Real Estate Concepts A handbook

Edited by Ernie Jowsey with contributions from stafF at Northumbria University

Routledge R Taylor & Francis Group LONDON AND NEW YORK

Contents

List offigures List of tables List of contributors Preface List of abbreviations 1

Agency ANDY DUNHILL, JANE STONEHOUSE AND RACHEL WILLIAMS 1.1 The inspection 1 1.2 Reporting to the dient 2 1.3 Terms of engagement 5 1.4 Types of agency — the basis of Instructionfor disposal 6 1.5 The marketing plan 8 1.6 The Marketing brochure 12 1.7 Information technology in marketing 14 1.8 Energy Performance certificates 16 1.9 Methods of disposal — private treaty 18 1.10 Methods of disposal — tender 21 1.11 Methods of disposal — auction 22 1.12 Marketing a property —freehold sale 25 1.13 Marketing a property by way of an assignment 26 1.14 Marketing a property by assignment of a long ground lease 28 1.15 Marketing a property to let on a new lease 31 1.16 Marketing a property by way of a sublease 35 1.17 The marketing process 38 1.18 Negotiating 40 1.19 Occupation costs 41 1.20 Heads of terms 43 1.21 Money laundering 45 1.22 Safety and security in agency 48

XIV XVI xvm XX xxi 1

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Contents

2

Building surveying STUART EVE, MINNIE FRÄSER AND CARA HATCHER

51

2.1 Building surveying in an estate management context 51 2.2 Building pathology 53 2.3 Building surveys 57 2.4 Dampness in buildings 60 2.5 Timber defects 62 2.6 Movement in buildings 64 2.1 Concrete defects 61 2.8 Structural frames andfloors 69 2.9 Roofs and cladding 12 2.10 Asbestos in buildings 15 3

Commercial property ANDY DUNHILL, DOM FEARON, JOHN HOLMES AND BECKY THOMSON

79

3.1 Commercial property 19 3.2 Private investors 80 3.3 Privatefinance initiatives 81 3.4 Office market 84 3.5 Industrial market 86 3.6 Retail market 88 3.1 Leisure market 90 3.8 The health care market 91 3.9 Student accommodation 93 3.10 Building information modelling and commercial property 95 4

Construction GRAHAM CAPPER, BARRY GLEDSON, RICHARD HUMPHREY, ERIC JOHANSEN, ERNIE JOWSEY, MARK KIRK, CARA HATCHER AND JOHN WEIRS 4.1 Building Cost Information Service 91 4.2 Building control in England and Wales 99 4.3 Constructionfirms 102 4.4 Competitive tendering 103 4.5 Design and build 105 4.6 Modern methods of construction (off-site manufacture) 106 4.7 Managing construction 108 4.8 Planning and organising construction 109 4.9 Managing building services 111 4.10 Sick building Syndrome 112 4.11 Sustainable construction 114 4.12 Fraud in construction III

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5

Development HANNAH FURNESS, ERNIEJOWSEY AND SIMON ROBSON 5.1 Developers 119 5.2 Development 120 5.3 Development costs 122 5.4 Development finance and funding 125 5.5 Site assembly and acquisition 127 5.6 Evaluation and appraisal methods 129 5.7 Intensity of site use 132 5.8 Public sector development 134 5.9 Redevelopment 134 5.10 Refurbishment 136 5.11 Residual value 138 5.12 Local asset-backed vehicles 139

6

Economics ERNIEJOWSEY 6.1 Allocation of resources 141 6.2 Supply and demand 142 6.3 Pareto optimality 144 6.4 Economic efficiency 145 6.5 Market, command and mixed economies 147 6.6 Externalities 148 6.7 Market failure 150 6.8 Cost—benefit analysis 51 6.9 Perfect competition 153 6.10 Imperfect competition 154 6.11 Oligopoly 155 6.12 Monopoly 156 6.13 Economies of scale 158 6.14 Mobility of labour 159 6.15 Property rights 160 6.16 Economic rent 161 6.17 Gross domestic product 162 6.18 Economic growth 163 6.19 The multiplier 165 6.20 Fiscal policy 166 6.21 Property cycles 167 6.22 Globalisation 169 6.23 The credit crunch 170 6.24 Currencies and exchange rates 171

Contents Finance ERNIE JOWSEY AND HANNAH FURNESS

7.2 Bridging loan 174 7.3 Company accounts 174 7.4 Debentures 176 7.5 Depreciation 177 7.6 Financial gearing 177 7.7 Liquidity 179 7.8 Freehold ground rent 179 7.9 Reverse yield gap 180 7.10 Sale and leaseback 181 7.11 Mortgages 182 7.12 Sources of finance 183 Investment ERNIE JOWSEY AND HANNAH FURNESS 8.1 Investors 185 8.2 The property investment market 186 8.3 Commercial property investment 187 8.4 Portfolio strategy 189 8.5 Modern portfolio theory 190 8.6 Capital assetpricing model 193 8.7 Risk and return 194 8.8 Real estate investment trusts 196 8.9 Property unit trusts 196 8.10 Active fund management 197 8.11 Residential property investment and buy-to-let 199 8.12 Mortgage-backed securities 200 8.13 Land banking 201 8.14 Property indices 202 8.15 Discounting and discount rates 204 8.16 International property investment 206 8.17 Transparency index 207 8.18 Corporate real estate asset management 208 Land management DOM FEARON AND ERNIE JOWSEY 9.1 Archaeological sites 211 9.2 Coastal and marine heritage 212 9.3 Farm buildings 213 9.4 Fishing andfiishing rights 215 9.5 Trees andforestry 216

Contents ix 9.6 Historie parkland 218 9.7 Protected landscapes 219 9.8 Religious buildings 220 9.9 Waste disposal sites 222 9.10 UK National Parks 225 10 Law RACHEL WILLIAMS AND SIMON ROBSON

227

10.1 Contracts 227 10.2 Legal definition ofland 228 10.3 Fixtures and chatteis 229 10.4 Ownership ofland 230 10.5 Trusts and co-ownership ofland 232 10.6 The lease/licence distinetion 234 10.7 Land registration 235 10.8 Freehold covenants 236 10.9 Easements and profus ä prendre 23 8 10.10 Easements — rights to light 240 10.11 Manorial land and chancel repair liability 242 10.12 Wayleaves 242 10.13 Common land and town and village greens 243 10.14 Highways 244 10.15 Option agreements 245 10.16 Conditional contracts 246 10.17 Promotion agreements 247 10.18 Overage/clawhack 248 10.19 Pre-emption rights 249 10.20 False statements and misleading omissions 250 11 Flanning ANDY DUNHILL, HANNAH FURNESS, PAUL GREENHALGH, CAROL LUDWIG, DAVID MCGUINNESS AND RACHEL WILLIAMS 11.1 Legislation and planning policy 252 11.2 Strategie planning 257 11.3 Green belt 258 11.4 Planning decision rnaking 259 11.5 Listed buildings and conservation areas 264 11.6 Neighbourhood planning 267 11.7 Transport and infrastrueture planning 269 11.8 Minerals planning 270 11.9 Settlement hierarchy 273 11.10 Planning obligations 275 11.11 Community infrastrueture levy 276 11.12 Planning appeals 278

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12 Property asset management CHERYL WILLIAMSON, DOM FEARON AND KENNETH KELLY

281

12.1 Property asset management 281 12.2 Leases in commercial property 282 12.3 Breach of covenant 284 12.4 Commercial service charges 285 12.6 Rent reviews 288 12.7 Proactive management to recover rent 289 12.8 Landlord and Tenant Act 1954 part 2 291 12.9 Squatters and adverse possession 292 12.10 Alienation 293 12.11 Exit strategies 295 12.12 Health and safety 297 12.13 Dilapidations 298 12.14 Insolvency 299 12.15 Facilities management 300 13 Quantity surveying GLENN STEEL 13.1 Measurement and quantification 303 13.2 New Rules of Measurement 305 13.3 Cost planning and cost control 306 13.4 Life cycle costing 310 13.5 Construction law 311 13.6 Alternative methods of dispute resolution 312 13.7 Standard forms of contract 316 13.8 Bespoke contracts 318 13.9 Contractual claims 319 13.10 Project management 322 13.11 Partnering 324 13.12 Procurement methods 326 13.13 Contract administration 330 13.14 Cost value reconciliation 333 13.15 Cashflow 335 13.16 Benchmarking 337 13.17 Value management 339 13.18 Risk management 341 13.19 5D building information modelling 344 13.20 Expert witnesses 346

303

14 Regeneration JULIE CLARKE, HANNAH FURNESS, PAUL GREENHALGH, RACHEL KIRK AND DAVID MCGUINNESS 14.1 Defining urban regeneration 349 14.2 Development corporations and regeneration agencies 350 14.3 Neoliberal urban policy 352 14.4 Compact cities and urban sprawl 354 14.5 Shrinking cities 356 14.6 The urban renaissance 357 14.7 Enterprise Zones 359 14.8 Partnership working 361 14.9 Funding andßnancefor regeneration 362 14.10 Brownßeld land 365 14.11 Contaminated land 366 14.12 Gap funding 367 14.13 Community engagement 369 14.14 Gentrification and abandonment 370 14.15 Social enterprise 372 14.16 Area-based initiatives 374 14.17 Tax incrementfinancing 375 15 Residential property JULIE CLARKE, RACHEL KIRK AND CARA HATCHER 15.1 The private rented sector 377 15.2 The social housing sector 379 15.3 Owner occupation 380 15.4 Housing tenure — otherforms of ownership 382 15.5 Affordability in housing 384 15.6 Homelessness 385 15.7 Housing management — allocating property (social housing) 386 15.8 Housing management — rent collection and recovery (social housing) 388 15.9 Housing management — repairing property (social housing) 390 15.10 Housing management — managing tenancies (social housing) 391 15.11 Housing management — allocating property (private rented sector) 393 15.12 Housing management — rent collection and recovery (private rented sector) 394 15.13 Housing management — repairing property (private rented sector) 395 15.14 Housing management — managing tenancies (private rented sector) 396 15.15 Housing support — independent living 398 15.16 Housing support — specialist supported housing 399 15.17 Housing an olderpopulation 400

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16 Sustainability GRAHAM CAPPER, JOHN HOLMES, ERNIE JOWSEY, SARA LILLEY, DAVID MCGUINNESS AND SIMON ROBSON 16.1 Sustainable development 402 16.2 Biomass 403 16.3 Building Research Establishment Environmental Assessment Method 16.4 Codefor Sustainable Homes 407 16.5 Combined heat and power 408 16.6 Electric vehicles and electric vehicle infrastructure 409 16.7 Energy policy and the built environment 412 16.8 Environmental impact assessment 415 16.9 Groundfair source heat pumps 417 16.10 Life cycle assessment of buildings 418 16.11 Retrofit 419 16.12 Sustainability appraisal 421 16.13 Sustainable urban drainage systems 422 16.14 Solar power photovoltaics 424 16.15 Solar water heating 426 16.16 Wind turbines 428 17 Taxation ERNIE JOWSEY AND RACHEL WILLIAMS 17.1 Direct taxes 430 17.2 Income tax 431 17.3 Corporation tax 432 17.4 Inheritance tax 433 17.5 Indirect taxes 434 17.6 Value Added Tax 434 17.7 Stamp Duty 43 6 17.8 Mansion tax and annual tax on enveloped dwellings 437 17.9 Council tax 438 17.10 Rating and uniform business rates 439 17.11 Land value tax 440 18 Valuation LYNN JOHNSON AND BECKY THOMSON 18.1 Income cashflows 444 18.2 Term and reversion 447 18.3 Hardcore/layer method 448 18.4 The all-risks yield 452 18.5 Over-rented property 453 18.6 Analysing tenant incentives 457

Contents 18.7 The discounted cashßow approach to valuing property investments 462 18.8 Valuing vacant property 465 18.9 Valuation and sustainability 469 18.10 The Valuer Registration Scheme 470 18.11 The comparative method 471 18.12 Valuation accuracy 473 18.13 Depreciated replacement cost 474 18.14 Valuing leasehold interests 477 18.15 Asset valuations 480 18.16 Valuing trading properties 482 Index

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