
Government expenses.

In this relation, the mounting demand for skilful

construction workers and property professionals will keep
on, and relaxing foreign labour restriction is now on the
agenda of Macao Legislative Council. Just build, and they
will come! Sheldon Alderson, the CEO of Las Vegas
Sands, believed that Macao would take only three to five
years to reach the scale of Las Vegas.

In terms of the gaming concessionaire agreement, all

gaming operators are obliged to invest a certain amount
in Macao. Such fixed asset investment will further fuel up
the local economy and stimulate local internal demand. In
2004, property prices and average wages for casino
workers were raised 50% and 30% respectively. Looking
forward to several Government infrastructure investments
(eg East Asian Games, Light Rapid Transit System etc,
Hong KongMacauZhuhai cross-border bridge) and
strong incentive to encourage foreign investment, it is
foreseeable that Macao will maintain high economic
growth for the coming few years.

Tourists the fuel of casinos

The major source of Macao gaming revenue comes from
visitors. With the benefit of Mainland Free Independence
Travelers Scheme (FIT), tourist numbers to Macao
recorded a tremendous increase. In 2004, total number of
visitors was 16.7 million of which 3.9 million (23.4%) are
under the FIT scheme. According to the Pacific Asia Travel
Association (PATA) estimation, the number of Macao
tourist arrivals will reach over 23 million in 2007.

Just build and they will come!

Apart from the above, there are many small to medium
scale investments initiated by existing and first-time HK
operators. Macao Fisherman Wharf, Ponte 16 and STDMs

Tourist Distribution in past 12 months

(Jan 04 - Dec 04)
Taiwan
8%

Others
5%

Mainland China
56%

Hong Kong
31%
Mainland China

Hong Kong

Taiwan

Others

70

FIGURE 3: Macao visitors arrival distribution and forecast by PATA (Pacific Asia Travel Association)
2005

Estimated No. of
Visitors Arrival

YoY

19,020,952

14%

2006

Growth Rate

Estimated No. of
Visitors Arrival

YoY

21,673,615

14%

2007

Growth Rate

Estimated No. of
Visitors Arrival

Growth
Rate

23,616,581

9%

build a TV city complex including casino hotels and

shopping mall next to Galaxy. American veteran Venetian
is intended to build seven to eight luxury hotels with six
international hotel groups in the Cotai Strip. Meanwhile
Melco will build a 4.87 million sq.ft City of Dream close
to Venetian. Total investment in this area is over MOP 20
billion.

The Oriental Las Vegas

As further elaborated from this strong visitor growth and
continue influx of foreign capital, the Macao economy
and the lifestyle of Macao residents are inevitably to
change. In Cotai, a 5 km2 reclaimed land will be developed
as a hub of international resorts, themed parks, mega
shopping malls, featured casinos and convention centres.

Sooner or later Macao will become a regional centre for

gaming, leisure, entertainment and MICE, the so-called
Oriental Las Vegas.

Galaxy is planned to build a 12 million sq.ft mega

entertainment complex near the Lotus Bridge checkpoint
to ZhuHai. Another HK developer, Lai Sun Group, will

FIGURE 4: Major investments by the gaming concessionaires in Macau (Source: Macau Daily News)
SJM &

Galaxy

Venetian

Wynn Macao

MGM Macao

>MOP$ 20 billion

MOP$ 5.5 Billion

US$ 12-15 Billion

US$ 1.5 Billion

MOP$ 7.0 Billion

Oceanus

Galaxy StarWorld
Hotel & Casino Galaxy
Cotai Mega Resorts

Cotai Strip with joint

development of 6
World class hotel
groups

Wynn Resorts Macau

Phase 1 & 2

MGM Grand Macau

Melco PBL
Concessionaires
OWN Investments
in Macao for
coming years

Grand Lisboa
Macau Tower
Park Hyatt
Oceanus
Estimated No. of
Rooms

>4,000 rooms

>2,500 rooms

> 9,000 rooms

> 600 rooms

> 600 rooms

Estimated No. of
Tables & Slots

>1,200 tables

> 500 tables

> 1,000 tables

> 350 tables

> 300 tables

> 4,500 slots

> 1,500 slots

> 3,000 slots

> 800 slots

> 1,000 slots

highest and best value of the property. I would like to

highlight hereunder several interesting Macao casino
valuation exercises and skills in valuing casino premises
for different purposes.

Casino asset valuations

In the light of the recent boom in Macao, some HK listed
companies have increased their investments in Macao.
Casino project financing or securitization becomes a daily
topic in the HKSE. According to the listing rules of HKSE, a
listed company needs to disclose the details of every
important or connected transaction.

1 Casino business valuation perspective

Value of casino assets can be arrived at from an analysis of
EBITAR of casino operation (ie capitalizing net win of
casino tables per day throughout the life-span of the
casino). The most valuable asset of a casino enterprise is
its Gaming Licence (concession from the government to
operate casino business) and its assets held. In the course
of valuing a casino enterprise, we rely on the revenue
from its casino operation. In theory, there are three
approaches to value it. They are:

From the view of the valuer, assumptions and principles

are controversial and sensitive especially in valuing casino
assets (both tangible and intangible assets including real
properties, gaming facilities, fixed assets and goodwill).
Owing to the relatively low transparency of casino
operation to non-gaming outsiders, concerns were
aroused by valuers and financial analysts on the basis of
valuation. Although traditional direct comparison method
or income capitalization method are applicable to derive
the property value for casinos, understanding of the
gaming operation is essential to a valuer to justify the

a Market approach guideline company method. The

guideline company method provides an indication of
value by relating the market value of publicly-traded
comparable companies to measures of their operating
71

results, then applying such multiples to the business

being appraised. This method also employs market
price data of stocks, EBITA, P/E ratios of corporations
engaged in the same or a similar line of business as
that of the subject company.

development at Cotai, following assumptions and

variables are applied in the valuation:

Type of assets

b Income approach discounted cash flow method.

The discounted cash flow method of the income
approach explicitly recognizes that the current value
of an investment is premised upon expected receipt of
future economic benefit (eg profit, rental, dividends,
cost saving or sale proceeds). Indication of value is
developed by discounting future free cash flow
available for distribution to shareholders and for
servicing debts to the present value at a designated
discounting rate.

Assumed unit rate

Gaming assets
Themed casino

Net win per table HK$39k/day

Slot machines

Net win per slot machine

HK$1k/day

Real Properties

c Cost Approach. This approach establishes value

based on the cost of reproducing or replacing the
property less depreciation from physical deterioration
and functional and economic obsolescence, if present
and measurable.

Service apartments

HK$ 1,500 psf

Hotel rooms

HK$ 1 million per room

Retail facilities

HK$ 3,000 psf

The appraiser then estimated the NAV by adopting two

different discount rates for property income (10%) and
gaming asset revenue (13.5%) which reflected different
inherent risks of the business segment. At last, the gaming
assets NAV is adjusted by the profit-sharing arrangement
and aggregated to the propertys NAV to form the fair
value of companys stock price by splitting the total NAV
to the total number of shares issued.

For more information about business valuation, refer to

The HKIS Valuation Standards on Trade-related Business
Assets and Business Enterprises issued by HKIS GP
Council 2005, and Uniform Standards of Professional
Appraisal Practice (USPAP 2005) by The Appraisal
Standards Board (ASB) of The Appraisal Foundation USA.

3 Property valuation perspective

Although most casinos enter profit-sharing arrangement
with hotel owners, there are some purely leased casinos
inside hotels. As such, a portion of hotel premises (or
development) is leased to casino operator and a basic
rental is charged without any profit sharing. The rental is
negotiated at arms length between the hotel owner and
casino operators. According to market hearsays, casinos in
Waldo hotel and future Regal hotel are under this
arrangement.

In KWCM (Acquisition of Galaxy) case, the appraiser

adopted the first two methods with EBITA analysis, CAPM
and WACC to derive the indicated value of the business
enterprise of Galaxy at about HK$21.4 billion to HK$ 25.6
billion. Then it followed with an additional adjustment to
reflect the relative non-liquidity of the privately held
shares in Galaxy together with a sensitivity analysis to
justify a fair stock price. It finally came to a valuation at the
amount of HK$ 23.5 billion.

As a fixed amount of rental will be paid to the hotel owner

throughout a specified term, the market value of the hotel
premises (or development) can be derived by capitalizing
the annual net rental income from casino, hotel rooms,
retail facilities and other supporting amenities with
different discounting rates. It is the most simple valuation
method of casino property, as less gaming variables need
be concerned in the course of valuation.

This was the first casino business valuation in HK for

listing and has been a good reference for similar casino
valuation exercises later on.
2 Gaming related stock value and net asset value
perspective
Despite the valuation for the whole casino enterprise, it is
common that a company finances a casino project with
interests in property and gaming operation by sharing the
gaming revenue with the casino operator. In fact, many
casinos in Macao are operating in hotel premises owned
by a third party under similar profit-sharing arrangement.
In valuing these casino hotels, valuers can calculate the
anticipated income generated by the casino and discount
it into NAV.

Conclusion
All the above-mentioned are just simplified illustrations of
different valuation methodologies adopted by property
valuers and financial analysts regarding casino assets
valuation. There are no pre-fixed rules and principles in
casino valuation model and an experienced
valuer/appraiser should make their own assumptions and
justifications in the course of valuing casino assets, stock
or gaming enterprise. In summary, valuer has the
responsibility to verify the information provided and
physical site inspection is one of the most essential steps
to formulate an appraisal of property assets.
Notwithstanding this, the valuer is assumed to have a

In capitalizing the income from the casino hotel, it can

start from the estimation of NAV derived by a DCF analysis
of revenue (net win) from gaming assets (tables and slots)
and the achievable per unit sale price of real properties in
the project. In a non-published stock price valuation
analysis by Deutsche Bank regarding a themed casino
72

better understanding of the market in which the property

or business is located.

any financial instruments or to participate in any particular

trading strategy in any jurisdiction. Furthermore, past
performance is not necessarily indicative of future results.

Important note: The information, estimates and

projections in this article are believed to be reliable and
have been obtained from public sources believed to be
reliable. This article is provided for information purposes
only and does not constitute any part of sales
recommendation or a solicitation of an offer to buy or sell

Acknowledgement
This article is reproduced by kind permission of the Hong
Kong Institute of Surveyors (HKIS), publishers of the
Surveyors Times.

Wind farms and home values

Wind farms can generate income for landowners, but in the UK the main fear for adjacent home owners is that the
proximity of turbines will adversely impact on the value of their house. Graham Norwood looks at the evidence for a
house price effect (Estates Gazette, 19 November 2006, pp.6668).

Second, in November 2004, the RICS published the results

of a survey showing that a wind farm did lower prices
initially but that this drop subsided over time.

Turbine traumas
The latest debate over house prices is not concerned with
supply and demand, the paucity of new homes or the
vagaries of the market. It is concerned with wind farms
and estate agents and surveyors are in the eye of the
storm.

It showed that 60% of chartered surveyors who worked on

house sales near wind farms reported price falls, with
most saying the biggest impact on values took place at the
time of the planning application. A smaller number said
values dipped as construction started, and fewer still
pointed to the moment where the plant became
operational.

Leave to one side the debate of whether wind power is

necessary or more efficient than other renewable forms of
energy. Dismiss, too, the discussion about whether
offshore wind farms are more effective than onshore
ones. The fact remains: more wind farms are on their way
across the UKs countryside.

Most surveyors cited visual impact as the main cause for

concern, followed by fear of blight. RICS chief economist
Milan Khatri says: With 40% finding no negative impact,
its too early to say that wind farms are a serious threat to
homeowners. Well have to wait to see how the market
reacts to wind farms in the longer term.

Many homeowners believe that wind farms next to or

within sight of a home damage its value. For estate agents,
there is little evidence to support this yet. This disparity
between empirical evidence and popular perception is
causing a problem.

Third, a 2005 report by the British Wind Energy Association

showed overwhelming public support for renewable
energy in general and wind turbines in particular, and
found no empirical evidence whatsoever of a link with
house price falls.

The latest of many pressure groups set up in opposition to

a proposed wind farm is No Wind At Parham (NOWAP),
which objects to a planning application for six 100m wind
turbines on a Suffolk farm. It claims the turbines will ruin
the rural landscape and blight property sales in three
villages close to the farm.

In fairness, the vast majority of the 100 or so wind farms

arent close to significant residential areas, so its probably
too early to tell. Its incumbent upon us to do another
survey, in maybe a years time but, for the moment, there
really is no evidence of a link, says Chris Thomlinson,
who is responsible for planning and development at the
BWEA.

Studies chart the effect on prices

So far, there have been three industry studies into the
wind farms effects on prices.
First, in January 2003, a survey of 20 focus groups around
the UK by the Department of Trade and Industry
concluded: Onshore wind schemes were perceived as
having the potential to lower house prices. This concern
was expressed particularly [by focus groups] in urban
areas and the Cambridgeshire villages. It was not felt to be
a reality by those who lived within the vicinity of wind
farms.

Estate agents are more circumspect, although they and

other members of the property industry are becoming
increasingly involved in the wind farm lobby.

Less of a problem than a pylon

Property values are affected by a number of factors and
location is one, but only one, of them. A wind farm may be
considered less of a problem than an electricity pylon,
73

where there will be other pylons in view for miles,

scarring the landscape with overhead lines and generating
an electromagnetic field, which raises issues like
radiation, says David Peters, head of residential valuations
at Knight Frank and adviser on the BWEA report.

For all the welcome business that wind farms can bring
land agents and surveyors, there remains a belief among
the public that they can give local house prices a knock
and, sometimes, the property companies themselves that
fuel that belief.

On the other hand, there is a clear perception among

many householders that anything as prominent as a wind
farm must have some impact on values. If you match that
with overhead cables to transport the electricity from a
wind farm, that is an issue, he says.

A website that campaigns against wind farms,

www.countryguardian.net, reveals letters dating back to
1998 from estate agents to individual clients whose sales
have, allegedly, been affected by their propertys
proximity to schemes. One is from a Savills office saying:
As you go up the value scale, buyers generally become
more discerning and the value of a farmhouse may be
affected by as much as 30% if it is in close proximity to the
wind turbine. Those houses that are within earshot are
likely to be affected worst of all.

Another big consultancy, Savills, has bought into a

Scandinavian wind turbine manufacturer, and Savills 140strong land management team advises developers and
landowners on seeking planning permission for turbine
sites. Its a big earner, says a Savills insider, although the
firm will not discuss its involvement publicly.

Another letter from Durrants says: I can confirm that the

views from a property do have a major bearing on its
value and if these views are tarnished by a wind turbine or
any similar structure, the values would be significantly
decreased.

Some turbines earn only 1,000 a year for the owner of the
land on which they sit. But, says surveying practice Fisher
German, annual earnings of 100,000 for a few landowners
are possible, and the largest projects can earn landowners
an income of up to 800,000 pa, which is like winning the
lottery every year. Planning applications for larger
schemes can cost 250,000, meaning that consultants fees
can be commensurately high, too, it adds.

While land managers prosper, sales agents are less happy.

The property industry, it seems, is still to make up its mind
on which way the wind is blowing.

Wind farm facts and figures

There are 98 wind farms around the UK connected to the national grid. The first was establlished in
Delabole, Cornwall, where 10 turbines began operating in November 1991. The largest, in terms of
numbers of turbines, is in Powys, Wales, with 103.
There are also 54 wind farms (some just individual turbines) providing local power generation.
Most large modern wind turbines have rotor diameters up to 65m, although turbines with 30m
diameters are common. Towers range from 25m to 80m in height.
Turbines start operating at wind speeds of 45m per second (around 10 mph) and reach maximum
power output at 15m per second (33 mph). At very high wind speeds of 25m per second (50mph),
wind turbines shut down.
Most modern UK turbines have three blades. They produce more energy than two-bladed turbines
and, to some, have greater aesthetic appeal. Two-bladed machines are cheaper, lighter, have higher
running speeds and are easier to install, but can be noisier.
Over the course of a year, a turbine will generate about 30% of its theoretical maximum output (or
load factor). The load factor of conventional power stations is, on average, 50%.
Source: British Wind Energy Association

74

NOTICES
BSc graduations

CEM publications

BSc (Hons) in Construction Management first ever

graduates
The University of Reading Degree ceremony, held on
Saturday 10 December 2005, saw the first two BSc(Hons) in
Construction Management graduates being awarded their
degrees. This course was introduced in December 2002,
replacing the old CEM Diploma in Construction. No doubt
Lee Johnson and John Wilkinson will be the first of many
over the coming years to achieve this award, which is fully
accredited by the Chartered Institute of Building.

15% discount for students and PPN Members on all CEM

publications
NEW: LICENSED HOME INSPECTOR STUDY PACKS
The College has produced four study packs to assist
prospective Licensed Home Inspectors acquire the
knowledge and understanding required for the ABBE
Diploma in Home Inspection. These packs are intended as
gap fillers and are therefore aimed at partly qualified or
existing practitioners.
LHI1: Building Technology Low Rise Residential
Building Techniques
This study pack focuses on the building technology of low
rise residential building techniques. It explains the main
elements of construction and explores the characteristics
of building materials.

WANTED: Online tutors

The College would like to recruit new online tutors for its
Graduate Development Programme (ie MSc in Surveying,
and Postgraduate Diploma in Surveying). This Masters
level conversion course is web-supported, with students
from most surveying disciplines located in the UK and
worldwide. Online tutors are involved in mentoring
students via the Virtual Learning Environment, monitoring
discussion forums and providing online academic
support. Additionally, tutors are responsible for marking
assignments submitted by their group of students.

The study material for this pack consists of the following

set of papers:

This role would involve an average of 5 hours a week

mentoring a group of up to 30 students over a period of
six or eight weeks and is suitable for part-time, flexible
working. The GDP is a relatively new course and the
closer contact of external tutors with students is proving
to be a highly stimulating and rewarding experience. We
therefore welcome expressions of interest from
experienced practitioners, academics and recent
graduates in all areas of the profession.

A glossary of building technology

Communications methods

External environment

Internal environment

Properties and performance standards

Design methods

Components used in construction

Assemblies

Finishes

Services

External works

The study pack also includes:

For details of remuneration, training provided, and an

application pack, please contact the Colleges Course
Development Manager, Jane Fawkes. Tel 0118 921 4682;
email j.e.fawkes@cem.ac.uk.

The Construction of Houses by Marshall & Worthing

(textbook)

Price: 125.00 (discounted price: 106.25)

LHI2: Building Technology High Rise Structures
and Framed Buildings
This publication is more of a specialist publication
focusing on the construction technology of high rise
buildings. It is particularly relevant to individuals who will
be undertaking inspections of flats in high rise buildings.
Some of the papers included focus on construction
methodology of commercial buildings, but are relevant to
75

high rise constructions altered to become residential

dwellings.

The duties and responsibilities of a Home Inspector

The Terms of Engagement

The study material for this pack consists of the following

set of papers:

The Home Condition Report

Further foundations

Framed buildings

The cladding for framed buildings

Roofs and roof finishes

Walls and partitions

The construction of stairs

Fire technology

Provision for services in buildings

Heating systems

Ventilation

Thermal comfort

The study pack also includes:

Home Inspectors Handbook by Parnham & Rispin

(textbook)

Price: 125.00 (discounted price: 106.25)

CPD STUDY PACKS

The College publishes over 40 CPD study pack titles a
full list of all our titles is available on our website at
www.cem.ac.uk. Our range of CPD study packs is
regularly updated and has been designed to keep
practitioners up to date with the ever-changing
requirements of the property and construction industry.
Those involved in academic study or who are undertaking
their APC have also found these study packs most useful.

An overview of building control in England and Wales

Price: 125 (discounted price: 106.25)
LHI3: Building Pathology Residential Dwellings
This study pack focuses on common defects found in
residential properties. It helps identify defects and
suggests remedies.

New Titles
Five new CPD study packs have been published during
2005.

The study material for this pack consists of the following

papers:

Common building defects

Structural failure in traditional built domestic

buildings

Maintenance of buildings

Measurement

Health and safety

Construction Adjudication
In 1998 a new approach to dispute resolution was
introduced to the construction industry and it has proved
an outstanding success. Statutory adjudication under the
Housing Grants Regeneration and Construction Act 1996
is now very firmly established as the industrys preferred
method of formal dispute resolution. It is imperative that
all construction professionals are conversant with the
practice and procedure of this radical process.

Introduction to conservation

CPD hours: 4
Price: 37.00 (discounted price: 31.45)

The study pack also includes:

The study materials includes:

The Private Finance Initiative and Corporate Property

Outsourcing in the UK
The way in which property assets and FM services are
purchased in the UK has been transformed in recent
years. PFI is a method of procurement in which private
sector consortia enter into long-term contracts to design,
finance, build and maintain infrastructure for public
sector organisations. On the other hand, the Government
and also corporate occupiers in the private sector have
used Corporate Property Outsourcing as a vehicle for
outsourcing property assets. This CPD study paper
describes the concepts and mechanisms used in these
different approaches, and considers some of the
implications for associated industries and professions.

Background to the Housing Act 2004

CPD hours: 2

The Qualification, the National

Standards and the Licensing Process

CPD study paper: Dilapidations An Introduction

CPD study paper: The House UK domestic

construction from medieval times to the present day
Price: 125.00 (discounted price: 106.25)
LHI4: Home Inspector Practice
This study pack focuses on the specific issues associated
with the role of being a Licensed Home Inspector. It
provides a background to the legislation and introduces
terms of engagement and guidance relating to Home
Inspectors.

Occupational

Price: 23.50 (discounted price: 19.98)

76

standards, and examines the associated requirements in

the International Valuation Standards and the RICS Red
Book. It also examines the specific requirements of
regulatory authorities in the UK for valuations in takeover
and merger situations, for inclusion in listing particulars
and for regular valuations of property unit trusts and
pension schemes.

Structures the structural failures, repair and reuse

of Georgian, Victorian and 20th century buildings
This CPD pack will be of particular relevance to those
involved in the surveying of buildings, those involved in
the conservation of buildings, those with interests in the
history of buildings and those who aspire to become
home inspectors. It is a user-friendly guide to the
identification of building styles and materials usage, with
associated building defects from 1750 to the present day,
including structural problems, and the philosophy of
structural repairs and conservation.

CPD hours: 7
Price: 61.50 (discounted price: 52.28)
Updated Titles
A number of existing CPD study packs have been
updated, including:

CPD hours: 4
Price: 37.00 (discounted price: 31.45)
Valuation on Quarterly in Advance Basis and True
Equivalent Yield
Traditional valuation methods have tended to be based on
the concept of income being received annually in arrears,
irrespective of the fact that it is most commonly paid
quarterly in advance by tenants. This study pack looks at
the method of valuation to fully take into account the
actual frequency of income being received. It introduces
the concept of valuing the True Equivalent Yield (TEY) and
compares it with Notional Yield and has an instructional
video presentation explaining these concepts, together
with examples to calculate. For the more mathematically
minded, it also has a section which explains the maths
behind the calculations.
CPD hours: 6
Price: 60.00 (discounted price: 51.00)

Asbestos: the Issues

Building Regulations

Changing the Home Buying Process

Contaminated Land Regime

Content and Interpretation of Company Accounts

Creating Accessible Environments

Deeds of Collateral Warranties

E-Property = E-Business + E-Commerce

Hazardous Materials and Buildings

Rent Reviews

Valuation of Commercial Property for Secured

Lending

For further information or to place an order please refer

to our website at www.cem.ac.uk or contact CPD Sales on
+44 (0) 118 986 1101.

Valuations for Financial Reporting

This paper explains the different valuation provisions of
the International and United Kingdom accounting

77

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Patron: HRH The Prince of Wales

Educating the leaders of tomorrow

Specialists in Web-supported Distance Learning

College of Estate Management Diplomas and University of Reading External Degrees to enhance your career
No need to give up work

Friendly supportive staff

Courses recognised by the RICS and other professional bodies

Entry Level Course

Diploma in Surveying Practice (leads to Tech
RICS)
Undergraduate Courses
BSc (Hons) Building Surveying
BSc (Hons) Construction Management
BSc (Hons) Estate Management
BSc (Hons) Quantity Surveying
BSc (Hons) Property Management
Graduate Development Programme
MSc/PGDip in Surveying (A conversion
programme for graduates)
Postgraduate Courses
MBA in Construction and Real Estate
MSc/PGDip in Conservation of the Historic
Environment
MSc/PGDip in Facilities Management
MSc/PGDip in Property Investment
MSc in Real Estate
PGDip in Project Management

Corporate training

CPD services

Tailor-made courses delivered to both the

public and private sectors. Clients include the
MOD, PACE and Shell.

A wide range of CPD study packs, research

reports and other publications is available
direct from the College.

Take your next career step with us

www.cem.ac.uk

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Enquiries Office,
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Tel: +44 (0) 118 921 4607
Email: prospectuses@cem.ac.uk