commercial matters autumn 2015 ckd galbraith

ISSUE 2AUTUMN 2015

Planning gain:opportunity knocksfor big infrastructure

The commercialimpact of LBTT

The true worth of a transaction

An urban perspectiveon land reform

Vital role of theproject monitor

The value of facilitiesmanagement

Are you being(correctly) insured?

Lease expiry:planning for a smooth exit

www.ckdgalbraith.co.uk

http://www.ckdgalbraith.co.uk





| Commercial Matters Autumn 2015 | www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial

cKD gALBRAiTh is Scotland’s leadingindependent property consultancy. Drawing on acentury of experience in land and propertymanagement, the firm is progressive and dynamic,employing more than 250 people in officesthroughout Scotland.

The firm provides a full range of property consultingservices across the commercial, residential, rural andenergy sectors.

CKD Galbraith provides a personal service, listeningto clients and delivering advice to suit theirparticular opportunities and circumstances.

Our associate, CKD Kennedy Macpherson, is based in London.

Follow us on Twitter: @CKDGCommercial

Like us on Facebook: www.facebook.com/ckdgalbraith

Join us on Linkedin:www.linkedin.com/company/ckd-galbraith

WELCOME

Key issues: landand adding value

WELcoME to the second edition ofCommercial Matters. Following oursuccessful spring launch, we continue

to highlight the key issues of the commercialproperty sector and the work we are involved in.

In this edition, we look at many aspects of thecommercial property process from acquisition,project monitoring, property and facilitiesmanagement, asset management and ultimatelysale. Whilst all seemingly separate areas, thefuture performance of a property requires thesedisciplines to be inextricably linked.

We also touch upon the the potential impacts ofLand Reform and Community Right to Buy, largeinfrastructure projects and planning. Land is thekey aspect to all property-related matters andchanges in legislation and focus will affect thefuture development and land use.

We hope you find something of interest in thefollowing pages and would be delighted to hearyour feedback and suggestions for future topics.Please do get in touch via email or social mediawith any burning questions, requirementsor thoughts.

Iain Russell

Chairman of CKD Galbraith, Iain also headsup our Rural team, working from theInverness and Edinburgh offices.

commercial Matters is produced by JK Consultancy, Glasgow, and designed by George GrayMedia+Design, St Andeux, France.© CKD Galbraith LLP.

CONTENTS

4Capital city apartment appeal.

Getting ready to sell.

5The real worth of a transaction.

6Facilitiesmanagement revealstrue holding costs.

Deal round-up.

7The value of a project monitor.

A day in the life of a property manager.

8An urban perspectiveon the Land Reform(Scotland) Bill.

How has the newLand and BuildingsTransactional Taxaffected commercialproperty investors?

10Planning gain underthe microscope.

Getting the rightinsurance.

Cover image: The CulzeanBuilding, Glasgow. McAteerPhotograph.

Peter Scott Aitonexplains how planningahead can avoid issuesfor tenant and landlord atthe end of a lease.

iT iS gEnERALLy accepted that, atthe end of a lease, the exiting tenantmust undertake or pay for reinstate-ment, repair and redecoration toleave the occupied space in a condi-

tion that is compliant with the specificlease obligations.

A dilapidations schedule will pick up allmatters of internal reinstatement, repairand redecoration, but how do landlordsof multi-occupied buildings reclaim anycosts relating to the common areas?

Our commercial team’s joined-up work-ing relationship between the specialistareas of asset management, buildingmanagement and building surveyingensures that a tenant cannot walk awayfrom their internal repairing lease whilethe common parts are in poor repair.

Although they cannot be included withinthe dilapidations claim, as they are notthe tenant’s direct responsibility under aninternal repairing lease, allowing a tenantto walk away from a 25-year lease with-out paying their part of the maintenancebill for common parts could have majorfinancial consequences for the landlords.

They may have to foot the billthemselves, or, should the disrepair benoted by any future tenants, they willhave grounds to negotiate more robustservice charge caps. To avoid a situationlike this, some forethought is required inthe last few years of the lease to ensurethat all common parts are in good repairand decorative order.

This can be achieved by ensuring that

Jill Gayford has advicefor landlords and tenants.

WhEn iT coMES to the expiry of alease, timing and communication is key. InScotland, if neither party serves 40-daynotice the lease will continue on the sameterms for 12 months, known as tacit relocation. Using a professional canreduce costs and achieve the best resultsfor everyone. Here’s our countdown guideto getting it right.

Lease expirycountdown

mailto:[email protected]


http://jkconsultancy.com

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www.ckdgalbraith.co.uk | Twitter: @CKDGCommercial | Commercial Matters Autumn 2015 |

36 months in advanceLandlord: Examine the lease and prepare aPPM report to see if any areas of M&E andthe common fabric of the building can bebudgeted into the service charge.

Tenant: Check for additional expenditure orlarge increases in service charge to ensurethat what is being proposed is within yourlease obligations – and is required.

12 months to goTenant: Ensure rent, insurance and servicecharge payments are paid on time. Beforeentering into negotiations with the currentlandlord, speak to an agent about other mar-ket options and potential moving costs. In arising market the cost of moving may not beaffordable; in a depressed market the cost of

not moving is too high.

Landlord: Ensure alldemands are issued inthe correct companyname. Engage with thetenant to understand theirintentions, requirementsand the opportunities withinthe current building. In a ris-ing market this might not be aconcern, but in a stagnantor depressed market many landlords’ keyfocus is tenant retention – can you afford atenant to vacate?

6 months to goBoth: Consider dilapidations costs – theycould be a deciding factor for a tenant tostay or a landlord to serve notice.

Landlord: If discussions are not progress-ing, check if a marketing board can be

placed on the property. It may focus every-one’s attention or it may aggravate thesituation, so think carefully.

Time’s upIf either party intends to serve 40-daynotice, it must be served on the correct

day to the correct company at the correctaddress. If no notice is served, the lease willrun for a further 12 months.

Jill Gayford is based inEdinburgh and specialises incommercial management.

[email protected] 240 6987

multi-occupied buildings have a pre-planned maintenance schedule that isannually reviewed by a building surveyor.A PPM will project all work that isrequired in the short-, medium- and long-term. It will also assist with service chargebudgeting, which, in turn, will aid tenantswhen budgeting for their own business.

Asset managers and managing agents canregularly refer to the schedule to checkthat the common parts are not falling into

disrepair and that all repairs are up-to-date when leases are coming to an end.

A PPM fee is a small price to pay whencompared to the consequences of not recov-ering the cost of common repairs fromtenants. The fees involved will also often bejustifiable as service charge expenditure.

In addition, any consequential damagewithin a tenant’s demise at lease-end putsthe landlord in a difficult negotiating position when it comes to

dilapidations – would the ceiling need to be replaced if the building had beenkept watertight? All this can be easilyavoided with some joined-up thinking and forethought.

Peter Scott Aiton, part of ourbuilding surveying team,undertakes commercial projectsand professional work.


Dilapidations: the bigger picture

l The Culzean Building, Glasgow.







WhiLE ThE coMMERciALdevelopment sector kick startsafter a number of years of lim-

ited activity, one sector which has buckedthe trend is Edinburgh city’s servicedapartments. But why has this sector flour-ished – and continues to do so – and whatopportunities are there for the smallinvestor?

In recent years, Edinburgh has seen itspopulation increase to more than 495,000and in 2012 the number of tourists comingto Edinburgh hit nearly 4 million.

Andrew Craig of property developer StoneAcre has been involved in the servicedapartment sector for five years andbelieves that the driving force behind itspopularity is a demand for more freedomand flexibility from travellers.

Business travellers may want a flexiblebase for a longer period of time but don’twant to be tied to a short assured tenancy.Likewise, travellers with young familiesare looking for more flexible accommoda-tion than a traditional hotel or B&B.

Online companies such as Airbnb allowindividuals and smaller scale investors totake advantage of the growing trend ofpeople preferring the home-from-homeexperience of an apartment.

Recent evidence from the sale of individ-ual apartments within The Malt HouseServiced Apartments in Edinburgh’s WestEnd, indicates that returns of 6-7% are pos-sible. Future yields look healthy asEdinburgh’s permanent and temporarypopulations increase.

The city continues to attract large corpo-rate serviced apartment operators, but alsooffers opportunities for smaller-scaleinvestors. Whether buying an apartmentto let through Airbnb or working with oneof the few smaller-scale operators, theright location and quality for your targetmarket are key.

Stone Acre is developing three city-centresites over the next 12 months with oppor-tunities for investors to buy well-locatedserviced apartments. Our advice is tospeak to the experts to ensure you are buying in the right location and at the right price.

Apartment appeal

Jill Gayford is based inEdinburgh and specialises incommercial management.


Jill Gayford investigatesthe upsurge of servicedapartments in the Scottish capital.

getting ready to sell

inVESTMEnT PRoPERTiES usually haveone or a number of different tenants, so the firstquestion should be about any issues with thosetenancies and performance of the terms of thelease. Other issues could be outstanding rentreviews or leases continuing under tacit reloca-tion under Scots law or “holding over”, in thecase of England and Wales.

Issues often arise when properties are underoffer and in the due diligence process, whenpurchasers and their solicitors become awarethat there are rent arrears or other chargesoverdue or unpaid, or that leases may havereduced repairing provisions or schedules ofcondition attached. It is prudent to declare anyissues in sales particulars so that purchasers arefully aware from the outset.

Where obligations fall to property owners,under leases or on vacant properties, it is sensi-ble to prepare a schedule of repairs that identifyand cost the issues for the owner. An allowancecan be made in the sale pricing and, if need be,the schedule can be provided to a purchaser aspart of the negotiations.

Sales can also be frustrated by discrepancies inthe title information or issues with neighbouringland. Where these are known it is possible totake out title indemnity insurance to indemnifythe risks, or detailed title searches can clarifythe position. It is important to remove any pos-sible issues before a sale so they cannot impacton pricing or the sale completing. Solicitorsshould be instructed early in the process toverify the information in sales particulars andcollate the legal information for a purchaser’ssolicitor as soon as heads of terms are agreed.

With tenanted properties, involving managingagents is key to providing the purchaser with allthe rent collection, service charge and insur-ance information at an early stage. Otherparties to be notified include any lenders whomay have to give consent for a sale to takeplace.

A vendor considering a sale should aim to ironout any wrinkles and collate a full pack of infor-mation prior to bringing a property to themarket. Unresolved issues or complicationswith a property could have cost implications toa purchaser, which may impact on pricing – oreven halt the sale. They can also influence theability to raise funding against the asset if thepurchase is to be debt backed. A vendor mayhave easily raised finance on a property adecade ago despite issues, but the views oflenders are significantly different intoday’s climate.

David Clarke takes theowner’s perspective.


David Clarke provides commercialinvestment, agency and portfoliomanagement services.

l Blackfriars Lofts is a new apartmentproject set in a former Old Town church.






cALcuLATing ThE net effec-tive rent of a lease or proposalhelps the landlord and tenantevaluate the true value of adeal and enables the parties

to assess the true worth of a proposal.

The purpose of transaction analysis is tolook behind the headline rental and con-sider the specifics of a deal to ensure weare comparing like with like. This is a cru-cial part of property valuation and is thefoundation of all that we do in our prop-erty dealings.

We have been through a period in the mar-ket where most deals have involvedincentives of some sort. The main incen-tives, which need to be devalued, are therent-free periods and capital contributionsknown to have been offered by the land-lords. Increasingly, incentives areextending to other facets of the lease,which are more difficult to obtain informa-tion on and even harder to quantify.

Other influencing factors are length oflease, repairing obligations and rentreview provisions. The surveyor’s biggestchallenge is to secure as accurate a pictureas possible to enable a consistent approach

to the devaluation and comparisonof deals.

Lease concessions can vary enormouslyand can have a major bearing on the levelof rent actually paid. Examples of somepotential clauses affecting value include:• Lease length – including tenant breaks /

options to extend • Break penalties / break incentives –

some have rental penalties if the break is

exercised; others include further incen-tives if not exercised

• Limitations on repairing obligations –including schedules of condition andservice charge caps

• Non-compete clauses • Rent review provisions – either to open

market rent or fixed uplifts or linked toRPI (sometimes with a cap and collar).Not all rent reviews are upward only.

There are two primary methods of analysis:• The devaluation of each comparable,

making appropriate adjustments for dif-ferences (such as lease length or termcertain to the first break) that mightcause the appropriate scale of the incen-tives, and hence the net effective rent, todiffer.

• Use the comparable evidence to find themarket package (the headline rent andincentives) likely to be agreed in themarket place for the subject premises,then adjust that transaction to reflect thespecific terms.

The period of time over which any incen-tive should be analysed is also muchnegotiated, given the impact this can haveon the eventual analysis, i.e. is it to the

first break or over the period of thelease or over the write-off period

for fit-out?

The valuer has to considerthe overall effect of all theincentives, anticipated rentalgrowth and average leaselengths (which vary depend-ing on the property sector)and what, in reality, mightbe achieved in an open mar-ket letting on the hypotheti-cal terms.

The main priority for thesurveyor is to challenge theinformation provided and toadopt a consistent approachto the devaluation, notingthe key assumptions. It is anincreasingly complex butcrucial process in the valua-tion of all property assets.

Pamela Gray looks at the complexities of analysing a deal to assess its real value.

Finding the true worth of a transaction

THE MAIN PRIORITYFOR THE SURVEYOR IS TO CHALLENGE THEINFORMATION PROVIDEDAND TO ADOPT ACONSISTENT APPROACHTO THE DEVALUATION.

“

Pamela Gray is in charge of ourcommercial property asset

management team.








7 Bankhead Medwayacquired for private clientOn behalf of private clients,CKD Galbraith has acquired 7Bankhead Medway, Edinburghat a price reflecting a net initialyield of more than 8.75%.

Located in Sighthill, the sub-stantial industrial investment iscurrently let to Onyx Group Ltdand operated as a state-of-the-art datacentre.

With excellent longer-termasset management opportuni-ties, we look forward toworking with the clients todeliver additional value overtime.

Refurbished mews off the marketA quirky mews at 39 ThistleStreet Lane SW, in Edinburgh’scity centre, has been let tohealthcare communicationsgroup Synaptiq Ltd at£14.50/sq ft by CKD Galbraith,on behalf of CBREi GlobalInvestors.

The open plan, self-containedproperty, pictured right and

above, includes a spiral stair-case and has been finishedinternally to a high standardfollowing a refurbishment ledby our building surveying team.

Crisis charity expands at Crichton HouseActing on behalf of Merse

Properties Ltd, CKD Galbraithhas let the third and fourth floorsuites of Crichton House inEdinburgh to Crisis, the nationalcharity for single homeless people, in a significant expansion to their first office in Scotland.

The charity originally moved

into a second floor suite atCrichton House in 2012 withthree initial members of staffand plans to grow their CrisisSkylight Edinburgh team. Thenew space, let at c.£20/sq ft,now accommodates 20 mem-bers of staff.

Situated in the Holyrood area ofEdinburgh, midway betweenthe historic Royal Mile and theScottish Parliament, CrichtonHouse, below, is a modern openplan office development thatwas acquired for the privateowner by CKD Galbraith in anoff-market deal for £1.62millionin 2011.

DEAL RounD-uP

In the second installmentof the series for investors,Kash Bhatti breaks itdown from a facilitiesmanagement perspective.

ThE PuRchASE PRicE of a com-mercial property is derived from anumber of sources, particularly a

tenant’s covenant strength, lease detailsand rent paid.

But the services managed by facilitiesmanagement (FM), which reflect theeveryday holding costs of the property areoften overlooked – with potentially dam-aging consequences for the purchaser orthe occupiers in the long-term.

FM is an integrated approach to operating,maintaining and adapting buildings tocreate an environment that supports theobjectives of the building. It is a key mana-gerial discipline that intertwines with assetmanagement, building surveying and let-ting agents to provide the desired results.

Services managed by FM are split into soft

and hard services, which all have a lifecycle and need to be regularly appraised.

Soft services include landscaping, clean-ing, security, refuse collection and helpdesk service, however, it is the impact ofhard services, such as lifts, heating boilersand intruder alarms, which need furtherconsideration at purchase.

For example, a multi-occupied building,managed by CKD Galbraith, has six air-handling units each costing around£50,000 to replace with a life cycle of 15-20years. Should this building come to mar-ket, it would be prudent for any purchaserto budget the plant’s replacement.

Other typical plant equipment lifeexpectancies are:

• sequence boilers: 25 years• condensing boilers: 15 years• chillers: 15-20 years• air conditioning units: 20 years• wet/dry risers: 20 years• fire alarms: 20 years• electrical switchgear: 30 years• CCTV: 10 years• water tanks: 10-35 years• lift replacement: 15 years

The best way to source these costs is toinstruct a full building surveying report

during the building’s evaluation stages.This planned preventative programme(PPM) provides a full appraisal of all thehard services within the building forwhich the facilities manager willultimately be responsible.

The PPM report is an essential tool inbudget setting, tenancy meetings, clientinterface and onsite staff resource, and canbe used by the asset manger for any nego-tiations with a tenant for service chargecaps. It should consider a schedule ofworks over a five- to 10-year period andinclude all components that aremaintained under a landlord’s obligationsand generally exclude tenanted areas, asthese are normally demised to tenants.

CKD Galbraith provides FM service to arange of properties across the UK, frommulti-let retail, shopping centres andparades to individual retail units,

industrial estates and officecomplexes.

how FM reveals true holding costs

Kash Bhatti heads up CKDGalbraith’s FacilitiesManagement Department.







PRojEcT MoniToRing is afascinating role for a proactive,skilled surveyor. Monitors pro-tect the client’s interests byidentifying and advising on

the risks associated with acquiring aninterest in a development that is not underthe client’s direct control.

They provide impartial advice about howthe developer and the project team aremanaging the construction process toensure the end user is getting what theyare paying for and that the building hasbeen constructed with due care and atten-tion in accordance with the pre-agreedfinancial constraints.

A project monitor requires considerableexperience and a working knowledge ofthe sector the project relates to, be it retail,offices, industrial, nursing home or hotel,to ensure the design and end product is fitfor purpose. If acting for a tenant it is alsoimperative to understand the client’s busi-ness, particularly if it is of a specialistnature such as an auction market.

Good working relationships are key toensure the monitor is included in thedevelopment process and its challenges toprovide a sounding board and give accu-rate, timely advice to the client.

CKD Galbraith acts on behalf of: fundinginstitutions buying an investment once thebuilding contract to construct the propertyhas completed; banks or funders lending

monies to finance the development of aproperty; tenants or purchasers enteringinto a lease or purchase before the prop-erty has been constructed.

Each instruction starts with a comprehen-sive review of the status of the project atthat date, including reviewing appoint-ment documents, building contracts,design detail, financial detail and statutorycompliance. This feeds into the client’slegal due diligence and allows for thefinancial deal to be altered, depending onthe level of risk identified.

Once the client legally commits to theproperty, the role changes from fact finderto proactive, interested observer. The mon-itor becomes the client’s eyes and ears onthe job, keeping them updated on progresswith detailed monthly reports and, whenrequired, authorising each and every proj-ect invoice to maintain financial control.

On completion of the buildingprogramme, the monitor ensures thedevelopment is correctly snagged and alldefects made good. A full report isprepared giving the client all the informa-tion required to occupy, hold or sell thecompleted project.

In the past 12 months CKD Galbraith hasacted as project monitor for WaitroseHelensburgh, Holiday Inn Express in Mid-dlesbrough, Crowne Plaza in Newcastleand a distribution warehousein Armagh.

Pam Over explores themultiple roles of a project monitor.

Project monitor: theclient’s eyes and ears

Pam Over is based in

Edinburgh and leads CKDGalbraith’s commercial team.


l The Holiday Inn Express in Middlesbrough: Monitored by CKD Galbraith.

A WEEK IN THE LIFE OF…

A propertymanagerwith Colin Black.

i’VE BEEn A PRoPERTy MAnAgERfor 19 years and I still love the fact that notwo days are alike. I manage propertiesacross the UK, so being organised is amust, as is dealing with the quick-changetempo of daily challenges. A love of travelalso helps!

The week starts on an extraordinary highnote – literally – with a cost benefit analy-sis of window cleaners and a hawk handlerat a multi-storey waterside property inGlasgow. The flying hawk keeps aggressivegulls at bay while abseilers clean the win-dows. It’s quite a sight and very effective.After client and tenant meetings on siteabout renewing air conditioning units, it’sback to Edinburgh to address the neces-sary evil of never-ending admin.

An emergency call early on Tuesday meansa trip to Dundee to deal with a floodedoffice tenant. With my day re-scheduled enroute (what would I do without Bluetoothin the car?), and the repairs underway, Ireturn to Edinburgh to prepare a perform-ance analysis report for a client’s bank,arrange contractor quotes for landscaping,decoration, security and recycling beforean evening CPD event at a firm of solici-tors.

Wednesday is spent at Dunblane industrialestate for site inspection and tenant meet-ings. It’s so important we understandtenant operations to help get the best fromtheir occupation. We’ve been working witha tenant with a growing business andtoday cut a deal that allows it to relocatefrom two units to four.

Thursday involves a strategy meeting withour asset management, building surveyingand agency teams about current projectsin managed portfolios. There’s a constantinteraction not just across the commercialteam but across all areas within the firm.This sharing of local and national intelli-gence allows us to provide a ‘one stopshop’ service to our clients and makes myjob all the more interesting and satisfying.

Friday arrives with me on a train to Yorkfor a property inspection and tenant meet-ing plus a chance to admire York Minster asI walk past. Travel time iscatch-up time, but thebest part is getting outthere and working withpeople all over the coun-try.

Colin Black is based in Edinburgh and specialisesin commercial [email protected] 240 6971






SincE ThE PuBLicATion ofthe Land Reform (Scotland) Billon June 23, much has been writ-ten on some of its morecontroversial points, such as the

proposal that sporting estates be subject tonon-domestic rates and suggestions that theBill constitutes a land grab.

There has been a specific focus on the ruralcontext, but, if enacted, the Bill would haveimplications for all land use, includingurban, semi-urban and development landthroughout Scotland.

The extract from the introduction of theLand Reform (Scotland) Bill June 2015 (seepanel) sets out the key points that emergedthrough lengthy consultation and were pre-sented to Scottish Ministers.

For private landowners, the Bill’ssignificance lies in an extension of the Com-munity Right to Buy to include virtually allland – urban and rural – and for the intro-duction of the scheme where there is nowilling seller. The Bill also proposes to createa new Community Right to Buy with its ownregister – the Register of Community Inter-ests in Abandoned or Neglected Land.

This new Right to Buy will have many simi-lar features to the existing Com munity Rightto Buy. There has to be a community body,which needs to be a company registered byguarantee, and existing community bodieswould need to incorporateadditional provisions in totheir Articles of Associa-tion.

The body has todemonstrate adequatecommunity support as wellas showing that anappropriate number of thedefined community has aconnection with the land. Itwill be substantially at thediscretion of Ministers thatthe purchase of land is inthe public interest as wellas furthering theachievement of sustainabledevelopment in relation tothe land.

One aspect of this newRight to Buy which is likelyto be of concern to landowners is that there is no requirementfor the seller to be willing to sell. Indeed, in order to apply tothe Ministers to exercise the Right to Buy, the community bodymust have already tried and failed to buy the land.

Subject to very few limitations, the Bill does not indicate whatland will be eligible to be acquired from an unwilling seller.Rather the Bill states that “land is eligible for the purpose ofthis part if in the opinion of the Ministers it is wholly ormainly abandoned or neglected.” The Bill goes on to restrictmatters, which appear to be entirely at the Ministerialdiscretion. Until the Bill is passed and the Ministers outlinewhat the criteria are, we are uncertain as to what will beincorporated into statutory instruments.

The question, which will remain unanswered until the Bill is

Six months on:assessing thecommercial impact of LBTT

unDER ThE Revenue Scotland and Tax Powers Bill, thenew Land and Buildings Transaction Tax (LBTT) cameinto effect in Scotland on April 1, replacing the previous

Stamp Duty Land Tax (SDLT) regime, which still applies inEngland and Wales.

The new tax has received much publicity about its effect onresidential property, but what impact does it have on commercialproperty sales?

Like the residential system, commercial LBTT is a progressive taxlevied against the sale price. The first £150,000 is tax exempt, thenext £200,000 is taxed at 3% and anything over £350,000 is taxedat 4.5%. On closer scrutiny, the new system of LBTT is actuallymore beneficial to buyers up to a purchase price in the region of£2 million. However, even at this level, the increase in tax payableis far kinder than that of a residential property at the same price.

At CKD Galbraith we are in contact with buyers on a daily basisand, while LBTT is a consideration when buying property, it hasnot changed the way they have gone about purchasing propertyor led to lower offers being received.

Even at the higher end of commercial property transactions, theadditional amount payable is unlikely to be enough to dissuade apurchaser from completing a deal. For instance, under the oldSDLT system the 4% tax payable on a purchase of a £4 millionproperty would be £160,000, whereas under LBTT the tax payable(4.5%) would be £170,250 – a difference of £10,250.

Investors still appraise property yields against the overallpurchase cost of an asset including LBTT, which may mean that,as a result of the different tax regimes on either side of the border,the net purchase price payable for similarly yielding assets differsonce purchasers costs have been deducted, with more of a pricingimplication for a vendor than a purchaser .

In terms of commercial property and non-residentialproperty, such as development land, a far greaterconsideration for pur-chasers is the avail-ability of funding,their occupationalcosts and the returnson their investment asopposed to theamount of transactiontax payable. In gen-eral terms it is posi-tive news for commer-cial property andbusiness as usual.

Harry Stott is a commercialand development specialist in

our Perth andEdinburgh offices.

David Clarke providescommercial investment, agencyand portfolio management

services.

[email protected] 465 [email protected] 434 630

ONE ASPECT OF THIS NEW RIGHTTO BUY WHICH ISLIKELY TO BE OFCONCERN TOLANDOWNERS ISTHAT THERE IS NOREQUIREMENT FORTHE SELLER TO BEWILLING TO SELL.

“

Harry Stott and David Clarke reviewthe effect of Scotland’s new Land andBuildings Transactional Tax oncommercial property investors.







passed, is: What type of land is likely to beviewed as wholly or mainly abandoned orneglected?

We are still feeling the impacts of the lastrecession and a landowner may havemany reasons for leaving land in acondition that appears to be eitherabandoned or neglected. For instance,ongoing planning, funding or marketreasons why the land is not being broughtforward for immediate beneficial oralternative use, or the owner may have asignificant future use in mind.

The practical process for communities toexercise the Right to Buy will be similar tothe current planning appeal process withopportunity for representation and consultation .

To counter any danger that the Bill willcontravene elements of the EuropeanHuman Rights Convention, landownerswill receive market value and will be sup-plied with the right to appeal both thevaluation of the property and ScottishMinisters’ decision on the final outcome.There will also be a right for landowners

to receive compensation for any costsincurred as a result of the transfer.

There is much written in the publicdomain about the political desire to enactland reform and some of this is negative.On the up-side, perhaps the Bill willencourage landowners and communitiesto engage and collaborate, enabling land tobe managed to its full potential for thebenefit of all. With tensions betweenprivate land owners, developers and localcommunities already managed throughthe planning process, perhaps theunexpected consequence of the Bill will befor those tensions to increase further andgenerate greater division between thecommunity and the owner.

There will be additional risk for complexlong-term development and redevelop-ment projects at a time when confidence isnot as strong as it might be.Will the Billhinder rather than actually encouragelong-term development sites to be broughtforward for beneficial use? There is muchto emerge from the process and we will

follow it with keen interest.

Richard Higgins is in charge ofour commercial invest-ment and agency division.



An Act of the Scottish Parliament to makeprovision for a land rights and responsibili-ties statement; to establish the ScottishLand Commission, provide for its functionsand the functions of the Land Commission-ers and the Tenant Farming Commissioner;to make provision about access to, andprovision of, information about owners andcontrollers of land; to make provisionabout engaging communities in decisionsrelating to land; to enable certain personsto buy land to further sustainable develop-ment; to make provision for non-domesticrates to be levied on shootings and deerforests; to make provision about thechange of use of common good land; tomake provision about the management ofdeer on land; to make provision about ac-

cess rights to land; to amend the law onagricultural holdings to provide for a newform of agricultural tenancy, to remove therequirement to register before tenants ofcertain holdings can exercise a Right toBuy, to provide a new power of sale wherea landlord is in breach of certain obliga-tions, to provide about rent reviews, to ex-pand the list of the persons to whomholdings can be assigned or bequeathedand to whom holdings can be transferredon intestacy and to make provision aboutlandlords’ objections to such successortenants, to provide for a two-year amnestyperiod in relation to certain improvementscarried out by tenants, and to provide fornotice of certain improvements proposedby landlords; and for connected purposes.

introduction from the Land Reform (Scotland) Bill june 2015

Land Reform – an urban contextRichard Higgins unravels the implications of the LandReform (Scotland) Bill on urban and development land.





Robert Patrick explainsthe ins and outs of developer contributionsand Section 75agreements.

MAjoR RoADS and trans-portation infrastructureprojects have a long gesta-tion for both planning andimplementation. Projects

such as dualling the A9, building a newForth crossing or the Borders rail link donot happen overnight, but they maybring unforeseen benefits.

Ring roads and other significant infra-structure routes are often considered toprovide a defendable barrier to anexpanding conurbation andconsequently where these assets arealtered or created, any land capturedmay find its status open to review.

The new Forth crossing is an interestingexample as the creation of the accessroad on the southern shore effectivelyextends the boundary of South Queens-ferry. Consequently, appropriatedevelopment of this infill land is beingconsidered.

Of course, there is significant dueprocess to be undertaken from a devel-opment plan perspective andconsultation with the local community;however, it is an opportunity that hasarisen for the landowner we are actingfor as a direct consequence of widerinfrastructure developments.

Planning gain:what is a fairamount fordevelopersto pay?

l Projects likethe new Forthcrossing maybring unexpectedbenefits.


Are you being(correctly) insured?Martin Cassels navigatesthe minefield that isbuilding insurance.

iF onLy WE couLD control theweather – or come to that any of theother outside influences that result in

the dreaded call to your insurer to tellthem that you need to make a claim.

Building insurance is a subject that leavesmost of us gnashing our teeth and growl-ing about the cost of premiums. But ignoreit at your peril. Premiums are based onrisk, a large part of which is based on the-cost of rebuilding. Formal assessments ofrebuilding costs were previously calledFire Insurance Valuations, but as fire isonly one of many hazards that can lead toa claim, they are now referred to as Re -instatement Cost Assessments (RCAs).

Businesses and individuals are generallyaware of buildings insurance but there isoften a gap between what they believethey are insured against and how insur-ance companies see it. The result? Mostpolicies contain a clause called “average”.If an insurer or its appointed loss adjusterdeems that the declared rebuilding cost isless than 75% of what it should be, the

claim will be averaged (reduced) by theamount of underinsurance. The effect ofthis can be enormous and financially dis-astrous. The whole building does not needto be destroyed either; this policy can beapplied to any claim of any size.

Carrying out regular formal RCAs isimperative to make sure a building isinsured correctly. It’s not just a case ofmultiplying the floor area by a rebuildingrate either. Special or unusual buildingfeatures, location, fees and statutoryconsents all need consideration. Accessroads, car parks and other parts of the“building” described in the policy mustalso be included.

The lesson is that regular valuation paysdividends in the end, and in some casespremiums do go down as well as up. It isthe old story – the devil is in the detail.And if you do have a claim, appointing aprofessional to negotiate for you is vital.Who better to tackle the detail than a

qualified building surveyor?

Martin Cassels is in charge ofCKD Galbraith’s building

surveying team.


l Fire is only one of many hazards that can lead to a claim.





unDERSTAnDing developer contribu-tions – otherwise known as developerobligations or planning gain – has become akey component of the assessment of devel-opment land. The level of paymentsrequired by a developer to the local author-ity can have a significant impact on landvalues, and in some cases make develop-ments unviable.

The planning authority is able to requirecontributions from a developer in order tomitigate the impacts on infrastructure of aproposed development. For residentialdevelopments, the local authority commonlyrequires contributions towards education,transport infrastructure, community facilitiesand waste management.

Developer contributions are generallysecured through a legally binding Section 75agreement, with planning consent for thedevelopment only granted once the agree-ment is finalised. The agreement is bindingon current and future owners of the land.

Large house builders consider developercontributions as ‘abnormal’ costs and willdeduct them from the land value, sometimessignificantly reducing the landowner’s re-ceipt. So it is essential to be fully aware ofthe likely contribution amount and to ensurethat local authority requests are reasonableand justified.

In an effort to provide added clarity ondeveloper contributions, planning authori-ties usually produce supplementaryplanning guidance, detailing how contribu-tion levels are calculated.

The contributions required for specific allo-cated sites are sometimes included within planning guidance, such as Edinburgh CityCouncil’s recent literature, but it is notunusual for a developer or house builder tochallenge them. The ability of a developeror house builder to negotiate thesepayments down was increased in 2011 withthe introduction of a right of appeal againstSection 75 agreements. This allows appli-

cants to appeal to the Scottish Governmentif they feel the terms of an agreement areunreasonable or unjustified.

When considering if contributions are justi-fied or reasonable, Scottish Governmentguidance is key. Of particular importance isthe assertion that contributions should notbe required for improvements not directlyrelated to the development and paymentsshould not be required to resolve existingdeficiencies in infrastructure provision.Instead, contributions should only berequired for purposes directly related to theproposed development and must be reason-able and proportional to thesize of the proposal.

opportunity knocksfor big infrastructure

New infrastructure is always expensiveand sometimes there is considerable vari-ance from budget due to unforeseen orunquantifiable issues encountered in thedevelopment. The Edinburgh tram projectis a well-known example. One questionthat arises is whether development, which

is facilitated by such improve-ments, should contribute tothe cost.

Planning gain contributions area complex subject and a sourceof considerable contentionbetween developers and localauthorities. Of course, it is cor-rect that developers pay areasonable share of public costswhich are directly linked to their

development. However, it can be difficultto see a clear justification for contributionsrequested for planned infrastructure thatmay have some benefit to a proposeddevelopment, but is not directly linked.

For example, CKD Galbraith is involved inclarifying the planning status and makingan application for a substantial landhold-ing in Laurencekirk. The section of the A90trunk road in this location has been the

subject of long-term debate as improve-ments are sought to existing junctions toincrease road safety. We are aware ofplanned improvements to the junctionsserving Laurencekirk and the debate andnegotiations with the local authority willbe interesting to determine what they consider to be a reasonable scope

of relevancy.

Calum Innes looks at the benefits of majorinfrastructure projects and the practical issues of planning gain contributions.

Robert Patrick is a charteredplanner in CKD Galbraith’sPerth office.


Calum Innes is based inPerth and provides commer-

cial and planning con-sultancy services.


THE NEW FORTH CROSSING IS AN INTERESTING EXAMPLE AS THE CREATION OF THE ACCESS ROAD ON THE SOUTHERN SHORE EFFECTIVELY EXTENDS THE BOUNDARY OF SOUTH QUEENSFERRY.

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commercial matters autumn 2015 ckd galbraith

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