May E Newsletter

Welcome to our fifth e newsletter of 2011.

This month we start with commentary on the eagerly awaited review of the Service Charge Code by a range of Industry heavyweights and follow this up with an article about other influential property leaders taking the DEC debate right to the PM’s door, in the pursuit of pressurising the Government to keep to its Green promises.

We then look at how local authority funding is likely to embrace the Community Infrastructure Levy, highlight changes in ownership and maintenance of our sewers and also question value-for –money with certain building projects.  We finish with our Q and A section which seeks to explain what’s out there…. in The Cloud.

Take a look at the 'New Code'

Launched and ready to take effect from the 1st October 2011 the revised Service Charge Code (‘New Code’) is here.  The ‘New Code’ has been drafted by a steering group which comprises representatives from a number of real estate groups including, the British Council of Offices, British Council of Shopping Centres, British Property Federation, British Retail Consortium, Corenet, Property Managers Association, and the Royal Institution of Chartered Surveyors.  You can take a look at this new document which we have uploaded to our Knowledge Centre but how does it differ?

The New Code has been revised after a consultation period managed by the RICS.  During this consultation the RICS received over 200 responses covering a variety of issues which they were able to review.

The ‘New Code’ primarily is concerned with the management and administration of service charges which remain the single largest area of concern for occupiers. This ‘New Code’ also extends to assisting those involved in drafting service charge clauses and directs them in using the right phrases and language.

The ‘New Code’ covers a number of core principles and these are set out in 26 points, the more relevant principles being: allocation and apportionment, certification, proportionality, anticipated future expenditure, environmental sustainability, and standard cost classifications.

In all situations the need for effective communication cannot be underestimated.  Occupiers have a need to understand how a service charge account is constructed as without it there’s an element of uncertainty and doubt over how the on-account and reconciliation sums are reached.  If doubt and mis-trust creep into a relationship then achieving a collaborative working partnership becomes much harder to deliver. The ‘New Code’ identifies the importance of good communication and timely responses and TAP’s clients do favour our proactive and strategic methods of liaising and supporting their occupiers. 
 
We would urge you to take a look at the ‘New Code’ and if you’re unsure about any of its contents then contact us where we can discuss any points you may have.



The Community Infrastructure Levy continues to gain support

Property consultancy, Drivers Jonas Deloitte, has published its 3rd annual review of the popularity of the Government’s proposed Community Infrastructure Levy (CIL) as a favoured method for Local Authorities to secure funding from development, and whilst this initiative was originally promoted by the Labour Government, it seems to be gaining momentum now that the Coalition administration has given backing to the scheme.

The results show that 68% of Authorities are now proposing to adopt the CIL, compared with only 20% in the 2009 survey, although you should be cautious with these figures as many Authorities still have other priorities ahead of adopting the CIL.

Julia Chowings of DJD comments, “Only a small number of authorities are advanced on CIL and the Government has recognised this in identifying them as Front Runner authorities.  We anticipate that their progress will be watched closely with many learning lessons and best practice from their experience.  It is apparent that many authorities are keen to share costs and resources by joining forces with neighbouring authorities to work on CIL.’’

So what is the CIL all about?  Briefly, the levy is designed to help pay for the infrastructure required to support new development and may sit alongside the more commonly known planning obligations (Section 106 agreements).  Charges will be based upon net additional sqm of floorspace in buildings that people normally use and will be calculated on evidence of the infrastructure needed, but in no way is the levy intended to be the main source of finance. Local authorities CAN apply the levy, but do not have to, however if they do then the infrastructure project must be set out on the authority’s website.  Other than money, the levy can be paid in kind (i.e. the acceptance of any land or existing buildings).

For further specific information on this important planning improvement, TAP would be delighted to direct you to an industry expert.


It hasn’t changed in 74 years but now costs will rise

The Government is proposing to change the ownership of sewers and lateral drainage systems with effect from the 1st October 2011.  The effect of this change will be to remove the uncertainty of who should repair and maintain the sewer system and make long term planning, in the light of changing climate conditions, easier.

Currently the majority of properties are connected to the sewer system from a private pipe or lateral drain and on the 1st October these will move across and become the responsibility of the statutory water authority.  In a written Ministerial Statement by James Paice on the transfer of 200,000kms of private drains it was said “Private sewers serve more than one property so ownership is shared and usually a large extent of the sewer will lie outside a property’s own boundary. Lateral drains serve one property but always lie outside the property’s boundary. Transfer provides the only comprehensive solution to a range of private sewer and lateral drain problems affecting householders. These include a lack of awareness of owners’ responsibilities and unwillingness or inability to co-ordinate or contribute to potentially high costs of maintenance and repair. It will bring simplification and clarity to owners, local authorities and sewerage companies, all of whom typically become involved when these problems arise.

Transfer will also significantly help address a lack of integrated management of the sewerage network as a whole, and provide much greater efficiency of effort, environmental stewardship and expenditure at a time when climate change impacts and housing growth may impose greater demands on urban drainage systems. Having a much greater proportion of the sewer network in the management of the water and sewerage companies means they will be able to plan maintenance and resolve problems more easily and comprehensively.”

This transfer of responsibility will lead to higher sewerage charges for the repair and maintenance of the extended system.  Early indications are that annual bills for residential properties, with shared sewers will increase by about £14 per annum.


Pressure increases on PM to deliver on promises for energy efficiency ratings

As a follow up to our comments in last month’s e Newsletter we draw further attention to the DEC debate with the news that some of the property industry’s heavy hitters have signed an open letter to the Prime Minister and Chris Huhne urging them to make DECs mandatory for the private sector.

The letter was initiated by the British Property Federation and the UK Green Building Council but attracted top level signatures from Hammerson, Land Securities, British Land and Legal and General, inter alia all of which is timed to escalate the debate such that A-G Energy ratings form part of the Energy Bill which is about to be debated in the House of Commons.

Following widespread criticism of EPCs and DECs only a few years ago by the property industry as yet another piece of EU Red Tape, it is ironic that the private sector is now calling for such mandatory
measures.  As the letter says, “Unfortunately, a voluntary approach to take-up in the private sector will not work, because without a level playing field there is a reputational risk for those businesses that voluntarily adopt certification and achieve poor ratings.’’

As Liz Peace of the BPF observes, “Savings of between 5 and 30% can be made through simple no and low cost changes to the way a building is managed and occupied.  A rating based on actual energy use will highlight these opportunities, which could otherwise remain hidden.’’

Additionally, Paul King of the UK Green Building Council adds, “It’s very simple - if you don’t know how much energy you are using, you cannot manage it.  We’ve simply no idea how our buildings, up and down the country, are actually performing, so mandatory A-G ratings are the crucial first step in helping businesses understand and reduce their energy use…Government needs to listen to the property industry - this is something that will cut carbon, cut energy bills and create new market opportunities in green technologies.’’

TAP remains of the opinion that mandatory DECs are on their way, and as we have already suggested, it can do little harm to start introducing measuring methodology now, in order to be able to assemble backdated usage data which will undoubtedly be requested as benchmarking information.

TAP can direct you to experts capable of assisting with this procedure.



Lowering costs may not always be the answer...

Trying to balance the cost of a service with the value it provides isn’t always easy.  In the current climate the tendering of contracts, to seek the lowest possible price, can occasionally undermine the standard being delivered and according to a recent survey undertaken by Lockton, an international insurance business, there is a suggestion that, when it comes to building works, cutting costs can increase project risk and reduce quality.

The survey interviewed a number of medium to large building contractors who primarily specialise in commercial fit-out and refurbishment projects.  The results found that many are busier than they have
been in the last 2 years but because of the tough economic conditions the quality of the projects being finished in the next 24 months will be compromised.  Why?  Because many believe ‘short-cuts’ have to be made to support the quicker delivery times and cheaper prices. 

A number of issues were cited as being of concern such as risk of injury to others, especially when the property is occupied, exposure to harmful substances (and in a few cases asbestos was referred to), solvency of the main contractor, lack of clarity in the client specification, and general pressure to have a fixed price contract.

Overall it seems that whilst people are looking to achieve lower prices for services they aren’t always thinking about the potential risks associated with ‘cutting corners’.  Remember, value for money isn’t always about having the cheapest contract in place.  Please speak to us if you feel concerned about how a contractor is performing or the potential risks associated with reducing the cost of a contract.


Question & Answer
With my new premises, should my IT infrastructure be based in The Cloud?

Establishing new business premises involves a vast range of choices and in an established business, many operational functions are taken for granted; however moving premises can throw up choice which may impact on working practices or floorspace usage.  The locality of the IT infrastructure need not be present within your workspace anymore and can be housed in what’s commonly known as ‘The Cloud’.  There is no clear definition of what is meant by this phrase but its common traits tend to be that it’s off-site, on-line and is paid for as part of a service with flexible costings based upon what you need and when.

One of the leading industry analysts, Gartner, describes it as ‘’A style of computing where massively scalable IT-enabled capabilities are delivered as a service to external customers using internet technologies’’.

Such an approach can lead to significant working efficiencies with staff all being able to access files and data from anywhere in the world, with negligible back-up, maintenance and storage worries and peace of mind from a business continuity perspective.  It is anticipated that costs maybe as little as 10% of your current on-site costs but this depends on your requirement.  Current examples that many are familiar with include Google G Mail, photo storage on Flickr and of course Facebook, all of which form part of a virtual desktop for individuals and their employers.

Topical language talks about the Public Cloud which refers to off-site data storage facilities that are usually provided by third parties on an ‘’as required’’ basis and the Private Cloud where there exists on-site pooling of available computing facilities, the latter of course still requiring maintenance, but resulting in reductions in equipment, energy consumption and the ability to decommission old equipment.

Typically, Cloud based projects are cheaper, quicker to deploy and offer greater flexibility.

Are there any drawbacks?  Understandably, there is a perceived loss of control with the Public Cloud and questions about data security, limited redress in the event that things do go wrong, with cancellation of the contract being almost the only sanction and the fact that residual systems (if you have them) will still need maintenance and transitional attention.  The first of these (data security/loss) is the most frequently raised however some would argue that with the regular automatic back-ups (and reputational pressures of the 3rd parties involved) data is more secure here than it might have been whilst resting on individuals under conventional operations.

For Private Clouds there still exist issues with the physical conditions prevailing in one’s building; namely, sufficient air-conditioning for equipment cooling, provision of multiple data cables and secure routes, access arrangements to data rooms, Landlord consents for new infrastructure, cabling, antennae, plus the whole issue of re-instatement when you move out again.

In summary, The Cloud (in whatever form) is both for now and the future and modern businesses need to constantly question the best route for themselves to allow for flexibility and mobility, but also to creat business efficiencies that were perhaps not possible when a company was originally formed.    
 

February e Newsletter

Welcome to our second e newsletter of 2011.

So much is happening in the property world that on occasion it is hard to decide which elements we should comment on. However here are a few which may be of interest.

We tackle a growing view that there may be a case to replace the open market rent review with a review linked to the Retail Price Index. We also take a look at draft proposals that allow local authorities to have a greater say in determining the level of business rates as a way of stimulating growth in the local community. How to introduce greater energy efficiency may allow an opening for the energy companies to fund such works. We also look at the increasing scarcity of water, the need for air conditioning inspections and finally the rules governing CCTV – not everyone seems to comply.


1. Is the Open Market Rent Review on the wane?

Recent reductions in the average length of lease terms, favourable tenant leasing conditions and the use of break clauses have led to increasing pressure on the traditional upwards only, open market review as a standard lease clause.

Traditionally, property is valued using a few primary factors one of which is the level of rent achievable. Where it is anticipated that rental levels will increase, due to open market forces of supply and demand, the value of an investment should appreciate and this is particularly important where the property is purchased with the use of bank finance.

However, owners who are free of debt restrictions are able to be less constrained in the way that they structure leases and the methods that they use to ‘review’ rent and, coupled with the introduction of the ‘Code’ (the Code for Leasing Business Premises in England and Wales) much greater emphasis is placed on looking for flexible alternatives.

So what are they and how widespread is this move away from the traditional method?

Looking at European models, they tend to favour Index-linked increases and in a low inflationary environment this may be acceptable to occupiers, but now, with inflation rising so rapidly one can imagine certain resistance in new lease negotiations. It must also be said that we are a long way from agreeing terms that would see a reduction in rent should inflation be negative.

So perhaps a fixed increase method is more equitable whereby both parties agree that the rent will rise to a pre-agreed figure after a certain amount of time, as a way for the Landlord to try to keep pace with inflationary pressures and rising rents and providing certainty for the occupier too. Some Landlords, however are not prepared to restrict themselves to such certainty and would rather speculate on rents rising, as has been forecast in Central London Office markets, for example, thereby trying to insist on regular open market reviews.

Turnover rents have often been popular in the Retail sector whereby the rent is linked to the trading success of the tenant, but again, in a downturn, this may not be great news for the landlord who owns retail centres with decreasing footfall and trading conditions, but it does mean the overall success of the Centre is shared with the landlord taking a keen interest in making the trading environment right.

As can be seen, timing and market conditions play an important role in rent review negotiations, but alongside this sits a trade-off in lease terms whereby concessions in some clauses (service charges/reinstatement/shared energy costs etc) might be appropriate for some parties dependent upon their view of the future; thus, the review of rent might not be the centre-stage issue that it once was.


2. Local Government Resource Review – It may affect you?

In January 2011 the Department for Communities and Local Government issued an Impact Assessment aligned to the Localism Bill concerning Discretionary Business Rate Discounts. We said in our November newsletter that we would follow events arising from the Localism Bill and this is one which may have an impact on business rates.

Currently business rates are collected locally, passed back to Central Government and then redistributed back to the local authorities as part funding of their services. The Government is looking at ways of allowing the local authorities the ability of influencing these business rates locally in an attempt to stimulate growth.

The ‘Barker Review of Land Use Planning’ identified that UK has some of the highest occupational costs in the world and that where industries are property dependant they will find it hard to compete and also stifle new business entry. The Government believes that by reducing this burden businesses may have more money to invest in their company’s expansion and so help to fuel a recovery in the economy. However, they do also accept that where rates may be lower this could assist in supporting increased rents and so the occupier may lose out on the benefit.

This would be a radical change to the current system and may see some businesses prosper as a result of the changes however as it’s just a discussion paper at the moment it may not happen, so let’s wait and see.


3. Leaving the cost of energy efficiency behind when you move...

The Energy Bill is making its progress through Parliament and one aspect which will grow in prominence is their ‘Green Deal’. As part of the Coalition Agreement’ the Government made a Commitment that: “through our ‘Green Deal’, we will encourage home energy efficiency improvements paid for by savings from energy bills”. It is intended that the Green Deal will also help to enable improved energy efficiency in non-domestic buildings. So, broadly how will this work?

The Green Deal Finance develops a new legal mechanism whereby the obligation to repay the costs of the energy efficiency measures is attached to the property and not the bill payer. This basis will enable the energy provider to develop various finance packages that can be utilised for projects that will improve a property’s energy efficiency. The over-riding principle is based on the assumption of making sufficient savings by introducing more efficient technology. So it is feasible that people can move out of a property and not only pass on the benefit of the works but also the costs involved on their installation. At the same time it is possible for a company to move into a property and inherit the costs associated with earlier works.

The dilemma a property owner has faced in the past is where do they get the finance from to undertake energy saving projects? We at TAP can see that this initiative from the Government will answer that question with one caveat; it must be able to show that enough savings can be achieved as a result of these improvements in the property.

This Green Deal will have provisions attached which may include:

The original and proposed assessments must be accurate to provide the comfort of knowing how much energy will be saved.

Only accredited measures can be installed.

Limits on how much finance is available.

The ability for the energy providers to collect the agreed repayment amounts

When is it hoped the Green Deal may begin? Well the literature on the subject suggests the second half of 2012 so let’s wait and see how this initiative develops.


4. Water; when will it become a scarce commodity?

The pressure on water resources is growing and according to the UN World Water Development Report, the quantity of water available could decrease by 30% in the next 20 years as demand increases. In the UK it is suggested that demand will be influenced by both climate change and population growth. With the population expected to increase to 65 million by 2018 (a rise of 5 million from 2008), this will lead to greater household use which will increase the strain on the available water. All this will lead to the need to have better water management both in houses and commercial premises.

Our ability to take the supply and availability of water for granted is no longer acceptable and Fiona Mannix, Associate Director of the RICS Land Group comments ‘Fresh water in the UK is now more precious than ever for its extensive use in essential activities.’ This view is supported by the Environment Agency (EA) who believes it is in part due to the increase in climate temperature and changes to the rainfall pattern. They say ‘Summers are likely to get hotter and drier, significantly increasing demand for water, and winters warmer and wetter’. Coupled with the change in the weather pattern whereby Britain is subjected to increased intensive rainfall which produces more frequent surface floods, the ability of water to infiltrate into vital ground stores is likely to decline.

With the ability to capture water efficiently ever decreasing, the water companies are having to try harder to extract this resource from the underground basins which in itself can cause further environmental damage. It won’t be long until the tables turn with the water companies looking to the consumer to be more prudent in how they use this vital resource. New developments, whether they are houses or commercial buildings, are already starting to incorporate water harvesting ideas such as using grey water for flushing toilets but more will be needed. This won’t be enough and before long there will be a need to retrofit water saving equipment to existing properties. TAP would advocate the need for managing agents to begin looking at ways of conserving the use of water in buildings as there is still time to reflect on the benefits of various projects in an attempt to meet this challenge head on. However, in the next decade the importance of water will become increasingly important in all of our everyday lives.


5. Air Conditioning Inspections – Are you too late?

You may have heard of the need for Energy Performance Certificates (EPCs) in both Commercial and Residential property, but the same EU Directive that brought you those also contained an obligation on the company who controls the technical functioning of Air-Conditioning systems to have them inspected by a certain deadline. Why? To make sure they function properly and, where possible, to reduce energy consumption.

For smaller systems, that deadline was January 4th 2011.

The key points to consider are:

Are you the company responsible for the system’s operation?

Is the system’s output over 12kW (i.e. the power required to air-condition an office or retail unit of approximately 1,500 sqft)

…if Yes to both then you should look to appoint an accredited assessor to inspect the system, with the intention of ensuring that it is functioning as efficiently as possible in a general drive towards maximised Energy Efficiency. The Assessor’s Report will indicate where the system can operate better.

You may not require a survey as in most multi-let buildings it will be the Landlord’s responsibility to ensure the central air-conditioning plant conforms to current legislation but if you have installed a separate stand-alone system, or occupy the entirety of a building, you are likely to be the responsible party.

For large systems, i.e. those with outputs greater than 250kW, the system should have been inspected by January 4th 2009; in both cases, Trading Standards Officers can and will check that Inspections have occurred, and fines will be applied for non-compliance.

For more information view our Guidance Note or alternatively contact us to discuss how you can arrange an inspection.


Question and Answer – CCTV; what are the rules for filming?

The UK is a heavy user of CCTV equipment and your image is probably captured and held on numerous systems as you go about your daily routine. Many of us have come to accept this ‘Big Brother’ society without question and recognise it’s a common means of keeping property and the environment safe. So what are the rules governing the operation of a CCTV system?

Helpfully the Information Commissioner’s Office has issued the CCTV Code of Practice (‘Code’). The ‘Code’ has been drafted to help ensure that good practice standards are adopted by those who operate CCTV systems and covers certain elements such as how to capture, store and when is it appropriate to release images to a third party. By doing so it overlaps with the requirements of the Data Protection Act 1998 which also plays a part in how information is managed.

For those who operate a CCTV system they must consider who is responsible for the control of the images and how it is used; they must notify the Information Commissioner’s Office that they are the data controller, and put in place a clear procedure on how the images should be handled and stored in practice.

Importantly an operator of a CCTV system must put in place sufficient signage which alerts a person they are in an area which is under CCTV surveillance. The signage has to be descriptive enough and mention who is operating the system, why it’s being used and who to contact should you wish to view the images.

The operator must also ensure that any information stored is done so in a way that maintains the integrity of the images. This then enables the information to be of a good standard should it be needed as evidence in court but there is no time scale for the length of time images must be held.

What everyone wants to know is can they view the images that have been recorded? Well, in general the answer is yes albeit an organisation can reject such a request if they believe there could be a risk to other people. Interestingly where you have had your image recorded, such as a shopping centre then those people have a right to have a copy of those images and these must be provided within 40 days of the request. The organisation can charge you for this service but the maximum charge is £10.


Should you want more information on this subject then please feel free to call us on 0800 865 44 50.

Renewing a utility contract; is it becoming harder to secure good terms?

The downturn in the economy is having an effect on all sectors, not least securing favourable terms for the supply of electricity and gas contracts. This can result in some energy companies offering their customer’s very onerous renewal terms and in one instance a business was asked topayadeposit equivalent to7months usage in advance.

However this isn’t just happening to individual companies.It is also an issue managing agents face when their clients create complex tax structures for property ownership which an energy company cannot understand. As with all commercial businesses,energy companies tend toshyaway from risk and items they do not understand. Therefore having off shore companies with no assets or acceptable accounts will discourage an energy company offering good market terms. Tenants in a multi occupied building may not be exposed to the issues their Landlord’s managing agent is having in reaching good terms but in the current economic climate, with pressures to maintain service charges low it is almost certain they will be using their buying power to secure good terms, but it may not be easy. 

Openness and transparency of financial information is helpful and demonstrating a good credit history, with a clear company structure, will assist in securing the best terms possible. Furthermore, using an energy broker may also be helpful, as many will have long and trusted relationships with the larger gas and electricity companies, and may be able to support your requirement for more favourable conditions. If you do not have the comfort of having your energy bought for you through a managing