Real Estate Concepts

Real Estate Concepts

The essential reference tool for all real estate, property, planning and construction students.

Edited by Professor Ernie Jowsey of Northumbria University, Real Estate Concepts provides built

environment students with an easy-to-use guide to the essential concepts they need to understand in

order to succeed in their university courses and future professional careers.

Key concepts are arranged, defined and explained by experts in the field to provide the student

with a quick and reliable reference throughout their university studies. The subjects are conveniently

divided to reflect the key modules studied in most property, real estate, planning and construction

courses.

Subject areas covered include:

• Planning

• Building surveying

• Valuation

• Law

• Economics, investment and finance

• Quantity surveying

• Construction and regeneration

• Sustainability

• Property management

Over the 18 alphabetically arranged subject specific chapters, the expert contributors explain and

illustrate more than 250 fully cross-referenced concepts. The book is packed full of relevant examples

and illustrations and after each concept further reading is suggested to encourage a deeper understanding.

This book is an ideal reference when writing essays and assignments, and revising for exams.

Ernie Jowsey is Professor of Property and Real Estate at Northumbria University. He is the author of

a number of books including Real Estate Economics and Modern Economics with Jack Harvey.

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Real Estate Concepts

A handbook

Edited by Ernie Jowsey

with contributions from staff at

Northumbria University

First published 2015

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

Simultaneously published in the USA and Canada

by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2015 Ernie Jowsey, selection and editorial material, individual chapters, the contributors

The right of the editor to be identified as the author of the editorial material, and of the

authors for their individual chapters, has been asserted in accordance with sections 77 and

78 of the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any

form or by any electronic, mechanical, or other means, now known or hereafter invented,

including photocopying and recording, or in any information storage or retrieval system,

without permission in writing from the publishers.

Trademark notice: Product or corporate names may be trademarks or registered

trademarks, and are used only for identification and explanation without intent to infringe.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Real estate concepts : a handbook / edited by Ernie Jowsey with contributions from staff

at Northumbria University.

pages cm

Includes bibliographical references and index.

1. Real estate business--Great Britain . 2. Real property--Great Britain. 3. Real estate

development--Great Britain. 4. Commercial real estate--Great Britain. I. Jowsey, Ernie.

HD596.R43 2014

333.330941--dc23

2013050184

ISBN: 978-0-415-85741-3 (hbk)

ISBN: 978-0-415-85742-0 (pbk)

ISBN: 978-0-203-79764-8 (ebk)

Typeset in Bembo

by GreenGate Publishing Services, Tonbridge, Kent

Contents

List of figures xiv

List of tables xvi

List of contributors xviii

Preface xx

List of abbreviations xxi

1 Agency 1

ANDY DUNHILL, JANE STONEHOUSE AND RACHEL WILLIAMS

1.1 The inspection 1

1.2 Reporting to the client 2

1.3 Terms of engagement 5

1.4 Types of agency – the basis of instruction for 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

vi Contents

2 Building surveying 51

STUART EVE, MINNIE FRASER AND CARA HATCHER

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

2.7 Concrete defects 67

2.8 Structural frames and floors 69

2.9 Roofs and cladding 72

2.10 Asbestos in buildings 75

3 Commercial property 79

ANDY DUNHILL, DOM FEARON, JOHN HOLMES AND BECKY THOMSON

3.1 Commercial property 79

3.2 Private investors 80

3.3 Private finance initiatives 81

3.4 Office market 84

3.5 Industrial market 86

3.6 Retail market 88

3.7 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 97

GRAHAM CAPPER, BARRY GLEDSON, RICHARD HUMPHREY, ERIC JOHANSEN, ERNIE JOWSEY,

MARK KIRK, CARA HATCHER AND JOHN WEIRS

4.1 Building Cost Information Service 97

4.2 Building control in England and Wales 99

4.3 Construction firms 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 117

Contents vii

5 Development 119

HANNAH FURNESS, ERNIE JOWSEY 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 141

ERNIE JOWSEY

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

viii Contents

7 Finance 173

ERNIE JOWSEY AND HANNAH FURNESS

7.1 Banks 173

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

8 Investment 185

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 asset pricing 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

9 Land management 211

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 and fishing rights 215

9.5 Trees and forestry 216

Contents ix

9.6 Historic 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 227

RACHEL WILLIAMS AND SIMON ROBSON

10.1 Contracts 227

10.2 Legal definition of land 228

10.3 Fixtures and chattels 229

10.4 Ownership of land 230

10.5 Trusts and co-ownership of land 232

10.6 The lease/licence distinction 234

10.7 Land registration 235

10.8 Freehold covenants 236

10.9 Easements and profits à prendre 238

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/clawback 248

10.19 Pre-emption rights 249

10.20 False statements and misleading omissions 250

11 Planning 252

ANDY DUNHILL, HANNAH FURNESS, PAUL GREENHALGH, CAROL LUDWIG, DAVID MCGUINNESS

AND RACHEL WILLIAMS

11.1 Legislation and planning policy 252

11.2 Strategic planning 257

11.3 Green belt 258

11.4 Planning decision making 259

11.5 Listed buildings and conservation areas 264

11.6 Neighbourhood planning 267

11.7 Transport and infrastructure planning 269

11.8 Minerals planning 270

11.9 Settlement hierarchy 273

11.10 Planning obligations 275

11.11 Community infrastructure levy 276

11.12 Planning appeals 278

x Contents

12 Property asset management 281

CHERYL WILLIAMSON, DOM FEARON AND KENNETH KELLY

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

12.5 Rent 286

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 303

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 Cash flow 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

Contents xi

14 Regeneration 349

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 and finance for regeneration 362

14.10 Brownfield 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 increment financing 375

15 Residential property 377

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 – other forms 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 older population 400

xii Contents

16 Sustainability 402

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 405

16.4 Code for 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 Ground/air 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 430

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 436

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 444

LYNN JOHNSON AND BECKY THOMSON

18.1 Income cash flows 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 xiii

18.7 The discounted cash flow 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 485

Figures

1.9.1 Overview of the private treaty process 20

2.2.1 Damp meter with condensation analysis capability 54

2.2.2 Dampness to window jamb 55

2.2.3 Thermal image indicating cold spots around windows 55

2.2.4 Wall construction revealed 55

2.2.5 No insulation to jamb 55

2.2.6 Window detail as existing 56

2.2.7 Proposed remedial works 56

2.4.1 The process of rising dampness 61

2.10.1 The asbestos family tree 76

3.3.1 PFI structure 82

3.4.1 Brise soleil on the south elevation of the Museum of London 85

3.4.2 Mesh solar shading perforated by oval feature windows 85

3.8.1 UK population 92

3.9.1 1970s student accommodation 94

3.9.2 Modern student accommodation 94

5.2.1 The 14 phases of development 122

5.4.1 Property development 125

5.7.1 Applying capital to a fixed site 132

5.7.2 Intensity of site use 133

5.9.1 The value of the cleared site 135

5.9.2 The timing of redevelopment 136

5.10.1 Refurbishment delays redevelopment 137

5.12.1 Local asset-backed vehicles 139

6.1.1 A (straight line) production possibilities curve 142

6.2.1 Equilibrium price and quantity 143

6.3.1 Pareto improvements 144

6.4.1 A production possibility curve 146

6.6.1 Additional marginal social costs of development 149

6.9.1 Long-run equilibrium in perfect competition 153

6.10.1 Long-run equilibrium in imperfect competition 155

6.11.1 The kinked demand curve in oligopoly 156

6.12.1 The long-run situation in monopoly 157

6.13.1 Economies of scale in industrialised building 159

6.16.1 Economic rent 162

6.18.1 Production possibility frontier 164

6.19.1 The circular flow of income 165

6.21.1 The business cycle 167

6.21.2 Links between the property cycle, the economy and the monetary sector 168