Viewpoints

Developers could still face PGS-style tax
by Paul Tudor, Senior Partner, Underwoods, Northampton
The Planning Bill introduced to the House of Commons at the end of
last year could still see developers hit by a Planning Gain Supplement (PGS) under the guide of a Community Infrastructure Levy (CIL).

Chancellor Alistair Darling announced in the Pre-Budget Report that the controversial planning gain supplement (PGS) would likely be replaced with the industry preferred tariff system - under this system developers would pay a fixed sum per home or psm of commercial development. Effectively by announcing further consultation on the tariff-based system, the property industry felt that at last the Chancellor had recognised that the proposed PGS was unworkable and accepted that a system needs to be developed that carries the confidence of major developers and delivers much needed infrastructure investment.

However, the 129 page Planning Reform Bill, which sets out primary legislation for a Community Infrastructure Levy (CIL), makes provision for the tax to be implemented in respect of any increase in land value following planning consent. This is feared to be a revival of the original proposed PGS.

The stated intention of the legislation is that local authorities should be enabled to apply CIL as a planning condition but the wording of the Planning Bill opens up the possibility that CIL might be turned into a more general tax on developments – a planning gain supplement by other means. Whatever the present intention of the Government, the way the Planning Bill is drafted opens the way to punitive land tax legislation by the back door.

The Government is suggesting that the CIL could be in place by Spring 2009, albeit implementation will depend on the progress of the Bill and the debate on the more contentious elements of the CIL. No doubt all of the devil will be in the detailed regulations that have yet to be published. However it is certain that this charge will be in addition to Section 106 agreements.

The alternative tariff based system would be set locally to reflect regional and local infrastructure needs identified through Regional Spatial Strategies and local plan making and levied on all but the most minor development. Payment would be made directly by the developer to the local authority and there would be provision for essential site mitigation needs to be met under a section 106 arrangement and netted off against the tariff.

No system is of course flawless, but the tariff based system is a more popular option that the original proposed PGS throughout the property industry. It would mean that new infrastructure can be delivered ahead of development in the knowledge that payment to meet the costs incurred will be received.

Furthermore, it should not be forgotten that the separate fees for submitting applications could soar. Small print in the white paper reveal these could rise by 25% and the maximum fee of £50,000 be abolished. Some good news is that the complexity of development and snail-like decision making could be improved - as proposals are afoot to cut development plan paperwork and ease controls on small projects such as extensions, and enable councils to decide on minor appeals.

Energy Performance Certificates for commercial buildings
by Tony Jemmett, Principal, Jemmett Manley and Associates, Shropshire
Energy Performance Certificates (EPC’s) will be required on the disposal of commercial buildings over 10,000 sq m from the 6 April 2008, over 2,500 sq.m from the 1 July 2008 and by the 1 October 2008 all other commercial buildings will require an EPC.
Places of worship, temporary buildings, some stand alone buildings with an area of less than 50 sq m and buildings that are to be demolished are excluded, although there are conditions attached.

For a building to require an EPC it must have a roof and walls and use energy to “condition the indoor climate either through heating, mechanical ventilation or air conditioning”. A multi storey car park for example, which is open at the sides would not constitute a building requiring an EPC.
In a multi occupied commercial building with a common heating system, an EPC will be required for the whole building, or for the part being offered for sale, or to let.
Common parts will be allocated in an EPC to each tenancy in accordance with the proportion of floor areas that the unit occupies against the whole.

An EPC must contain the asset rating of the building, how efficient it is, very much like the certificates that are seen on white goods, a reference number, the name of the assessor and the date the EPC was issued.
The responsibility for obtaining an EPC is the contractor’s for newly constructed buildings, the vendor, the landlord or on a subletting, the intermediate landlord.
In a large multi let building, the landlord may be able to recoup the cost of producing the certificate via the service charge providing the lease allows for such recovery, but can the landlord claim through the service charge for improvements. Tenants may argue against this recovery.

If you are a tenant in part of a building that you are trying to either assign, or sub let, it is possible to get an EPC for part of the building, but it is probably better to negotiate with the head landlord to get an EPC for the whole building.
If you occupy a part of a building designed, or altered to be used separately and there is no common heating system, you will need a separate EPC.

It is unlikely that the cost ofimplementation of any recommendations for an EPC will be recovered via a dilapidations claim upon the premises being vacated at the end of a lease.
Enforcement will be the responsibility of local authority, usually their Trading Standards Officer and failure to provide an EPC is likely to involve a fine up to 12.5% of the rateable value of the building.
All landlords and tenants currently marketing, or about to commence marketing a building need to check whether they require an EPC.
It is expected over time, an energy efficient building may command higher rents/prices and those less efficient will have to be upgraded to attract tenants.

Future proof or missed opportunity?
by David Smith, Director, Turley Associates, Birmingham
As the pace of the global economy continues to intensify and impact upon the West Midlands, the Government has responded to the challenges faced by planners with the long awaited draft Planning Policy Statement 4 (PPS 4) 'Planning for Sustainable Economic Development.'The guidance aims to provide the tools to plan effectively and proactively for economic growth and sustainability. However, experts at Turley Associates, the planning and urban design specialists, are questioning whether the PPS goes far enough to respond to the influences of the global economy.

The new policy proposes an increased emphasis on economic factors in plan making and aims to raise productivity and maximise job opportunities in order to ensure industries remain competitive and responsive to business needs.
The PPS allows flexibility to accommodate new or emerging sectors and is therefore 'future proof', which is welcomed. Other positive changes include the fact that local authorities are now encouraged to consider development proposals favourably unless the social & environmental costs outweigh the benefits. In drawing up development plans for particular areas the PPS pushes a more flexible approach to the allocation of land, requiring that policies should not restrict specific employment uses for individual sites.
However, the approach to out-of-centre offices was an area where guidance was keenly anticipated and the draft PPS 4 unfortunately fails to provide clarity on the issue and raises questions as to how it will be interpreted.
We consider that the PPS will support competition in certain sectors but does not reflect the huge changes in the economy that have occurred since the last economic guidance was issued in 1992, particularly in responding to the transformation from manufacturing to the service sector.

In this sense, the PPS could have gone further in supporting certain growth sectors more explicitly. For example, logistics, giving advice on how they should be positively planned for.
In a somewhat bizarre move the PPS also offers the prospect of more flexible parking policies for non-residential development - whereby local planning authorities will be able to set their own maximum parking standards for non-residential development.

The move to provide greater flexibility for local authorities in determining non residential parking standards could generate significant disparity in approaches between authorities and potentially impact on the commercial attractiveness of certain towns and cities over others. Furthermore, it may not help in the drive for more sustainable travel patterns, particularly in the case of those authority's which are more car friendly. The previous approach as outlined in Planning Policy Guidance Note 13 'Transport' at least set a consistent message in terms of maximum levels of parking.

Pensions and void rates
by Chris Cocks, Partner, Vail Williams, Birmingham
The full impact on the abolition of 100% void business rates on production and warehouse buildings within the Midlands market and wider is still awaited. At present vacant production and warehouse buildings receive 100% rate relief whilst they are empty, however from April 1 2008 this will only apply for the first six months and thereafter the property will be liable for the full annual rates payable.

Recent leasehold transactional evidence is showing a possible split market reaction. Owners of smaller property investment holdings are showing initial signs to the changes by way of more innovative thinking in securing tenants and also by offering enhanced rent free and flexibility. Many small investors do not have the financial support to cover the rates burden that they will be liable for on vacant buildings in the future and they are therefore adopting the view of reducing their liabilities whilst still trying to maximise their returns on investments.

In comparison, the larger property companies and institutional investors have a longer term view and need to protect the wider ‘rental tone’ that they have established on their schemes. If large investors were to react in a knee jerk fashion to the impending legislative changes for void rates it could wipe significant value from their investments following the softening investment market in late 2007.

The freehold production/warehouse market is in a different position in that there is still a relative shortage of suitable stock in the market and whilst the extra holding costs from the legislative changes are an additional burden, on larger buildings it is still a small percentage of the overall cost/value of the property.
Some commentators within the property market are questioning whether landlords and also tenant’s holding leases on vacant property will be able to let vacant property to charitable organisations at a highly reduced rent in order to offset the rates liability while they find more attractive occupiers? Under the current proposals Charities or community amateur social clubs (CASC’s) legitimately receive 80% mandatory relief.

From a new development point of view, developers will be including the possibility of additional holding costs in their development appraisals and in many instances these will be passed directly onto the ultimate occupier either by additional rent or capital cost and whilst the additional costs in some instances will be relatively minor for schemes that see extended marketing periods after practical completion i.e. in excess of 12 months, these will be the ones that are disadvantaged the most under the new legislation.

Ultimately we should remember that many of the production and warehouse schemes in our market place are either directly or indirectly linked to our pensions and to other forms of investment, including the High Street banking sector. Therefore, ‘the market’ needs to react carefully to the legislative changes which could further increase running costs for people in the commercial property market. Increased property costs are borne eventually by the consumers in the market place through higher product costs etc.

Latest News:

For all the latest Midlands property news visit our regularly updated news and deals section.

For all the latest available commercial property visit our Property Search facility.

Commercial property jobs:

For more information on the latest job vacancies and careers news in the East and West Midlands, in the commercial property market and beyond, visit our careers centre.

Last updated: 17 April 2008