July-August 2012

rics.org/journals

Residential Property Journal

Mixed-use developmentA regeneration option with special challenges for developers and managers

Editor: Roz Wrottesley T +44 (0)20 7334 3860 rwrottesley@rics.org Advisory group: David Dalby, Peter Bolton King and Georgiana Hibberd (RICS), Graham Ellis (RICS and Greenhouse Surveyors), Philip Santo (Philip Santo & Co), Tony Bowron (Bromford Housing), Paul Cutbill (Countrywide), Chris Rispin (BlueBox Partners), David Smith (Anthony Gold Solicitors), Michael Day (Integra Property Services) Editorial and production manager: Toni Gill Sub-editor: Rita Som Advertising: Lucie Inns T +44 (0)20 7871 2906 lucie@sundaypublishing.com Designed and printed by: Abstract Annodata Published by: The Royal Institution of Chartered Surveyors, Parliament Square, London SW1P 3AD T +44 (0)870 333 1600 www.rics.org ISSN: 1754-9116 (Print) 1754-9124 (Online) Front cover: © Ardmore Construction: Chatham Quays

While every reasonable effort has been made to ensure the accuracy of all content in the journal, RICS will have no responsibility for any errors or omissions in the content. The views expressed in the journal are not necessarily those of RICS. RICS cannot accept any liability for any loss or damage suffered by any person as a result of the content and the opinions expressed in the journal, or by any person acting or refraining to act as a result of the material included in the journal. All rights in the journal, including full copyright or publishing right, content and design, are owned by RICS, except where otherwise described. Any dispute arising out of the journal is subject to the law and jurisdiction of England and Wales. Crown copyright material is reproduced under the Open Government Licence v1.0 for public sector information: www.nationalarchives.gov.uk/doc/open-government-licence

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Contents

14 A work in progressThe all-important RICS Residential Policy has been published, but the job is not over yet. By Mary Thorogood

16 Shorter, simpler, clearerNew regulations and statutory guidance on the contaminated land regime came into effect on 6 April 2012. By Anne Harrison

19 Wales leads the way The forthcoming Housing Bill in Wales is likely to introduce the licensing and regulation of letting agents. By Tony Filice

20 Lettings updateWhen is a deposit not a deposit? And will landlords lose the right of accelerated possession? By David Smith

22 Top of the rangeThe new RICS Building Survey is on the way, providing members with the flagship service in the RICS Home Survey suite. By Graham Ellis

24 Claim or no claim?The Case Notes series considers the tenuousness of some negligence claims and the test of ‘reasonable competence’. By Philip Santo

26 In your own wordsA Case Notes reader challenges the use of standard text in lender mortgage valuation forms. By Philip Santo

Cover story 4 Mixed assets

There is no single development solution to the decline of town centres. By Paul Crook

7 New dimensions of management Running complex mixed-use buildings calls for a range of skills not acquired through training alone. By David Clark

8 At your service The new Management of Mixed-use Development guidance note explores best practice when the legal positions and interests of commercial and residential tenants collide. By Jeff Platt

9 Time for actionA measured programme of investment in the housing market would help to control the risk of further economic decline. By Simon Rubinsohn

10 Greening the surveyorThanks to a very important client, the RICS President has had a fast-track education in the planning of an energy-efficient home. By Alan Collett

12 And it’s goodbye from him…Four years is a long time in the residential property sector and no-one knows that better than the outgoing RICS Residential Director. By David Dalby

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Commercial-led mixed-use development is attractive to developers, but Paul Crook argues that it is only part of

the solution to the problem of declining town centres

Mixed assetsMixed-used development

There has been steady growth in the number of mixed-use developments in recent years, fuelling a continuing debate over the extent to which they are the solution to town-centre

regeneration. Given the volatility of the commercial property market and, by comparison, the relatively high yields on offer when residential elements are included in the development mix, it is no wonder that commercial developers have seen an opportunity and that mixed-use developments now dominate the market.

Clearly, such developments have a contribution to make to town centres and the regeneration of the wider area around them, but it’s a question of scale. While the odd mixed-use scheme can have a positive impact, such developments can hardly be regarded as the whole solution.

some who believe that business and residential uses are generally incompatible at every level: construction/design, management and the living/working experience. Equally, others believe that residential units positioned above retail/leisure facilities can be more successful than most people think.

Another controversial question is whether the most common small, separate mixed-use developments – those not part of the wider regeneration of an area – are becoming too bland and generic in both format and appearance. During a discussion at last year’s RESI conference, one speaker asked if “we are truly regenerating town centres, or just condemning them to mediocrity through the stresses imposed by planning law and economics”. For example, when it comes to retail, the rush to sign up mainstream outlets ahead of completion prevents distinctive, independent retailers from taking up space gradually and organically. This is a pertinent question that needs to be addressed by the planning authorities in relation to the wider planning context and the building of sustainable communities.

There is also a legitimate question concerning the extent to which pre-existing indigenous communies stand to benefit from such schemes; all too often the price of new residential units is out of reach of local people, which results in the character of the community changing. And whatever the planning and technical constraints, ultimately the post-construction management regime needs to be fit for purpose if long-term asset value and community harmony is to be achieved.

Configuration and phasingOptimising configuration and getting the development phasing right is essential to maximising value. Balancing the various elements – commercial with residential spaces and market housing with affordable housing – is more of an art than a science. The challenge is to achieve a sustainable community that can co-exist in the long term. The factors that affect configuration and development include the following:

Physical • plot size and footprint• adjoining uses• site access arrangements• previous uses and site contamination issues• ground conditions

Technical • construction method• construction materials• central plant and building services configuration• health and safety considerations

Financial • funding availability• funding conditions• cashflow

Planning • site control conditions• Section 106 agreements

While the odd mixed-use scheme can make a positive contribution to the regeneration of town centres, such developments can hardly be regarded as the whole solution

Nor are they a simple solution, as RICS has acknowledged with the forthcoming publication of a new guidance note, Management of Mixed-use Development (see page 8). Experience, particularly over the last decade, suggests that a long-term vision and careful planning and management are essential to achieving maximum benefit in terms of regeneration and community development. The challenges facing those planning and executing such schemes fall broadly under the following headings:• negotiating the planning process• optimising configuration and development phasing• maximising value• getting the long-term management strategy right.

Planning and process Delay is inherent in the planning system, but the permission process is further encumbered by the multiplicity of reports and assessments required to support applications. On top of this, local planning authorities have their own ideas about the optimisation of development, visual impact, the nature, extent and future control of the commercial elements, and the extent to which affordable housing should be provided.

Views differ on the comparative merits of the different styles of mixed use: full integration within a single structure, versus separate structures with different uses positioned in close proximity to each other. There are continued on page 6

Mixed-used development

The Quays, an award-winning residential and commercial development at Chatham Maritime on the site of the former Royal Naval Dockyard in Kent, overlooks a 320-berth marina and the River Medway. Two landmark glass towers, 19 and 16 storeys high, and two five-storey wharf buildings accommodate more than 300 apartments and a variety of bars and restaurants on the lower levels.

Ardmore Construction and its development division, Byrne Estates, were responsible for The Quays, and Ardmore’s Development Director Chris Langdon was interviewed by the website Skyscrapernews.com about the rationale behind the project. Proposed developments in nearby Gravesend have fallen at the first hurdle – planning permission – and Chris’s comments provide some insight into what makes this particular mixed-use development a success where others failed.

“Originally the scheme came to us as a construction project, but we realised there was a bigger role for us, acting as developer and effectively buying into the wider regeneration project. Quite often regeneration schemes are well intentioned but are sequenced in a way that means they fail to create a destination – not the case in this instance. Chatham Maritime was well planned and is well placed as a commuter town.

“We needed to complement rather than compete with what was already there or was already planned. For example, there’s little point in adding in more hotels if there’s already hotel provision, so we looked at complementary uses. One of the project’s aspirations was to encourage a night-time economy with places to eat and drink. Our aim was to appeal to the cosmopolitan, young professional urban dwellers, as well as existing residents from Chatham town centre, people looking for a vibrant waterside location as an alternative to the new family-oriented housing on St Mary’s Island. Importantly, Chatham was one of the last enterprise zones in the UK and tax allowances that enterprise zones generate are absolutely fundamental to this type of development.

It wouldn’t have progressed without the enterprise zone in position. It all kind of fitted into place.

“Regeneration projects depend on whether the local community has the appetite for change, and require wide consultation and local support to achieve planning permission. I believe one of the concerns in Gravesend was about whether the proposals were in keeping with the existing architecture of the town, so development proposals had to be more consistent with the existing architecture styles and building types. At Chatham Maritime, there were fewer existing buildings and actually the vision for The Quays was all about making a statement on the landscape.

“The original plan was that Chatham Maritime had to be a stunning place to look at, an amazing place to be and a destination in its own right. All those aspirations have been very important for us, down to the use of high-quality materials like the cladding timber and glazed façades. For us, it was all about creating a statement on the landscape. The Quays can be seen as you approach the Medway tunnel and from all directions, and the views from the buildings themselves are fantastic. The marina and the castle give the landscape a real sense of the history and character of the place, and the combination of shops, riverside walks, the cinema, the Historic Dockyard and Dickens World, all within walking distance, make Chatham Maritime a real destination. Restaurant parking is convenient which also makes a difference. The quality of the built environment and the aesthetics of the scheme all contribute. It’s a nice place to live and work.”

The full interview is available at Skyscrapernews.com using the shortcut bit.ly/quayschatham. The architecture website includes the UK’s largest tall building database, detailing every modern building in the country taller than 35m.

Case study: The Quays at Chatham Maritime

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A new pathway to Associate membership in the UK equips candidates to work across the residential and commercial property sectors. Real Estate Agency replaces the Residential Estate Agency pathway and broadens the scope of the competencies.

AdvantagesThe new pathway offers a broad range of competencies that qualify candidates to work across the residential, commercial and mixed-use property sectors:• It includes competence in ‘Legal/regulatory compliance’ so

that Associates are better equipped to advise customers in the increasingly legislation-driven environment of property sales and lettings

• ‘Measurement’ and ‘Inspection’ are combined in one competency • ‘Landlord and tenant’ is a required competency, since landlord and

tenant law is becoming increasingly complex.

Technical competenciesAssociates must complete six of the following: • Landlord and tenant• Leasing/letting• Legal/regulatory compliance• Market appraisal• Measurement and inspection of land and property• Property records/information systems• Purchase and sale.

AssocRICS offers new competency mixMandatory competenciesEight competencies demonstrating the essential, softer skills that all responsible surveyors need, regardless of their technical specialism, are included:• Client care• Communication and negotiation• Conduct rules, ethics and professional practice• Conflict avoidance, management and dispute resolution procedures• Data management• Health and safety• Sustainability• Teamworking.

Entry requirements There are no minimum requirements to enrol for the Associate qualification. Anyone working in the field of real estate agency can join RICS and start working towards the qualification now. Experienced practitioners who hold the NFOPP Level 5, accredited by the Association of Residential Letting Agents (ARLA)/National Association of Estate Agents (NAEA), in Residential Estate Agency or Residential Letting and Management are eligible for direct entry to the Associate qualification. Apart from proof of qualification, applicants need only complete the RICS online ethics module to gain AssocRICS designation.

More information is available at rics.org/associate

Maximising valueFrom the point of view of investors, maximising value can be challenging on a development of any scale. The uncertainty of not knowing who/what will occupy the commercial space can hinder the sale of residential units and thereby constrain a development’s progress. Conversely, focusing too much attention on the residential elements can lead to long-term vacancies in the commercial units. An understanding of the local market conditions and the anticipated impact of the development on these is essential, as values will also be affected by development phasing. The complex cashflow for a scheme needs to be modelled to address the impact of configuration and phasing and the subsequent extraction of value from the development.

Long-term managementGetting the long-term management strategy right is fundamental to the success of any development. It is important that a clear plan is agreed well in advance of the first brick being laid and that the approach to the various occupants and tenure types is demonstrably equitable.

Will there be separate commercial and residential managing agents? If so, will the residential agent be contracted through the commercial agent, or vice versa? Or will a single agent manage both categories of management? Who will be responsible for the maintenance of the external fabric of the building? How will the various elements of service

charge be administered? What lease structure will apply to each of the tenure types and how will they influence each other? All these issues need to be fully thought through at the design and planning stage. All too often, these considerations are left too late in the project and the coherent long-term management of the development is prejudiced as a result.

It is becoming more common for freeholders to offer ‘licences to occupy’, rather than traditional leases, to commercial tenants, so that they have a means of controlling the nature of the commercial use in the first instance and thereafter. From the residential leaseholder’s perspective this would seem highly desirable, to ensure that future uses are consistent with the original scheme and that there is a mechanism to prevent the introduction of the kind of antisocial activities that might affect the value and/or saleability of the units at some future date.

In summary, commercial-led mixed-use schemes have a role to play in the development of town centres and wider regeneration but, in truth, they are too complex to form more than part of the solution. And if they are done badly, they can detract from an otherwise successful regeneration initiative. Since they are not immune to the impact of the wider economy, it is difficult to see them featuring to any appreciable extent outside the economic environment of London and the South East for the foreseeable future.

Paul Crook is Managing Director of the Mainstay Group

Mixed-used development