Camden Unlocked

This article was written by Ahmed Alansari, Property Consultant at Morgan Pryce.  It is a promotional piece on the unique phenomenon that is ‘Camden’. Camden 1

Camden, once a mecca for any 1990s indie kid, has done some growing up, but it has still remains a unique enclave in the capital. With its market-stall heritage.

 Camden was named after the first Earl Camden, Charles Pratt, who started the development of Camden Town in 1791, around what is now Camden High Street, but then was a coaching route to Hampstead and the north, surrounded by countryside. The canal was opened in 1820, but the eventual development of road transport in the fifties led to the canal falling out of use and industrial buildings into disrepair.

 In the early seventies, however, the buildings started to be rented out on short leases, as craft workshops, leading to the opening of a craft market on a cobbled courtyard nearby. Traditional crafts were offered alongside antiques, clothing, and eventually food stalls. By the mid-eighties, the area had become a major tourist attraction, with canal boat trips and people flooding to the markets – there were now three. In 1984 one stallholder began to sell a selection of colourful bags. That stall was to become the international fashion bag giant, Radley.

Camden 2Camden is arguably been the hub of the start-up business before the term ‘start-up’ was even coined. Many of the other areas in London that have, over the last few years, been preferred by start-ups and entrepreneurs have simply become unaffordable; (check out the Morgan Pryce Office Space calculator of idea of rental fees) ever bigger budgets are now needed to compete for the ‘best’ space, as rents have steadily increased over recent years because of lack of supply of original ‘creative’ space and a surge of demand. This means that places such as Shoreditch are now out of reach of the very people that brought the area into the creative-business limelight.

 With the influx of visitors and tourists, the local businesses began to meet the need for cafes and restaurants, with fewer shops for locals.

 And now? For innovative small businesses with unique character and, more importantly, a USP, Camden could be a great location to get things going. The history of the area, which has focused on community and collaboration in business (how else can a marketplace work?), has led to initiatives aimed at helping small businesses set up in Camden. Here are some examples:

 The Camden Collective https://www.thecollective.co.uk/

A ‘pioneering project putting Camden Town at the heart of the UK’s creative community’. It aims to take the obstacles out of the path of small businesses thus easing the challenges faced by many start-ups and drawing potential new ideas and companies to the area.

 The Camden Collective aims to create ‘hubs’ for co-working, allowing businesses and entrepreneurs a business- and creative-focused workplace without the expense and financial commitment – and risks – involved in formal property transactions. The hubs are deliberately chosen for flexibility, with movable internal structures to expand the reach to a variety of potential businesses. There is Wi-Fi, lockers, break-out areas, kitchen, and even a ping-pong table.

 Camden Collective also focuses on training, including Accelerator Courses (a three-week course for creative start-ups) and a Coding Academy (an eight-week web development course).

 Another focus of the Collective is to encourage pop-up shops into vacant units on the high street, encouraging footfall as well as variety in the retail environment – and providing a step-up to new retail businesses – a kind of post-recession market stall. The Collective takes on the space, refurbishes it in ‘blank canvas’ fashion, and then invites proposals from potential occupants. Spaces are available from as little as a couple of days to a couple of weeks, and partnering with another business is encouraged too.

Camden Means Business http://camdenmeansbusiness.co.uk/

This is part of the larger project, London Means Business, and organises networking and training opportunities and seminars, particularly for small businesses and self-employed/single-director businesses, which make up a significant 74% of SMEs.

Camden Town Unlimited (CTU) http://www.camdentownunlimited.com/

The CTU was ‘appointed by the business community to improve Camden Town as a place to work, live and visit’. It represents the local businesses and has a wide remit, working with the local council, TfL, central government and private sector stakeholders. It strives to market Camden and its vibrant business district, both locally and internationally, and has been involved in projects just as a local loyalty card scheme and street regeneration. Among other SME-focused services, CTU provides free recycling to its business members, claiming to save them around £430 per business.

Camden council has initiated forward-thinking plans for its borough, including constructing a range of energy-efficient apartments at Maiden Lane Estate. The local authority’s Community Investment Project allows it to return the profits made from such developments into local neighbourhoods. This, together with other factors such as the council-run Camden Small Business Awards, and the council’s 2013 proposed focus on Camden Town as a ‘Growth Area’, mean that this could be the ideal time to focus on Camden as the location of your business.

 So, as Camden takes the stage, with its collaborative business cast, perhaps you might like to be on it…

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Pre-Let Agreements

Parker Building - Southwark

© Copyright Stephen Craven and licensed for reuse under a Creative Commons Licence.

A ‘Pre-Let’ agreement is a contract between 2 parties which provides legal assurance when a property is constructed with a specific occupier in mind.

 So if a prospective occupier (tenant) wishes to have a purpose built property constructed or has simplyexhausted all options in finding a suitable property already on the open market, a pre-let agreement can offer some benefits. This is a vital part of risk management of the construction, as if a contract were not in place the prospective tenant could theoretically ‘walk away’ when the building is near to completion (and the prospective landlord has spent several millions on construction). Therefore a pre-let agreement binds the landlord/developer to complete the construction to a certain design/specification and within a timescale and (b) the tenant to take a tenancy when the building is complete.

 Naturally, pre-let agreements are governed heavily by contract law. If the project is a large one, professionals will spend many weeks or months negotiating the precise terms of the agreement. There will almost certainly be clauses and concessions inserted to reduce risk to each party. These arrangements are quite common in commercial property but less so with residential.

 There are several benefits to each party in agreeing to a pre-let:

  1.  A tenant can often negotiate generous rent-free periods, discounted rent or other incentives.
  2. The tenant can specify a precise design and finish and incorporate specialist equipment (if necessary) rather than having to retro-fit it.
  3. The tenant will have the kudos of having a building constructed solely for it.
  4. The landlord will certainly be able to obtain a lower cost of funding for the project due to the reduced risk.
  5. The element of ‘speculative development’ is removed and if the property is constructed to a unique design with specialist equipment, it is likely the tenant will remain in occupation for a long time (probably measured in decades).
  6. In a rising market, it is likely the agreed rent (at the outset) will be significantly lower than market levels (known as ‘profit rent’ and of distinct benefit to a tenant).

 The disadvantages however are:

  1.  In a falling market, a rent figure agreed at the outset might be higher than market values.
  2. There is a large element of risk to the potential tenant in project over-run. The prospective occupier might be heavily dependent on a particular completion date to tie-in with a lease expiry on a current property.
  3. There is the risk of problems in agreed specification. The tenant might be unwilling to take the property on because of an error in specification.
  4. The tenant might end up with less flexibility in freeing-up unneeded space.
  5. The landlord might be faced with lower occupational rent, making the project less viable.

 It is also important for the incoming tenant to enter into a collateral agreement with the construction contractor. The principal (i.e. original) construction contract will be between the landlord/developer and the contractor. If the superior interest is sold upon completion to an investor, the occupier has no means of bringing legal action against the contractor for any defects in construction. A collateral agreement ‘adds’ the occupier into the principal contract and facilitates a method of redress between occupier and builder.

 The construction method should also be carefully considered:

  1.  Design and Build. The contractor will be issued with a specific set of requirements. The ‘package’ of building design and construction is then carried out according to that specification.
  2. Traditional method. The landlord will commission the design (no doubt with the tenant providing input) separately to the construction phase.
  3. Construction Management process. This employs a slightly different approach to the above in that the basic design will be built with additional aspects added in later as required.

 The different methods of construction will place the obligation for ‘correct’ specification on different parties.

 In consideration of a pre-let agreement, many scenarios have to be anticipated. It is extremely important that both parties protect their position by engineering in contractual terms that offer ‘breaks’ under certain circumstances. However both parties have to remain committed to honouring the agreement otherwise the benefits begin to disappear. Of course it’s impossible to predict the future and provision should be made to offer contingencies should (for example) either party go into liquidation.

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Brief on Stamp Duty Land Tax

*Disclaimer – Please Note:  I am NOT an expert in taxation and the information provided below should NOT be taken as definitive advice.  It is for guidance only.  All readers and propospective investors/developers are highly advised to seek professional advice in taxation matters.

Stamp Duty Land Tax (SDLT) was introduced in 2003; and although it is often still known as ‘Stamp Duty’, it is now different from it.

The original Stamp Duty was first introduced in 1694, and was a tax on documents (i.e. documents used in transactions).  Several years ago, Stamp Duty was referred to as a ‘voluntary tax’.  This is because there wasn’t much control over registration for it (it was meant to be compulsory).  Now however, there is no escaping it.

Stamp Duty (as opposed to SDLT) is payable at the point of purchase, on transactions that are evidenced in writing.  When the duty has been paid (this should be within 30 days to avoid penalties), the Stock Transfer Form (in the case of shares) is stamped.  HMRC delegates the determination of the Head Charge to the Stamp Office who states the amount of stamp duty that must be paid.  Stamp Duty Reserve Tax is payable on electronic transactions (such as some company share purchases).

The property equivalent to Stamp Duty is SDLT.  It is paid in the following circumstances:

  • At the point of purchase (on qualifying properties)
  • At the commencement of a long-leasehold occupation
  • At the commencement of commercial tenancy agreements, where the total rent payable before the tenant’s first opportunity to ‘break’ amounts to a sum that qualifies for SDLT.

Current SDLT rates are:

  • For properties up to £125,000, the rate is zero.  No SDLT is payable.
  • For properties from £125,000 to £250,000; the standard rate is 1% of the property value , and for first-time buyers, it is zero.
  • For properties from £250,000 to £500,000; the rates for standard and first-time buyers is 3% of the property value.
  • For properties from £500,000 to £1m, the rates are 4%.
  • For properties over £1m, the rate is 5%.

From late 2014, SDLT on residential property is tapered, like income tax.  This means that if the value is over any of the thresholds, the whole value is not taxed, just the amount that is over the threshold.

So, if a property is bought for £330,000; the amount of SDLT (at current rates) payable is £1,250.00 (1% of £125,000) plus £2,400 (3% of the remaining £80,000) = £3,650.

Prior to this change in the rules, there tended to be an accumulation of property values at just below the threshold values.  For example, there were many properties for sale at around £249,950 but not many at £255,000 (assuming these values are the sale prices).

It must be stressed, that SDLT is paid by the purchaser (although the Coalition Government is understood to be considering plans to transfer the SDLT liability to the vendor).  It must also be paid in a way that is completely separate from the mortgage.  I have heard of first time buyers enquiring whether they can include the SDLT charge in their borrowing from the mortgage company.  This is not permitted!

If a new leasehold property is occupied by a tenant, the rates are:

  • For tenancies that total less than £125,000 for the life of the lease, no SDLT is payable.
  • For tenancies that total more than £125,000 over the life of the lease, 1% of the value that exceeds £125,000 is payable (so if a tenancy will total £130,000 over the total lease term, £50 is payable (1% of £5,000)).

Clearly, the lease term and rent would have to be quite substantial to qualify for this.

On commercial property, slightly different rates apply.

For properties that are not newly built:

  • For purchase values up to £150,000; or annual rent is below £1,000, the rate is zero.
  • On purchase values up to £150,000; or annual rents above £1,000, the rate is 1%.
  • For purchase values between £150,000 and £250,000, the rate is 1%.
  • For purchase values between £250,000 and £500,000, the rate is 3%.
  • For purchase values above £500,000, the rate is 4%.

For commercial properties that are newly built:

  • For tenancies with a term-value of up to £150,000, the rate of SDLT is zero.
  • For tenancies with a term-value of more than £150,000, then 1% of the value that exceeds £150,000 is payable.

Because SDLT is payable on the transfer of an interest in property, liability can arise when a property is transferred into or out of a Partnership.  This is (as I understand it) one of the most challenging areas of property tax but I will attempt to expalin as well as I can…

  • The relationship between partners is important.  If 2 family members form a property investment company, no additional SDLT is due over the usual purchase liability.  So this means that provided SDLT was paid by the family members on acquiring the respective property interests, no additional SDLT should be due when the interests are transferred to the partnership.
  • If an unrelated partner joins (i.e. not a family member) any tranfer of a property interest into the property investment company will attract SDLT.
  • If the individual members of a property investment company decide to go their seperate ways and transfer the interests in properties between them, 2/3rds of each individual’s interest will be liable for SDLT.
  • If an individual purchases a share in a property investment company (for example 25%), then that person is liable for that proportion of the property interest (so 25% of the combined property interest for SDLT would be payable).

For further information on SDLT, a visit to the HMRC website is recommended – http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm

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The Effect of Contamination on Development Land Value

Developing a property on contaminated land is not as ridiculous as it first seems.  Contaminated land is a massive problem for developers because:

  1. The sheer amount of contaminated sites across the UK.  There are an estimated 50,000 – 100,000 potentially contaminated sites in the UK which in total, which cover around 1% of the UK landmass.
  2. Very large companies and government agencies such as Shell, Esso, British Gas and the MoD regularly dispose of large amounts of land which will be regarded as contaminated.  In some circumstances, the very fact that certain activities have been carried out on a plot, automatically labels the area ‘contaminated’.
  3. The owner of an area of land where contamination is found to have originated from is often liable for the clean-up costs.
  4. Successive UK governments have encouraged development on brownfield sites in preference to greenfield.   This makes developers consider purchasing contaminated sites more readily.
  5. Contamination has a very large effect on property/land value.

But, to completely disregard contaminated land as ‘undevelopable’ would be to intentionally miss out on many opportunities.

Contaminated Land @ The Property Speculator

© Copyright Evelyn Simak and licensed for reuse under this Creative Commons Licence

The contamination will have the effect of reducing the value of the land or property because of:

  1. The original cause of the contamination.  I.e. what the substance was/is that resulted in the contamination.
  2. The general response to the scope of the contamination, both by the potential purchaser and the Local Authority.
  3. The amount of work required to establish the level of contamination and what has to be done to remedy it.
  4. The resulting effect on the eventual sale or letting value of the property.

Roughly, costs involved in a contaminated site can be categorised into Direct and Indirect.  Direct costs include the funding of remedial work, and penalties for not following exactly what the local council require and in the case of a commercial investment property, a void period – where the occupants must be moved out in order to carry out the work.  The indirect cost is tricky to quantify; it is associated with the effects and public perception of contamination.  A desirable area can quickly become not-so-desirable when the public discover that contamination has occurred.   This perception can be a very individual view among prospective purchasers or tenants.  This is known as Stigma.

The actual calculation involved in establishing a basic development value on a contaminated site is really not too different from a standard Residual Appraisal.  The formula for which is:

Value of land = GDV – (Build Costs + Required Profit)

To add the contamination component into the equation produces:

Value of Land = GDV – (Cost of Land Remediation + Build Costs + Required Profit)

However, this might serve to over simplify things a bit too much.  This does not take the element of Stigma into consideration.

Stigma, when used in the context of contaminated land can be defined as:

“the blighting effect on property value caused by perceived risk and uncertainty in the effectiveness of contamination remediation”.

To put it another way, it is the difference in value between a remediated contaminated site and a comparable “clean” site with no history of contamination.

These uncertainties are based on intangible factors such as:

  1. Scepticism over the effectiveness of land remediation.
  2. The risk of inadequacy of the remediation process.
  3. The risk of changes in legislation or remediation standards leading to further work.
  4. The difficulty in obtaining finance.
  5. A general fear of the unknown.

It might be argued that this general reluctance to use previously contaminated land is justified.  Many people believe the term ‘remediation’ is simply another term for clean-up.  It isn’t.  The term ‘remediation’ simply means that the level of contamination on the site has been reduced to a level below that specified by the Environmental Agency.  The term ‘Caveat Emptor’ (‘let the buyer beware) springs to mind here.

Clearly, because the influence of Stigma is difficult to quantify, it’s also difficult to measure.  What can be done, is analyse the behaviour of experts in this field:

During the summer of 1998, a four-page mail questionnaire was sent to a targeted, preselected group of 208 Property appraisers in the United States and Canada. The target group consisted of 192 appraisers in the United States and 16 in Canada.

Of the participants, nearly 60% (49) reduced rental income to account for on-site contamination. However, some comments indicated that a noticeable number of respondents found no impact on the rental income of contaminated properties that were used for commercial, retail, or industrial purposes. Several additional comments indicated that some respondents also used increased operating expenses when valuing a contaminated property.

While 73% of respondents reported that they occasionally made a separate deduction for stigma, only 26% indicate that they did so as often as 75% of the time. The uncertainties and risks associated with cash flows from a contaminated property are most frequently reflected in decreased estimates of value via sales comparison analysis (73%), followed by an increased capitalization rate (66%) or an increased yield, or discount, rate (61%).

All but one of the respondents said they would not ignore anticipated or forecast remediation costs in valuing contaminated properties. Some 60% indicated that they would deduct the present worth of total remediation costs estimated by environmental experts.

Although it seems to stand to reason that properties built on previously contaminated land are negatively affected, the degree of this effect is not necessarily substantial.  In the last decade or two, technology and methods have improved a great deal to make remediation techniques much more effective. I have personally dealt with previously contaminated land where a client intended to build a new, high-profile office block.  The value of the site was scarcely different to a comparable site with no history of contamination.

To quote a case study, results from a study of the market sales data of post-remediated vacant residential land along the Swan River, in Perth, Western Australia, from 1992-1998 can be looked at. The intention of the study was to establish the amount of “stigma” arising from a site’s contamination history.  The effects of this were measured on residential property values of remediated property. The results showed that while a site’s contamination history impacts negatively on property prices, the price decreases were offset by the positive influence on price from additional amenities provided in the area where the case study was carried out.

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The Growth in Investment of Online Estate Agencies

Over the past few months the world of estate agents has seen a rise in the investments being made in online estate agencies.  With some big names entering the arena, we wonder if we will see a long-term change in the industry…

We only have to go back to December 2013 to see the first significant investment made in an online estate agency when James Caan of Dragon’s Den fame made an investment in one of the country’s biggest online agents, Emoov.  As well as his money, Caan also became the face of the company.

Prior to Caan’s investment, Sarah Beeny of a similar celebrity status announced the online expansion of her sales portal, Tepilo.

On top of both of those, and more recently, the online market saw the biggest name enter the fray.  Sir Stelios Haji-Ioannou of Easyjet fame announced that he will be joining the competition with his own online estate agency, Easyproperty.

Recent reports also suggest that two more online agents are set to make waves in the digital market places.  Both EstatesDirect and PurpleBricks have received significant backing from investors.

DatingDirect, who sold out to Match.com for £30m in 2007 are putting money into EstatesDirect, whilst famous High Street store Poundland are investing in PurpleBricks.

Perhaps now is the time to sit up and begin to take notice of where the world of estate agents is heading.

So are these online estate agents, with their big financial and business backings going to change the face of the industry forever?

At the recent My Home Move Brick + Click event in Solihull, an interesting panel debate between three well-known estate agents took place.

Jon Cooke from YourMove, in favour of traditional estate agents argued that they would not be affected by their online counter parts, saying they still offered better value for money despite charging “extortionate” agency fees when negotiating a sale.

Miles Shipside from RightMove showed results of a survey from their large database of users that revealed some interesting data.

According to Miles, these are the top decisions that influenced a seller’s decision:

  1. Agent’s reputation
  2. Quality of response to my enquiries
  3. Presence of property portals
  4. Low fees
  5. Recommendations (friends + family)

With ‘low fees’ ranking as the fourth most important factor, notably behind an agent’s reputation, online estate agencies will have their work cut out for them.

Adam Day from one of the first online estate agents; Hatched; was keen to defend and promote technology that gives his company, and companies like his, an advantage over traditional agents who aren’t taking the digital world as seriously.

Mr Day was quoted as saying:

We know how traditional estate agents work and have adapted their systems with technology to give the customer a better experience.

The co-founder of Hatched was also confident that more people will move towards the online sphere when selling their property with the perceived value of the seller working in their favour and traditional estate agents’ dismissiveness of the digital world.

So will the more established brands like Hatched, HouseNetwork or HouseSimple prevail in the long run?  Or will they lose a significant part of the market share with heavy investment from the competition?

Financial backing certainly has its advantages, but it is by no means a guarantee for success.  When it comes to choosing an estate agency, we have previously mentioned the agent’s reputation.  On top of this, an agent’s experience and knowledge will also plays a vital role.  Three things money cannot buy.

For an example of this we should go back to 2008 when WOWProperty became the very first online estate agency to receive significant investment.  They have over £1.75m in their kitty, but little more than a year later the company had all but disappeared.

WOWProperty attempted to build history from thin air whilst consumers opted for more established businesses; those that had invested time forging bonds of trusts with their clients.

The modern era of online estate agents has been quietly building for a number of years now and the recent investment suggests it’s almost certainly going to grow.

Barrie Smith attended the MyHomeMove Conference in 2014. An expert in making offline businesses successful in the online space, he was intrigued by the huge investments in online estate agencies, and the current debate around the merits of the online vs offline property sales business models.

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Is the tide turning for London’s Eastern Fringe?

After ‘location, location, location’ the phrase ‘the ripple effect’ is probably one of the most heard when it comes to making that crucial decision, where you should base yourself. And this decision is no less important for the commercial occupier than it is for the residential purchaser.

In London, however, it’s complicated. Given London’s sprawling nature and its ‘city-of-villages’ structure, those ripples overlap; some are stronger, some weaker. Tenants may want to be a stone’s throw from a transport hub or a buzzing street, but wherever that stone lands, its ripples will be felt further out. Not all tenants are brave enough to see where this takes them, but given the rise of rent in the capital and the scarcity of office space, it may be worth prospective tenants looking where others have not yet discovered.

So, where might this be?

The cheapest area is the Eastern Fringe side of the city as well as the area from the east of the City towards the Docklands. At the moment, at the highest end of the market in the eastern fringe, tenants can expect to pay around £25 per square foot – a fraction of the sums in other, more popular, areas of the London.

The reason behind the cheaper rent is simply because there is currently more supply than demand. The problem with the supply is that the quality isn’t great (yet). The problem with the demand is that there isn’t much (yet). The fact is, at present, many of the buildings are tired and not what tenants want in terms of facilities, appearance, or fit-for-purpose-ness, hence the lack of demand.

While the transport links are there, and will continue to improve with Crossrail in 2018, the area isn’t necessarily where clients want to find themselves. Of course, some tenants may be able to work around this, particularly if all their business is conducted online, for example, where meeting face-to-face with clients is a rarity.

Alternatively, the fast-rising number of serviced office buildings that offer meeting spaces in the more popular districts of London means that the one-off hire of a meeting room could be a solution for a business owner who doesn’t want their clients to see their cheap but not-so-cheerful premises.

The lack of demand at present may be a result of caution on the part of the tenant winning out over the need to save money on rent. Businesses considering a move to this area may face challenges in recruiting or retaining staff, as the amenities and social spaces are in short supply compared to other areas of the city.

The Above Factors Will Start Fading in Significance

Many of the buildings are undergoing development as landlords see the potential to attract more and better-quality tenants, resulting in improved longer-term rents. Aldgate will be the location of a new development, another step towards an improvement in the area, one that began with targeted regeneration plans in 2007. Goodman’s Fields, the site of an RBS cheque-clearing centre, will be a mixed-use seven-acre development of offices, apartments, retail and restaurants, the first phase of which is due to be completed next year.

Prospective tenants may need to be canny in assessing the best time to jump into the Eastern Fringe and beyond. Too soon, or to the wrong kind of property, and business may be affected: too late and rents might already have started to increase. Some tenants may in fact be ‘pushed’ rather than ‘pulled’ to this area when their leases elsewhere – originally negotiated in cheaper times – come up for renewal or review and the resulting rent increases, meaning that staying put is not an affordable option.

 The rise of other, formerly neglected, districts can offer much to the Eastern Fringe area in terms of inspiration and what can be achieved. Redevelopments and refurbishments have, over the last few years become more imaginative, to reflect the needs and wants of the TMT (technology, media, telecoms) sector and those who work within it. Old buildings are not necessarily seen as restrictive and untouchable, but quirky.

Refurbishments can also incorporate the technological installations that businesses of all sizes require now as standard, although such retro-fitting does not come without challenges – or cost. In addition, without a guaranteed tenant lined up, a landlord may be reluctant to invest this much. There is an element of risk that will need to be assessed and taken by both landlords and tenants before great changes in the scene here are achieved. In contrast, the new developments planned for these areas will offer the blank-canvas option for tenants who want to be based somewhere clean, new and bright – and reasonable.

Serviced Offices: The Way Forward

Serviced offices may be key to increasing the profile of this area and reducing vacancy rates. This sector has seen a meteoric rise not only in London but also across the UK and globally. The flexibility of these furnished, staffed, plugged-in and dressed-up office spaces is what attracts tenant businesses of all shapes and sizes, from the one-man start-up to the multinational. Tenants can try out a few square feet of space, a building, or a location and if it doesn’t work out they can move out just as easily as they moved in.

The lack of long-term commitment needed when signing up to a serviced office means less financial risk for many tenants. Since these buildings by their nature house a number of different tenants, there is also a ready-made commercial community available, which may not be the case if one’s office is sandwiched between a takeaway and newsagents for the next five years. Also, because rent prices in the Eastern Fringe are the lowest in the capital, the serviced office model should be able to offer excellent value for money, as well as sweeteners such as rent-free periods, to tenants who are prepared to take the plunge and start creating their own ripples.

Eugene O’Sullivan, is Director at Morgan Pryce – experts in London office search, negotiation and project management and act exclusively for tenants. For commercial property and offices to rent in Mayfair, Soho, Southwark and beyond, talk to Eugene today.

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10 Common Planning Permission Pitfalls and how to avoid them

Much of what people know about planning permission comes from the media such as the programme Grand Designs, the experience of friends and family, or from objecting or would-be-objecting to a neighbour’s plans.

Of the process – and the cost – many actually know very little, and the wealth of information available on the internet can be a little daunting. It’s hard to know where to start, let alone where you’ll end up and what you’ll go through to get there.

Businesses have more to consider than residential owners, when what you do in a building is as monitored as the physical changes you make.

Without specialist knowledge and with an excess of enthusiasm, it’s easy to make mistakes in the planning process.

Here we introduce some of the common pitfalls when dealing with planning permissions.

1. Do you need planning permission?

First of all, consider whether you actually need planning permission at all. Most areas (conservation areas excluded) benefit from a ‘Permitted Development Order’ (PDO), which means that changes of a certain size or height, or distance from neighbours, do not require planning permission. The rules can be found on the planning portal website but it’s important to look at them carefully and perhaps consult a professional.

If a property has already been extended this might prevent further changes under a PDO. Recent legislation also means that in many areas properties used as offices can be converted to residential under a PDO – although discussion with the council may still be required.

2. Avoid the DIY trap

Do-it-yourself has its place, but the rule to remember is to stay within your skillset. Often it amounts to a false economy to have a go yourself. Consider a tiled wall that slopes, or a door that won’t close. This is no less true when applying for planning permission, which involves certain stipulations, as well as local considerations, technical requirements and possibly specialist knowledge.

‘Having a go’ at the application may be cheaper in the short term, but it may result in a failed application, or with conditions attached that compromise your plans. There are professionals who can assist, for example:

Designers.

These will not only maximise the potential use of space but will be working with planning considerations in mind.

Architects.

As above, but they will also be able to draw up the necessary plans, especially where the works involve structural changes.

Planning consultant.

A planning consultant, particularly a local one, will be familiar with the developments that have been granted permission in the vicinity – and more importantly, the ones that haven’t. They will also be able to help you address areas of your application that might elicit objections from the council, local bodies such as Highways, or neighbours, in order to resolve any issues before they are raised. Planning consultants can also be useful if you have to appeal a decision.

In fact, if you use the above services, you probably don’t need to worry about most of these points.

3. Can you really afford the investment?

There is no point in successfully obtaining planning permission for works that ultimately will prove too expensive to carry out properly. It’s difficult to budget for building works when you’re not an expert in that area.

One option is to obtain a builder’s estimate. It’s not a quote for works, but should give you an idea of how much is involved. Then add 20%. Contingency is always required for items not taken into account and latent problems that only become apparent when the diggers start digging. Also, of course, take into account any ancillary fees, such as professionals’ fees, consents planning and building regulation fees.

4. Adhere to the rules and instructions

Planning permission and the process of obtaining it has evolved over many years. Councils may have different considerations, requirements and restrictions, and a chat with one of the planning officers will always be useful. The forms accompanying the application will need to be filled in properly, accurately and comprehensively.

Every application, from a two-storey extension to a full housing development, will need:

• A location plan – obtainable from, for example, the Land Registry or from the deeds • The existing and proposed site layout • Existing floor plans and elevations and corresponding proposed ones • Proposed sections • External details such as doors, windows, drainage, roof tiles, render.

Faults and incomplete details may lead to a rejected or failed application, or extensive to-ing and fro-ing which is costly in terms of time and money.

5. Planning permission is not the only permission you need

It’s easy to get carried away with the project at hand, however, before planning permission is even applied for – and ideally before any money is spent on professionals – consider who else might need to give you permission for any works or change of use.

If your property is leasehold, it is likely that permission from a landlord or its agent is required. This is easily forgotten in the case of a long-term leasehold house, for example, where the landlord is largely absent other than an annual collection of nominal rent.

If there’s a clause in the lease that prevents alterations without permission, then consent should be sought. This can be an expensive business as landlords will be aware of the importance of the project and may wish to capitalise on your desperation.

If you go ahead anyway without consent, not only will this cause problems when you come to sell the property, but retrospective permission can be much more expensive to obtain from a landlord than permission in advance – because the landlord knows you need it.

Make sure you check the deeds, even if your property is freehold there may be restrictions (restrictive covenants) in the deeds preventing certain changes to the property. This ranges from properties 200 years old to new build properties.

If you’re unsure about any restrictions that might be present concerning your property, arrange to visit your solicitor who will be able to advise you. Often a quick scan of the deeds is all that will be required.

6. Change of use is no exception

It may be tempting where businesses are concerned, particularly small ones, to not allow planning permission to stand in the way of the perfect space, particularly if it feels the changes and/or occupation of the property are likely to be overlooked. It also may be tempting to persuade oneself that one’s business has not changed the nature of one’s home, for example, when in fact the child-minding business has become more like a nursery.

Care needs to be taken and complicated rules taken into account when dealing with use classes. A café owner may find that they have to grill all their meat and roast all their vegetables for their sandwich fillings off the premises (i.e. at home) because the use class of their leased premises does not allow food to be cooked on-site. The last thing a business needs is a visit from the planning enforcement officer and a breach of the terms of the lease. No premises means no business.

7. Don’t change your mind

Once the planning application has been submitted, it can be difficult to make changes, and even harder once it’s been approved. Anything other than minor changes might require a whole new application. So make sure you check and double check before submitting, not after.

8. You can’t get away with not having planning permission

While there is legislation in place that, in certain circumstances, mean action cannot be taken for works carried out over a number of years ago, this is not the situation you want to find yourself in. There is no guarantee your works will fall into this category, and there are stories of planning enforcement to be found in the media or on the grapevine, from dormer windows having to be removed to whole properties having to be demolished. And while you may live or work happily in a property without planning permission in place, the last thing you want when you move on – whether selling the property or at the end of a lease – are questions being asked and delays being caused – or even claims of damages by a landlord – arising from lack of appropriate consent. Solicitors (especially the other party’s solicitors) can be hard to satisfy when it comes to dotting the I’s and crossing the T’s.

Indemnity insurance is possible, but makes some owners and lawyers uncomfortable, while retrospective planning permission is far from guaranteed – and can invalidate or prevent the obtaining of indemnity insurance.

9. Don’t forget building regulations

The flip side of the planning permission coin is building regulations. It would be rare where planning permission is required not to also have to comply with building regulations. These deal largely with internal changes and energy efficient measures as well as gas and electrical works. These will also need to be signed off, often long after planning permission has been done and dusted.

It is vital not to forget the final signing-off for building regs purposes. It’s much harder to get retrospective building regulation approval, particularly where the site hasn’t been visited mid-job and where structural works such as RSJs need to be assessed.

10. Letting your permission lapse

Planning permission will last for a fixed number of years and can be passed on to future buyers. If you are planning on carrying out the works, don’t let the date pass you by. There is no guarantee that the permission will be re-granted or extended, particularly if legislative or policy changes have been introduced in the meantime, perhaps in relation to the ratio of residential property to business premises in a particular area, or where restrictions have been imposed on the number of houses of multiple occupation in ‘student’ areas.

Eugene O’Sullivan, is a commercial property expert and Director at Morgan Pryce – London office search, negotiation and project management agents who act exclusively for tenants.

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Risk Management in Property Investment & Development

Let’s be clear on this, investing in or developing property represents an element of risk to a greater or lesser degree.

Most prospective property developers and investors realise this but some subsequently procrastinate over taking positive steps to progress their venture.  Perceived risk can include:

  1. Getting a property project only partially complete before running out of cash.
  2. Experiencing a problem during build of such scale that the contingency fund does not cover it.
  3. Finishing the build and not being able to sell or let the property in order to recoup costs.
  4. The property build/conversion will cost so much that the developer with experience substantial financial hardship in order to get it finished.

All these concerns can be effectively managed and guarded against prior to the start of the project.  This is where a particular approach is vital; these risks should not put anyone off engaging in a property development or investment project.

Vacant Development Property @ The Property Speculator

© Copyright Jeremy Bolwell and licensed for reuse under this Creative Commons Licence

Risk is the ‘price’ of the return from a venture.  It’s been said that ‘the higher the risk, the greater the reward’; however this seems (to me anyway) to be a contradiction in terms.  If risk is high, then there is no guarantee of reward at all.  People generally have very differing views on the amount of risk they are comfortable to adopt.  However, if a developer is looking to borrow in order to fund the purchase and renovation/conversion of a property, then the mortgage provider will be very keen to see the project organised as low a risk as possible.  This includes the developer putting around 50% (for first-time developers) of their own money into it.

So in conclusion, it’s important to minimise risk wherever possible.  And to be honest, property is one of the lower-risk methods of investment and capital building.  It’s not THE lowest, but there are far riskier investments available to those with the appetite.

To address the points above in turn:

1.   Running out of cash mid-project.

This element of risk is managed by careful planning of the project.  Many novice developers run low on cash, but it’s almost always because the budget has not been organised properly.  The principles of running a financially viable project are:

  • Purchasing the property at a good price.  It takes time to select the right property; it must fulfil many criteria – purchase price being one of the most important.  If you are purchasing at an auction and the bid goes above your maximum level, you MUST resist the temptation to continue bidding.  In my experience, if one opportunity has come along, then the chances are that another is not far behind.  Once in a lifetime chances are just not that common.  It’s far better to purchase a property at a good price and sell at an average one, rather than buying at an average price and hoping to sell at an exceptional one.
  • Agreeing a fixed-price contract with the builder.  This is insisted on in many cases when obtaining development finance.  It should be possible to agree stages of build with the contractor, where you pay a proportion at the end of a stage before moving on to the next.  The agreement is likely to specify what is not covered in a fixed-price agreement.  This might be substantial ground work or structural alterations.  This is all in the negotiation.
  • Sourcing materials shrewdly.  This might fall into the principle above, but if you intend to do it yourself, approach it as a business and not a personal ‘statement’.  Buying the property and approaching the building work with your head, not your heart helps so much in this.  Keep in your mind that the aim is to get the property let or sold and move on to the next.

2.   Blowing the contingency fund on an unforeseen problem.

A contingency fund is an excellent idea.  This is usually around 10% of the whole project budget.  A fund of this amount will actually be a condition of borrowing with many companies (you’ll have to produce proof of the amount in a bank account).

So if a whole project budget is £240,000 for example, a contingency of £24,000 should be available in addition.

If the principles above are followed, there really should not be any reason for unforeseen problems to require more than 10% of the budget to rectify.  Ground, structural and roof problems are usually the most expensive to sort out, but almost all of these can be taken into consideration if a good survey is carried out prior to purchase.  Excessive build/conversion costs are another one of the criteria that should be considered before purchasing the property.

In some cases, problems do arise that there really was no way of knowing about before the project is bought.  In this case, a degree of imagination is sometimes called for to resolve it without blowing that contingency fund.  The most expensive and challenging problems are things like disused wells or buried objects.  However these are rare.

3.   Not being able to sell or let the property at the end of the building phase.

This is a problem that has affected many aspiring property developers over the past 4 years.  As mortgage companies suddenly tightened their criteria for lending, the amount of buyers across the market as a whole reduced to such an extent that demand came to an abrupt halt.

This might be regarded as the greatest of all the risks involved in a property venture.  It is theoretically possible to have a property advertised for sale for an indefinite period of time; and this scares the life out of many prospective developers.

Property is widely regarded as being highly ‘illiquid’.  This means that the value cannot easily be released.  The opposite end of the scale is cash; this is obviously a ready source of capital that can be used easily.  Because of the nature of property’s lack of liquidity, it has certain characteristics such as a degree of stability of value (due to the fact that it is a tangible item, unlike for example – company shares).  Unfortunately because of this shortcoming, capital can be ‘wrapped up’ in a property with little way of extracting it.

The way this problem is managed, is again by proper financial management.  To reuse my quotation from above…. far better to purchase a property at a good price and sell at an average one, rather than buying at an average price and hoping to sell at an exceptional one. You must remember this!  In many cases, the reason why properties stay on the market for so long is because they are overpriced for resale.  Sticking to a rigid budget dramatically reduces this risk because there is less chance of financial overstretch.  You should certainly make sure that you have planned for the property to be complete yet vacant for around 6 months after the build.

4.   Experiencing financial hardship in order to complete the build.

Clearly, this is a variation on the perceived risks already mentioned.  Most successful private developers have sufficient ‘surplus’ income to cope with the increased monthly outlay to cover another mortgage.

Some amount of flexibility will be needed to cover unforeseen problems, but the contingency fund will be in place to cover them.

There are not really many valid reasons why novice developers should find themselves enduring financial hardship to get their project completed.

To conclude, sensible and realistic budgeting should go a very long way to managing the anticipated risks involved.  However as I’ve mentioned already, property development and investment is risky; if it wasn’t, there would be no money to be made in it.

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Going Underground

The primary factors that drive the value and selling price of a property up are location and usable area.  These are the 2 main considerations that should be considered when selecting a property or site on which to develop.  Leaving the ‘location’ aspect to one side for now, usable area is a very shrewd way of increasing value and in some cases this can be accomplished fairly easily.

I stress the term ‘usable’ area because (to use an example) if a converted loft is not compliant with building and fire regulations, the additional space cannot be marketed as such.  This often works in a private property developer’s favour because carrying out the work to make the room compliant might not involve that much work.  An example of this might be the installation of a fixed stairway and fire doors.  Expenditure of a few thousand pounds to have this work done can release tens of thousands in eventual property value.

Another way to increase internal area is to extend.  It’s important to have quite a good idea of the size, location, shape and design of the extension before even applying for planning consent or a Certificate of Lawful Development.  A design will be needed (this doesn’t have to be professionally produced at this stage) to illustrate what is planned.  Clearly if the property has not even been purchased at this stage, the consideration must be carried out when evaluating the property.

What I’m working my way round to write about is planning the foundations of that extension.  I hasten to add that any detailed advice on this subject should be directed to either a Building Surveyor or a Building Engineer. That said, it’s extremely useful if you can carry out a very quick assessment of the property yourself prior to purchase so that you have an idea of the viability of the project.  One of the issues I have come up against recently is foundation depth due to the very close proximity of tree roots from a neighbouring property.  To ensure compliance with building regulations (and compliance WILL be checked by the purchasers Solicitor when the property is being sold onwards) the foundations must go down to minimum depths below ground level.  It is not unheard of to find that trees up to 30 metres away from a property can have an effect on the foundations.  Therefore it’s very important that this is considered in your overall property plans.

Conventional strip foundations are not suitable when having to dig so far below ground level.  Deep strip or reinforced trench fill will be better suited.  Pile foundations can also be used and might be more economical.

The illustration and table below (please excuse the standard of my drawing) provides a method of assessing how deep the foundations must go to be sufficiently strong enough to withstand the effects of nearby tree roots.  In addition to this, drains must also be incorporated into the design of the foundations.  Again, a Building professional will be able to provide more detailed information on specific situations.

Foundation depth may seem excessive, but the property or extension must be on a base that can withstand not only the penetration of tree roots but the effects trees have on their surrounds.  Large trees can draw hundreds of litres of moisture out of the ground every day.  This has the effect of soil shrinkage which often results in property damage due to the slight ‘drop’ in the side of the property closest to the tree.  If the tree is removed, the opposite effect occurs and the effected side of the property lifts slightly which can also cause damage.

Another factor to consider when evaluating the proximity of trees is Tree Preservation Orders (TPOs).  You might consider the work involved to put in deep foundations is worth carrying out, however the tree roots must not be damaged as this might harm the tree.  In some circumstances, a local planning authority might consider the removal of a tree to be worth the sacrifice if the development is important.  To be realistic though, it’s unlikely a private development would be considered in this way.

If you think the close proximity of tree roots will compromise your proposed development, speak to a Building professional or the local building control department.

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Why it Pays to Tread Carefully

The vast majority of prospective property developers and investors will have to borrow money (probably in the form of a mortgage) in order to realise their plans and actually purchase a property.  In many ways it appears to make sense to avoid borrowing the funds as an individual (that is to say one of a pair or a group).  This is because a private developer might initially feel slightly intimidated by the scale of the project being considered and invite a friend or associate into the venture.  The main benefit however is that in most cases, it’s possible to combine deposits/equity and borrow more from a bank as a pair than might be possible as an individual.

There is an important point to consider when borrowing in this way though.  Recent research by the Debt Advisory Centre (link below) suggests that 1 in 5 borrowers do not realise that they are very likely to be liable for the whole debt if their partner (business or personal) cannot pay their portion of a joint debt.  Interestingly, 1 in 10 borrowers mistakenly believe that the debt is divided equally between parties.

Borrowers are usually ‘joint & severally liable’ for shared borrowing, such as a mortgage, loan or overdraft – meaning they are both responsible for the full amount if one partner can’t pay their way. But almost one in five respondents to the survey (18%) didn’t understand this.  In fact, just over one in ten (11%) thought each partner is liable for exactly half the amount borrowed, while 2% thought each borrower owes an amount in proportion to their income.  The reality of it is that in a serious financial emergency – such as relationship breakdown or redundancy – one partner could be left with responsibility for the whole debt, regardless of whether they can realistically afford it.

Ian Williams of Debt Advisory Centre comments:

“It’s easy to see how joint borrowing can become a serious problem when one partner can’t afford to repay.  In many cases, relationship breakdowns can cause the problem when one partner refuses to pay. In fact debt problems caused by separation affect one in ten people we help” 

It can be a confusing area – for example joint credit cards are usually based on a single credit agreement with the-first named cardholder responsible for paying the whole balance if things go wrong.  This is in contrast to debt secured on a property; the Mortgagee (the lender) has a ‘charge’ over the property.  This means that the lender has the legal right to take control of the property and sell it in order to recoup its losses.

  © Copyright Stephen Dawson and licensed for reuse under this Creative Commons Licence

Ian Williams goes on to say “Whatever the situation, there is help available. Lenders understand that things can go wrong, and will often agree to an affordable repayment plan if you tell them how much you can realistically afford to pay. If you are struggling to keep up with your debt repayments it makes sense to seek expert debt help sooner rather than later.”

This is not to say that all property ventures should only be approached as an individual, but the research above suggests it’s extremely important to be fully aware of the consequences and repercussions if it doesn’t go according to plan.

For more information on this subject, follow the link to the Debt Advisory Centre, or follow this link to follow on Twitter

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