Property Matters 11 - 2014
07 July 2014

Property Matters Issue 11 | July 2014

Is change always good? It certainly has been for the UK property industry over the last 12 months. Confidence has returned to the market in abundance, with both domestic and international investors in buying mode and development activity rising to levels not seen since the mid-2000s. The optimism that was previously centred around prime London assets is now spreading into regional markets and alternative asset classes.

Is change always good? It certainly has been for the UK property industry over the last 12 months. Confidence has returned to the market in abundance, with both domestic and international investors in buying mode and development activity rising to levels not seen since the mid-2000s. The optimism that was previously centred around prime London assets is now spreading into regional markets and alternative asset classes.

Of course, change is nothing new for the property sector. We are constantly adapting to economic, social, political and technological demands. The big question is how we can shape this change – and who will be the industry's real shapers? Understanding how we can work alongside other sectors to build a positive legacy for future generations is one of the key drivers behind The Big Think on the Future of London, our linked series of high level roundtable discussions co-hosted with Pat Brown's Central. In essence, The Big Think provides a forum to consider what the changes in the way we want to live and work mean for London's policy makers and developers.

We have responded to the changing landscape and our clients' changing needs by investing in our property team over the last five years. We now have 22 partners and legal directors and more than 85 lawyers, making us one of the largest London property teams. While London is a key focus for us, many of our transactions continue to be outside of London and we are seeing a huge appetite for investment into the wider UK market from all over the world. In recognition of this, we are pleased to be sponsoring Reed MIDEM's inaugural MIPIM UK – the first property trade show for the whole UK property market – which takes place from 15-17 October at Olympia. We anticipate that the event will attract many from the UK property sector as well as overseas investors and occupiers.

Nick's signature

Nick Doffman

Head of Real Estate
+44 207 440 7015

Editorial Team: Susan Freeman and Stephen Rowe

Real Deals

A selection of deals our Real Estate department have recently advised on


£117 million acquisition of a 50% stake in the Empress State office building at Earls Court, London SW6, from Land Securities. Capco now has full ownership of the 451,000 sq ft, 31-storey building.

Also acting for Capco on its 912,000 sq ft retail, office and residential portfolio in Covent Garden, central London.


Delancey and Qatari Diar's acquisition and long-term manage- ment of East Village, the former Olympic Village in Stratford, London E15. We are advising on real estate and construction aspects including the lease structures being put in place in preparation for letting of the 1,439 homes.


Two acquisitions for Mansford collectively valued at over £110 million. These include the £82.1 million acquisition of Manchester's Phones 4U Arena from a joint venture between Development Securities and Patron Capital, and the £32.5 million purchase of The Brewery in Chiswell Street, London EC1, from Matrix Group.


Minerva's sale of The St Botolph Building in Houndsditch, London EC3. Deka Immobilien GmbH acquired the 558,000 sq ft office building in one of London's largest single investment deals in 2013.

Manhattan Loft Corporation

Manhattan Loft Corporation on London's hottest new boutique hotel – the 26-room Chiltern Firehouse in Marylebone. The Grade II listed former fire station is being redeveloped in a joint venture with New York hotelier André Balazs. The adjoining restaurant opened in February 2014.

Matterhorn Capital

Matterhorn Palos Partnership on the sale of three Spire hospitals for £110 million to Ventas Inc. This is the US-based REIT's first transaction in Europe.

The Kingdom of The Netherlands' move to a new building at Ballymore's Embassy Gardens development in Nine Elms, London SW8. The Netherlands has acquired a 50,000 sq ft site, adjacent to the new US Embassy which is under construction, and will move from its current location at Hyde Park Gate in 2017.


CBRE's acquisition of Alan Selby & Partners, a leading prime residential development consultancy, sales and lettings agency focused on the London Docklands market and the City of London. We previously acted on CBRE's 2012 acquisition of EA Shaw.

Entities beneficially owned by David Pearl on the sale of a prime island site on Oxford Street, London W1, to Tribeca Holdings. The 53,000 sq ft mixed-use site, opposite Selfridges department store, contains nine shops along with office and residential space.

Marcus Cooper Group's £106.75 million sale of Marco Polo House in Nine Elms, London SW8, to Berkeley Group. The acquisition allows Berkeley to develop a new 600,000 sq ft phase of its neighbouring Chelsea Bridge Wharf scheme. MCG will retain a future interest in the development, dependent on sales.

Roundtable Discussion: The changing shape of property/ How it all fits together

Jigsaw puzzle pieces based around a roundtable discussion regarding the changing shape of property

Nick Doffman

The real estate sector is constantly evolving. In London, this transformation is obvious on a very physical level. The capital's commercial and residential property markets both operate on a global platform, and demand has opened up new areas of the capital for development and investment, stretching from Earls Court to the Olympic Park and from

King's Cross to Nine Elms and beyond. This is reinforced by a raft of transport improvements including Crossrail, Thameslink, the planned Northern line extension in Battersea and the proposed HS2 link to Birmingham. With greater accessibility right across the capital, we can see our clients really starting to embrace these new neighbourhoods.

Simon Hunter

Just looking at London's skyline today – with the Walkie Talkie and Cheesegrater schemes gearing up for completion and work now underway on the Scalpel and other schemes – we can see that confidence has returned to the construction industry. During the recession, a number of schemes were put on hold and purchasers were simply not prepared to invest in projects. However, the wind has changed and development finance has become more accessible. The new wealth of commercial, residential and mixed use development coming through right across London exemplifies the exciting future shape and direction of the capital.

Nick Minkoff

Demand for central London office space remains resilient, especially in the major markets of the City, Midtown and the West End, which in turn underpins increasing foreign and domestic investment in large-scale office and mixed use development. But what is really interesting is the change in London's fringe areas, shaped in part by the creative sectors such as design, media and technology, which are more flexible and forward thinking in terms of location and accommodation requirements. These occupiers often look for a different product and do not want a traditional office environment.

That difference, for example, may be in location, the building aesthetic, flexibility for fit out requirements and more communal areas for work and play within the office. We need to continue to reduce any disparity between what property companies are providing and what these creative occupiers want. London is streets ahead of many other capitals on this front, with a number of developers and architects producing more innovative buildings and well over 400 serviced office centres for early stage growth companies and flexible workers.

Ian Paul

The central London retail market also remains buoyant, defying national trends. We have clients in major centres such as Westfield’s White City and Stratford shopping centres who are attracting unprecedented footfall and sales levels, and these large, accessible centres remain desirable to both occupiers and investors. The West End faces stiff competition from these new destinations, although it has been able to rely on its international market and attraction to both high street and luxury end customers. Ultimately the real retail revolution is reflected in the increasing use by retailers of a multichannel experience, with concepts such as click and collect, dark stores and pop-up shops all trading on a readiness by shoppers to embrace new technologies and ideas.

Daniel Lipman

Inward investment continues to fuel the UK market. Cash-rich foreign investors looking to diversify risk by investing outside their domestic property markets have opted for prime UK real estate assets, whether in the office, retail, industrial or – increasingly – alternative asset class sectors such as student accommodation or the private rented sector. The Government recently launched its Regeneration Investment Organisation to help direct investors towards credible development opportunities, a move that has been welcomed by the British Property Federation as hugely beneficial to foreign direct investment in UK infrastructure. This activity is in turn stimulating a wider market recovery, as UK investors focus on alternative assets and regions outside the capital.

Susan Freeman

Technology and the creative sector are an increasingly dominant part of our landscape, influencing the shape of our city and our approach to design. Over the past 18 months, we have worked with consultancy Central on a linked series of discussions called The Big Think on the Future of London, bringing together panellists from the development, telecoms, design and public sectors to present their insights into ways to best harness the growth of new and creative industries for the greater economic good. It has produced some interesting perspectives on what good design should look like and how the capital can replicate its east London success story.

Daniel Farrand

Amidst all of this new development, we need to ensure that we are retaining authenticity and credibility within growth areas, shaping that sense of place and drawing on the dynamism of community members. Equally, however, planning should avoid undermining the strength we are seeing in various markets. Overall, the planning system has undergone so much change over the past few years but is still frequently viewed as a constraint on development – time frames are too long or uncertain and the planning process is too slow. One way in which the Government is addressing this is through the various permitted development rights for change of use without the need for planning permission. These include changing shops and offices to residential use, although for offices there is a lengthy list of exemptions.

Beverley Lewis

Like the commercial market, London’s residential market has been supported by the strength of the London economy and its attractiveness as a safe haven and congenial destination for overseas buyers, whether end users or investors. Prices have been buoyed by the continuing shortage of quality stock. Buyers have been turning to the abundant supply of new build properties as commercial developers try their hand at residential to satisfy the appetite for high specification developments.

Nick Strutt

What has really made a difference to the market over the past year is access to new routes of financing. The non-banks' share of new lending increased from 13% to 15% in 2013, and it has been predicted that this will increase to 20% by the end of this year.

Anecdotally, these statistics bear out the trends that we are seeing on transactions on which we are advising. Last year, we acted on lending transactions with an aggregate value of over £750 million that were funded by non-bank lenders. The majority of these transactions followed the model of new lenders targeting the returns offered by residential and student accommodation development transactions or higher risk investment transactions for which the traditional lenders did not have an appetite.

Building the buildings, building the brand or building both?

Building the buildings, building the brand or building both?

Having a clear brand identity has long been recognised as a crucial factor in creating a successful business. This is well understood in the product marketing sector but, while less obvious, the power of consistent branding is increasingly important in other areas including asset management.

Within the property sector, landmark buildings and locations are a well-estab- lished trend. Brand image is being used to market large schemes such as The Shard and London Bridge Quarter, and St George Wharf Tower at Nine Elms.

One of the real estate sector's most widely publicised rebranding projects is Covent Garden, which has always been a shopping, dining and cultural location within the heart of London but until a few years ago felt tourist dominated. Its transformation into a world-class shopping district attracting affluent shoppers has been driven by the ability of Capco, which now owns £1.1 billion worth of property in the area, to proactively manage its assets and to create a focused brand identity.

Businesses in the property sector keen to capitalise on this trend should consider the range of intellectual property (IP) rights that are available in relation to the brands they identify and develop. These include design rights, copyright and trade mark registrations.

Looking at the trade mark register, we can see evidence of the increasing recognition of the importance of brands in the property sector with a number of registrations for The Shard and Covent Garden alone. However, it is important to work closely with expert intellectual property advisors to identify, proactively manage and protect your rights.

For example: a trade mark registration is more easy to enforce but must be distinctive – and must remain distinctive – of your goods and/or services; the new gTLD domain name registrations such as '.london' are useful tools to achieving brand recognition in a crowded online space, but you could lose your place in the race for a new gTLD if you do not have a trade mark registration in place; and design registration is only available for a limited period after disclosure to third parties.

There may also be some unexpected forms of protection open to you. It is widely understood that trade mark registrations can be used to protect a name and logo, but other features of a property may also be registrable either as trade marks or designs, such as the shape of buildings, street furniture and signage. For example, in 2013 Apple obtained a trade mark registration in the US covering its store layout, possibly partly in response to the copycat stores that it has seen emerging in recent years.

In addition, in the UK, protection is available for colours, shapes, sounds and smells. Although more difficult to protect, non-trad- itional trade marks are worth considering as part of any analysis of rights and while developing your brand strategy. This could also assist you in capitalising on the latest trends such as scent marketing.

The growing interest in non-conventional trade marks and logos has resulted in some high-profile recent decisions that are worth considering as part of any trade mark filing strategy. A battle between Specsavers and Asda confirmed that use of a registered logo within a combined mark would be sufficient to maintain the registered logo alone; that is, it did not matter that the logo had not been used by itself, but only with the additional word element Specsavers superimposed on it. Therefore, seeking to protect the various individual elements of a composite mark, as well as the mark as a whole, can form part of a useful strategy to obtain the broadest possible rights.

The Cadbury/Scrabble case decisions made it clear that, in order for a colour or 3D trade mark registration to be valid, the mark must be described with sufficient precision so that anyone reading the Trade Mark Register can tell precisely how the protected mark will appear. For example, the Cadbury description stating that the colour predominantly covered the wrapping was insufficient.

Should you create a new logo, iconic building, street furniture design, graphic element, colourway or another unconventional trade mark that you would like to protect, you should seek early advice to develop the best strategy for protection.

Sally Britton

Partner, Intellectual Property
+44 020 7406 6014

Litigate/ Arbitrate: Striking the right balance

Scales of justice, balanced on the left by 'Litigate' and on the right by 'Arbitrate'

Litigation is a stressful business. A perfect storm of cuts, reforms and sanctions has increased that stress into genuine anxiety as to whether the courts are now the best source of justice for those with a property dispute. The private sector, led by one of the leading barristers’ chambers, has responded with an attractive alternative, in the form of a tailored arbitration product, designed around the needs of the property industry. It is a welcomed move.

It has been said that the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. So it is with many state reforms, including recent reforms to civil justice, where the hissing of litigators at the severity and burden of recent cuts and changes can be heard beyond Chancery Lane and throughout the country. This is not just grumbling from naysayers but a genuine concern that recent changes have made property disputes harder, longer and costlier to resolve.

What’s all the fuss about?

First, years of underfunding have left the court’s administration, especially in the county courts, in varying degrees of chaos. This matters because important cases can take an age to progress while court files are lost, hearings adjourned due to a lack of judge and parties wait many weeks for even routine correspondence to be dealt with. All the while costs, delay and anxiety increase and parties are prevented from having the certainty that will allow them to get on with their business.

Second, the much publicised Jackson Reforms have plucked the goose almost bare with a double whammy of a costs regime which severely increases the amount of work that needs to be done, while severely decreasing the amount of costs a winning party can recover from the loser; together with a new culture of rule enforcement and sanction which can lead to cases being struck out or parties unable to recover their costs for procedural oversights that previously went unpunished.

Third, there is the lottery of the trial judges themselves. Britain still has the finest legal system and judiciary in the world, but property law is a specialist area and with lists and resources so stretched it is a complete lottery as to whether the judge hearing your case will have any experience in the area of law being tried.

Step forward Falcon Chambers, whose launch of FCA – Falcon Chambers Arbitration – will surely be followed by other sets of barristers. The proposition is simple: pick your own specialist ‘judge’ (a property barrister who sits in judgment as an arbitrator); pick your own procedure (all the good bits of the litigation process without the burdensome bureaucracy); pick your own timetable (no waiting in line, no lost court files) – and get on with getting an answer to your dispute. The arbitrator can also be asked to decide costs and may themselves work on a fixed fee.

What’s not to love?

Well, arbitration is not always the right answer. Importantly, there is virtually no right of appeal, so both parties must be content to accept the decision and move on. Opponents cannot be forced to arbitrate, unless the contract requires this. So those who choose not to engage cannot be compelled to do so and court will remain the only option for unwilling parties. Arbitration is also a private and confidential process, which will not create a binding precedent on others, and this privacy may not always be desired.

Arbitration may not be suitable to every dispute and, especially in the largest cases, it may not necessarily be cheaper. It does, however, offer a real and packaged alternative to the court system, offering the best of British justice but without requiring support from a system showing itself less and less suitable for resolving many property disputes.

A version of this article first appeared in Property Week's 17 April 2014 issue.

Daniel Levy

Partner, Head of Property Litigation
+44 20 7440 7483

Right time, right placemaker

Ian Hawksworth tells Susan Freeman why London is where everyone wants to be

Ian Hawksworth at Covent Garden

Capital & Counties (Capco) CEO Ian Hawksworth was delighted to show London mayor Boris Johnson and deputy mayor Eddie Lister around the company's stand in the London Pavilion at MIPIM which showcased the progress made on their flagship Covent Garden and Earls Court projects. Both present exciting, placemaking opportunities for a company whose strategy is to be London's largest speciality property company. I spoke to Hawksworth in his Mayfair office shortly before we set off for MIPIM.

Before returning to London in 2006, Hawksworth had 15 years' experience as a developer in Asia as a director of Hongkong Land, one of Asia's leading property investment, management and development groups based in Hong Kong and Singapore. Having worked as a property developer in volatile Asian markets, Hawksworth is accustomed to expecting the unexpected.

What if anything has surprised him in the last five years in the UK? The only big surprise has been the industry acceptance of large levels of debt. In Asia, says Hawksworth, levels are modest and large deals are generally done with equity. Debt is used tactically. Conversely, in the UK, debt has been accepted as a structural method of enhancing returns and equity is minimised, which in Hawksworth's view is not right when dealing with large scale projects. He admits that he was surprised by the acceptance of structural debt on complex projects. In Asia, he adds, developers are good at getting things done on a large scale rather than incrementally. With large scale development you have to create critical mass and energy as quickly as possible. Asian developers can do this as historically they have been less reliant on debt funding so are more able to take risk.

Having worked in other major cities, Hawksworth is clear that London is the best city in the world – the place everyone wants to be. The rare commodity in London, particularly in Zone 1, is land. His model, which is being applied at Covent Garden and Earls Court, is to control large areas of land and to both influence direction and create value through change. Both projects are ahead of schedule.

At Covent Garden, Capco is effecting change by taking out high street multiples and bringing in global independents. New upmarket, luxury brands are joining exciting new dining options while, at the same time, retaining the area's historic interest, such as provided by the Indigo Jones designed Apple Market and the third generation Toy Museum. We are giving the consumer much more choice and the consumer has responded. Covent Garden has regained its vibrancy and is back in the consciousness of Londoners. Interestingly, around 60% of visitors are now from London and the South East, up from 30%.

Over at Earls Court, with planning consent now in place for the 77 acre redevelopment, attention will focus on how to animate the scheme. Placemaking is where everyone wants to be and the market has come to us which has boosted performance. We have achieved our objectives but have just started.

Hawksworth observes that it is easier to build a sense of place where there is existing physical form and history such as at Covent Garden. A clear site gives opportunities but if you just start with architecture you never get there. The world is riddled with large scale developments that are soulless as they are driven by the buildings and not the spaces between. At Covent Garden, everything radiates out from the Market Building and the Piazza which gives a sense of place but at Earls Court you have to create it. Sir Terry Farrell's masterplan provides direction, with four villages linked by a high street and a linear park, alongside 26 acres of public space.

You have all the ingredients but how do you animate it so it appeals to everyone, so that people use it? The best places in the world are the ones where everyone wants to go.

So what is the inspiration for Earls Court, I ask. The inspiration is, of course, London! The Farrell masterplan takes the best of London: the mansion blocks, garden squares, high streets and villages. The next step is to translate it into physical architecture and then to animate the place. Interestingly, Hawksworth confirms that the placemaking strategy for Earls Court was informed by Capco's experience in bringing Covent Garden, a much loved London area, back into the mindset and onto the international scene. Capco is working with Ben Rogers' Centre for London on a major study that considers 'systems' without which cities would collapse, and 'empathy' that makes them human. It is looking at what makes you love a place. What surprises and delights? Hawksworth comments that this is something large scale developments miss. This is why Covent Garden is successful as so many things grab your imagination there.

Hawksworth sees their role at Capco as stewards. He is clear that Covent Garden would not have been successfully repositioned without their single minded approach and large scale ownership. These have enabled them to ensure that much loved market buildings have been rejuvenated and to provide a clear road map for the future. He explains, we have to have a view and persuade people that our view will take the area in the right direction, thus far successfully navigating different groups of stakeholders.

Hawksworth believes that in order to stay ahead of the game, London must remain open, free and attractive to foreign investment. Citizens must feel that they can prosper and have a satisfactory quality of life. He believes that the biggest issues relate to infrastructure as the pace of growth has been underestimated. London is just realising that it is a beacon of success for a lot of the rest of the world. The London plan is a good document and it is up to entrepreneurs to respond and provide places, he says.

A lot of land suitable for urban regeneration is state-owned so the challenge for the real estate industry is to acquire that land. He sees the London real estate sector as very entrepreneurial but it generally tends to focus on smaller scale projects. The landed estates pioneered the growth of London as a series of privately sponsored large scale developments. But, in the last 20 to 30 years, there's little history of large scale residential led developments. Schemes have been commercially driven but now the emphasis is on housing supply. The question as far as Hawksworth is concerned is how to encourage developers to take risks and to seize opportunities where there is limited land release and planning is far from straightforward.

In response to the final question as to what will be the big debate in London going forward, Hawksworth believes it's going to be around density. It will be interesting to see how the debate unfolds and how we increase density without sacrificing quality of life.

Susan Freeman

Partner, Real Estate
+44 20 7440 7017

Two men in discussion, the second man is wondering if indeed he is making the most of his property's properties

Are you making the most of your property's properties?

Operating a successful property business is not just about transferring title, granting or being granted leases, and collecting or paying rents and service charges. It is also about what you do with the building – and how you run it – that adds value.

In any field, differentiation is the key to success. How a property operator distinguishes his or her asset from neighbouring properties could, if done well, make a significant difference. To achieve a differentiated offering, property operators need to consider a range of commercial contracts that help drive the behaviours of those suppliers on which they are relying to deliver that differentiation.

A range of non-property contracts can be put in place to help achieve greater success. On the technology front, having in place an appropriate property management system, which drives through efficiencies of time and cost, freeing up capital or operational expenditure (or enabling the owner to charge lower rents or service charges but at a higher margin), requires the use of robust commercial contracts, as does the installation of a local Wi-Fi network, either to enable free access for visitors to the site or making a charge for the convenience of the use in transit.

Using space to maximise revenues is second nature to property people, so property operators should consider using off-site cloud technologies to free up server space on-site. These can be outsourced on a pay per use basis. Similarly, the use of visible space for advertising – digital screens managed by third parties, carrying content sold by third parties and advertising third parties' goods and services – also requires good commercial contracts to make sure that the service is properly described, measured and provided.

A multi-occupied building will always benefit from shared services, and most operators will be familiar with engaging security, maintenance and cleaning service providers. However, property operators need to ensure that their contracts address expected service levels and cover issues such as TUPE. This will dictate what happens, for example, to the staff who run catering facilities provided at a business park if the owner decides to change provider, or ensure that those managing a large residential portfolio of properties keep their maintenance and repairs systems to the required standard. Going out to tender, engaging consultants and getting the right contract in place with the right supplier are each steps that can make or break a business.

Having relevant and robust commercial contracts in place – whether these relate to landscaping and garden maintenance, through to car park management, entrance and security systems, catering, property management and agency appointments are key to enabling an operator to differentiate its property from that of the competition.

Adam Rose

Partner, Real Estate
+44 20 7440 7197

Blackboard with 'Top of the alternative class' written on it

Top of the alternative asset class

The past couple of years have seen an emergence of both the student accommodation and private rented sectors as alternative asset classes in their own right.

Student Sector

According to recent research published by CBRE, £2.1 billion was invested in student accommodation in 2013 (compared to just £350 million in 2009). This comes as no surprise given the key appealing attributes of the sector, namely (as noted by a recent report issued by Jones Lang LaSalle):

  • relatively stable income and solid rental growth;
  • resilient performance in a downturn;
  • high occupancy rates; and
  • shorter lease arrangements with no rent free periods.

The level of interest in this sector was clear at the Property Week sponsored Student Accommodation Conference in December 2013. The fact that the queue to register took as long as the first-day registration queue at MIPIM (we mean that only in a positive way) goes to show how popular the sector has become. The conference attracted people from all parts of the industry – agents, developers, investors, bankers and lawyers.

After planning is secured, student housing is attractive to developers due to its short development periods and the yields which have out-performed more traditional property investments. Who would have thought that an unconventional investment model of shorter leases let to students (hardly the best covenants!) would be doing so well? Banks are also now more willing to provide finance for student accommodation development, especially where the borrowers have been able to demonstrate a strong track record in the sector.

Universities are increasingly looking to the private sector to house their students, which means increased opportunities to invest going forward. However, in order to maintain a positive reputation in the ever competitive student market, developers have to keep pace with the requirements of modern students who are demanding much more from their university accommodation. Student operators are now treating the students as customers.

The London market is also seeing a huge interest from foreign students, particularly from Asia – which ties into the fact that, in a recent survey, London came second only to Paris as the best student city in the world. Universities UK predicts that foreign students will inject £17 billion per year into the British economy by 2025.

Private Rented Sector

Like student accommodation, the private rented sector (PRS) has a bright future and a number of operators have now realised the opportunities on offer. Half of people working in London do not own the properties they live in, often because they do not have a sufficient deposit to get onto the housing ladder, as prices of flats are no longer affordable to the average 'twenty- or thirty-something' buyer. But PRS provides an alternative solution – it offers accommodation in desirable areas often in blocks that have a positive impact on the local community as the residents tend to spend money locally.

Two key important aspects are scale and management in order to maintain a good yield and therefore attract investment:

  • In terms of scale, institutional investors want big-ticket prices so blocks of 75-125 flats are now the norm.

  • Efficient management strengthens the investment prospect of the PRS by tackling the void issues that impact yields. Institutions are partnering with commercially astute and highly efficient PRS operators with a positive reputation for management.

We have also experienced a real growth in large-scale development transactions with a PRS element. A number of investors are looking to take specific phases on large sites. This provides access to modern stock at scale under a more efficient PRS model. Returns are still delayed and there is still some construction risk, but good partner- ships based on solid track records and shared goals are proving to make this model successful.

A bright future

Developers, investors and funders are currently attracted to these two sectors in a significant way. New, modern and innovative developments are appearing across London and the rest of the UK.

Together with the signs of an economic recovery, this means that students and graduates can look forward to stylish accommodation both during and post university.

Daniel Lipman

Partner, Real Estate
+44 20 7440 7441

Edward Hughes-Power

Associate, Real Estate
+44 20 7440 7051

Text: Should new homes have a lobby underneath an illustration of a roof

Should new homes have a lobby?

Championing the cause of the new Private Rented Sector.

Over a quarter of London households now rent. London Mayor Boris Johnson's target of 42,000 new homes per year is not only less than is actually needed but substantially more than the 25,000 a year currently being built.

This is creating exciting opportunities for those operating in the new private rented sector (PRS) in which Delancey, Fizzy Living and Essential Living are making their mark. And there is lots of space for more says Harry Downes, MD of specialist operator Fizzy Living, a subsidiary of Thames Valley Housing and backed by the Abu Dhabi Investment Authority.

Delancey and Qatari Diar's joint venture QDD's East Village, the former Olympic athletes' village in Stratford, is a prime example of large-scale PRS investment. The new development creates 2,818 new units, of which 1,379 are affordable homes. The private homes are being rented, creating the first UK PRS fund of more than 1,000 homes to be owned and directly managed as an investment. This process has thrown up interesting legal considerations, including the grant of intermediate long leases to companies not in the same VAT group so buildings are zero rated for tax purposes.

In advising QDD, Mishcon's role has centred on the real estate aspects of the scheme. QDD's private rental company, Get Living London, are actively marketing the flats,

with many residents already on-site. The delivery of private rental on this scale has not been seen in the UK before and the QDD approach has set the scene for other schemes. Delancey has also formed a JV with APG to deliver 600-unit rental developments across London, starting with South Village in Elephant & Castle.

As with the other PRS operators, establishing the brand is vitally important. Fizzy Living, targeting 'time poor' young professionals, believes they have proved the platform. With four PRS buildings up and running, they have recently bought their fifth at Lewisham Gateway.

Essential Living, backed by M3 Capital, has assembled sites and is starting to de- velop. CEO Darryl Flay explains that PRS buildings are more expensive in terms of materials. You are looking for longevity. Making the most of community space is fundamental to Essential's business model. The best parts of the scheme aren't rented out, says Flay. Unlike developments for market sale, their top floor is not reserved for exclusive penthouses but rather as communal living spaces for residents.

It's not all plain sailing for the sector. Planning in particular is seen as an issue. Flay believes planning guidelines need to be stronger. If the additional 10 to 15% building cost in comparison to buildings for sale were recognised in viability statements, the community infrastructure levy (CIL) burden would be reduced. It's more a question of planning recognition of the issues than changing policy, he says.

Fizzy Living's Downes adds: It is difficult competing for sites with the housebuilders who have a different business model. If the Government is serious about driving PRS, the easiest way to level the playing field is to include a section 106 agreement requirement for PRS. Something as simple as that would work, he says.

And there is the spectre of rent controls. Flay in common with others, strongly believes that rent controls would be disastrous for the emerging sector: Rent controls would kill PRS stone dead!

It may be time for our brand new institutionally backed PRS sector to have its own lobbying body.

Susan Freeman

Partner, Real Estate
+44 20 7440 7017

Planning: Reshaping the world we live in

The planning system is key to any place-making effort. At its best, good planning is about creating and shaping the places where we live, work and play. At its worst, it can be a monolithic bureaucracy stifling innovation and change.

A reshaped (cube) planet Earth floating in space

The system deals with everything from small extensions to new settlements of 5,000 houses and beyond. Sometimes it deals with the creation of whole new communities; other times it is tied to a single building or an individual's interests. A company redeveloping an office will want to be in the right area but often won't look to change the shape of the neighbour- hood. Others – such as Cathedral's joint venture with Development Securities at The Old Vinyl Factory in Hayes or Qatari Diar Delancey (QDD) at East Village – have a vested interest in cultivating the neighbourhood's character and the wider public realm.

For the large or long-term landowner, building placemaking into the planning strategy is an obvious approach. In Hayes, Cathedral and Development Securities' JV vehicle Purplexed has built a vision for the regeneration of the old EMI factory around its industrial and musical past. Public space inspired by the grooves on vinyl records, the re-use of key industrial buildings and the links with the rest of the town are just as important as the mix of residential and commercial units. Similarly, the key to East Village is not just its connectivity but its unique legacy as the Athletes' Village and the careful consideration given to public realm.

Placemaking for big developments is not always easy. The visions of even the most committed developer may not match the aspirations of local authorities, interest groups and local residents. This is where localism becomes a two-edged sword. An increased focus on early consultation can help developers understand the local area and its needs, but the sense of entitlement generated by the localism hype can lead to vociferous objection and even legal challenge. Irrespective of the outcome, such a rocky start can damage the sense of community that a scheme may hope to engender.

Neighbourhood planning, in areas that have embraced it, gives a real opportunity particularly for smaller schemes to positively contribute. When neighbourhoods are entitled to a slice of any community infra- structure levy (CIL) to spend on grass-roots local projects, even modest developments can contribute to things that matter to locals, whether this be improved public space, more greenery or a community noticeboard. Identifying CIL levels and the current status of neighbourhood planning will become increasingly important.

Planning may be central to any change but in the end the best recipes for placemaking involve time. Conservation areas are often designated for spaces that have grown organically over time. Some hated new projects of the past are now cherished listed buildings, while many imposed artificial communities fail despite the best intentions on all sides. Placemaking is important because people get emotionally involved in the areas they live and work. That is the challenge faced by the planning system but also, ironically, the aim of all good development.

Daniel Farrand

Head of Planning
+44 20 7440 7764

From zero to hero

Starburst cartoon caption displaying 'From zero to hero'

As the number of office to residential conversions gathers pace, developers must stop to consider the VAT issues arising on such a conversion.

The concept of zero-rating is the holy grail in VAT circles: it means that the supplier is not obliged to charge VAT but is entitled to recover its associated VAT costs. While the scope of certain zero-ratings has been whittled down over the years, the zero- ratings for new dwellings remain. So are newly converted dwellings zero-rated?

The answer is no and yes (in that order).

Conversion costs

Costs incurred by a developer on a conversion from office to residential cannot normally be zero-rated. That is, the party supplying the conversion services cannot zero-rate their services, and 20% VAT will be charged. This contrasts with the supply of services on the construction of a new dwelling, which can normally be zero-rated. However, certain services will always carry a 20% VAT charge even when supplied as part of a new construction, namely the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity.

There is a key exception to the general rule that services on conversions cannot be zero-rated. This occurs where the recipient is a relevant housing association – a private registered provider of social housing or certain other registered social landlords. Given that such recipients cannot normally recover their VAT costs, the law has historically allowed them to avoid a VAT charge when procuring conversion services, although the professional costs noted above will still be excluded.

The VAT reduced-rating provisions should also not be forgotten. Generally, the 20% rate can be reduced to 5% on most conversions. This 5% rate applies to the cost of works to the fabric of the building or in connection with providing certain building facilities such as water and power.

Can VAT be recovered?

The first grant of a long lease (over 21 years) by a party converting an office to a dwelling is usually eligible for zero-rating. This is the yes part of the answer given earlier. As mentioned, this means that no VAT has to be charged to the long lease buyer, but more importantly it allows the developer to recover the VAT costs relating to the conversion, likely to be a mixture of 5% and 20% VAT.

VAT should therefore present a developer with a funding cost rather than an absolute cost, although certain VAT costs cannot be recovered, including those incurred purchasing white goods to be installed in a newly developed flat.

Care should be taken if a developer is proposing to, say, sell a newly converted office to a housing association. Since the housing association will not want to incur a VAT charge, parties may structure the sale so that it can be zero-rated.

Jonathan Legg

Partner, Head of Real Estate Tax
+44 20 7440 7092

Mishcon in the press

Financial Times

Banksy mural withdrawn from sale By Tom Batchelor

Property lawyers believe that the owner of the building would be entitled to sell the mural. The local authority can’t really do much, except try and get the building listed or get English Heritage involved, said Daniel Levy, property litigator and partner at Mishcon de Reya.

The Big Think

A report launched by Mishcon de Reya and Central, in conjunction with Property Week, to accompany a linked series of discussions with senior thought leaders on the future of London.

Legal Week

  • Mishcon boosts property litigation group with Olswang hire as part of three-year strategy
  • Mishcons wins the Netherlands as new client for Southbank embassy move

The Lawyer

  • Mishcon branches out into competition law with double partner hire

Estates Gazette

  • UBS Triton and SWIP in £115m property swap
  • 431-451 Oxford St sale completes
  • Seven MIPIM delegates to meet
    Who Susan Freeman
    Why Freeman, partner at law firm Mishcon de Reya and the firm’s real estate rain-maker, is the consummate hostess and business networker.

The Times

It’s game, set and match to landlords in unpaid rent case Deirdre Hipwell

The Court of Appeal has overturned the law dealing with the payment of rent when a tenant enters administration. Daniel Levy, the head of property litigation at Mishcon de Reya, said that the ruling was tight and sound... Now landlords are going to be treated like any other supplier in an administration.

Movers & shapers at Mishcon

Raji Bartlett
Partner, Real Estate Finance

I joined Mishcon to enhance the finance offering. It is such a collegiate atmosphere to work in. Raji, who previously worked at SJ Berwin, advises financial institutions, corporates and sponsors/funds in relation to arranging and documenting domestic and international bank facilities and structured financings. He has particular experience advising borrowers and lenders in relation to syndicated real estate investment and development finance and acquisition/lev- eraged finance transactions.

Matt Bowles
Associate, Real Estate

I've been fortunate enough to work with some of the UK's largest property investors including Capco, Land Securities, LaSalle Investment Management and O&H Properties. Matt has extensive experience in all aspects of property investment, development and management work. He acts for both institutional investors and high net worth individuals on a wide range of acquisitions and disposals, as well as undertaking asset management and development work for landlords and tenants. He deals with all asset types including retail, office and mixed-use schemes.

Peter Clyde
Solicitor, Construction

In my spare time, I've launched the charitable initiative 'Food+', to help those in need in Bromley. Peter specialises in construction with a particular emphasis on contentious matters. He is experienced in representing clients in litigation, adjudication and mediation, and has played a key role in the settlement of construction disputes as well as drafting pleadings, dealing with witness statements and expert reports and managing the pre-action process for various large commercial disputes.

Nick Lane
Partner, Construction

A career highlight has been assisting the Chartered Institute of Building with the drafting of the new Complex Projects Contract 2103. Nick is a specialist in construction and engineering law with an emphasis on dis- pute resolution. He has represented his clients – who range from developers, contractors, sub-contractors and consultants, through to institutional investors and pri- vate clients – in all relevant dispute reso- lution forums. He joined from Olswang where he was a partner and head of construction.

Jessica Bridgett
Solicitor, Professional Negligence

I joined Mishcon for the diversity of work and clients, and the collaborative and innovative working environment. Jessica specialises in advising clients on a range of commercial contractual disputes, professional negligence and construction disputes. Other experience includes advising clients regarding negligent advice given by solicitors, financial advisers, architects and quantity surveyors. She trained at Mishcon.

Julia Dowdall
Solicitor, Real Estate

Mishcon stands out as it really tries to understand its clients' businesses and the issues that affect them. A good example is The Big Think on the Future of London.

Julia has a range of experience acting for investors on the acquisition and disposal of investment property. She has also worked on portfolio acquisitions of hotels and retail premises and has asset management experience for both landlords and tenants in the office, retail and hotel sectors.

Chhavie Kapoor
Legal Director, Property Litigation

There is a clear Mishcon brand and culture which makes it stand out from other firms. Chhavie has particular experience in advising developers on avoiding disputes and, where issues occur, on how to mitigate against them in order keep the development on track. This includes advising clients on minimising potential rights of light related claims. She has also successfully acted in connection with planning judicial reviews and has defended clients from applications to register development land as town and village greens.

Kate Burrows
Solicitor, Residential Property

To me, what makes Mishcon stand out from other law firms is that it embraces the future and is not afraid to try new things. Kate advises both domestic and international clients on high value and complex freehold and leasehold transactions, as well as on enfranchisement work. She joined Mishcon after qualifying at Macfarlanes.

Sarah Heritage
Solicitor, Property Litigation

We don't do the obvious and we stay creative – we are always looking for new angles and opportunities to get the best results for our clients. Sarah specialises in property litigation with an emphasis on commercial landlord and tenant disputes and high value residential disputes. She helps property owners get the most out of their investment by focusing her advice on shrewd management and tactics, and a creative approach to solving problems. She joined from CMS Cameron McKenna.

Domini Hobson
Solicitor, Real Estate

At Mishcon, there is a real sense that the lawyers want to become a trusted part of the client's team. Domini's experience stretches from acquisitions and disposals of investment property, real estate restructurings and negotiating commercial leases on behalf of both landlords and tenants, through to asset management work for landlords of office, industrial and retail premises. She also has experience in providing real estate support for finance and corporate transactions. She joined the Firm from Freshfields.

Marie Mulligan
Solicitor, Construction

A career highlight was working on the construction contracts for the Olympic Village. It was amazing to see such a big scheme progress so quickly. Marie, who joined from Slaughter and May, specialises in non-contentious construction law. She represents building owners, investors, developers, funders, landlords and tenants as well as consultants, contractors and sub-contractors. Marie assists with the drafting of building contracts and professional appointments on construction projects.

Mark Scott
Legal Executive, Residential Property

Mishcon provides valuable support and resources, which makes a big difference to the service I can give to my clients. Mark specialises in prime residential property transactions for both international and domestic clients in the UK and abroad, including offshore trust companies. He advises on all types of property matters, including sales, purchases and short term letting agreements, and regularly acts for a number of private banks on secured lending matters. He previously worked at HowardKennedyFsi.

Rob House
Solicitor, Planning

Mishcon's reputation and client base make it an exciting place to work. Rob advises private sector clients on all aspects of planning and compulsory purchase law, mainly in the retail, residential (including mixed use development) and energy sectors. He has a wealth of experience in drafting and advising on conditions and also reviews the planning position of developments for clients looking to acquire or dispose of property assets including corporate due diligence.

Carly Oke
Legal Executive, Residential Property

Everyone here is proud of what they do which makes a refreshing change. Carly has a range of experience in residential conveyancing matters and particularly specialises in high value residential property acting for both international and domestic clients on the acquisition and disposals of residential property. She also acts for foreign investors, off-shore trust companies, banks and property developers.

Alison Taylor
PSL, Residential Property

Mishcon has the 'human touch'. We all have to work hard and go the extra mile but it isn't taken for granted. Alison's support role includes creating and updating precedents, providing training, developing risk management procedures and answering legal queries. She has specialised in estates and residential conveyancing for 14 years, acting for landed clients, onshore and offshore companies, institutions and charities. Alison has worked at Farrer & Co and Bircham Dyson Bell.

Johnny Kelly
Professional Support Lawyer, Real Estate

I joined Mishcon for a new career challenge, and now work with some seriously nice people. Pre-Mishcon, Johnny spent 25 years at City law firms, initially as a fee earner and more recently as a specialist in professional development and education. He is responsible for training and know-how in Mishcon's commercial real estate group, training our lawyers in new law and practice, developing our template documents and facilitating knowledge-sharing across the team and the Firm.

Charlie Rawson
Solicitor, Real Estate

Mishcon provides fantastic opportunities for trainees to develop. My highlight so far is acting on the lease of a new music studio for DJ and music producer Mark Ronson. Charlie has experience in a variety of property transactions including the acquisition, disposal and management of investment properties such as retail and industrial units and offices. He has also assisted landlords and tenants in lease negotiations and management issues.

Moving on up

Congratulations to our five Real Estate lawyers promoted in April 2014:

  • Raji Bartlett – Partner
  • Louise Tainton – Legal Director
  • Edward Hughes-Power – Associate
  • James Liffen – Associate
  • Jonathan Warren – Associate

The Big Think on the future of London

Mishcon de Reya and Central held the fourth in a series of linked discussions entitled The Big Think on the Future of London. Industry leaders discussed the impact of well-designed buildings and public spaces, with Sir Terry Farrell providing the initial findings of his Architecture Review.

At one of the discussions forming The Big Think – a series of industry events organised by law firm Mishcon de Reya and consultants Central in collaboration with Property Week, and this time focusing on the Farrell Review – Darryl Flay, Chief Executive of residential developer Essential Living, argued that the growth of the private-rented sector, brought about by the inability of younger generations to afford to buy, would inevitably lift design standards.

The Farrell Review, Page 77

Attendees at The Big Think event

Captions from left to right (repeating in rows of three)

  • David Rosen (Pilcher Hershman), Richard Baldwin (Derwent London)
  • Andy Gowen (Philips Lighting UK), Sir Terry Farrell (Terry Farrell & Partners), Patricia Brown (Central)
  • Darryl Flay (Essential Living), Selina Mason (London Legacy Development Corporation), Pat Brown (Central)
  • Mike Phillips (Property Week), Rosemarie MacQueen (Westminster City Council)
  • Property Week editor Mike Phillips concludes the discussion
  • Richard Baldwin (Derwent London), Edward Hughes-Power (Mishcon de Reya)
  • Neil Bennett (Terry Farrell & Partners), Ben Rogers (Centre for London), Tony Travers (Greater London Group, LSE)
  • David Barnett (Londonewcastle), David Rosen (Pilcher Hershman), Jeremy Till (Central St Martins)
  • Darryl Flay (Essential Living), Susan Freeman (Mishcon de Reya), Mike Phillips (Property Week)

The Pre MIPIM Party

London Connections

Our annual party, co-hosted this year with London Chamber of Commerce and Industry, kicked off the 2014 MIPIM season in style. Around 350 guests attended the champagne reception at Avenue Restaurant in St James's Street, Mayfair.

Attendees at the PRE-MIPIM party

Captions from left to right (repeating in rows of three)

  • Eli Shahmoon (O&H Properties), Nick Doffman (Mishcon de Reya), Gerard Versteegh (Commercial Estates Group), Simon Hart (Mishcon de Reya)
  • Jeffrey Adams (United House Group), Tony Pidgley (London Chamber of Commerce)
  • Andrew Pratt (Patrizia Immobilien AG), Susan Freeman (Mishcon de Reya), Brandon Lewis MP (Department for Communities and Local Government), Damian Wild (Estates Gazette)
  • John Gatley (McLaren Property), Toby Baines (Citygrove)
  • John Heller (London & Associated Properties), Jamie Goldstein (Z Hotels), Richard Tyler (Mishcon de Reya)
  • Lloyd Simon (Matterhorn Capital), Nick Doffman (Mishcon de Reya)
  • Susan Freeman (Mishcon de Reya), Mike Slade (Helical Bar), Maureen Sutherland-Smith (The Communication Group)
  • Around 350 guests attended the party at Avenue Restaurant in Mayfair
  • Robert Neill (Sir Robert McAlpine Limited), Andrew McAlpine (Sir Robert McAlpine Limited), Andrew Bolt (Sir Robert McAlpine Limited)
  • Lorraine Baldry (Inventa), Liz Peace (British Property Federation)
  • Edward Hughes-Power (Mishcon de Reya); Nick Harris (Mishcon de Reya); David Lyons (O&H Properties)
  • Lesley Fletcher (Thomas Cole Kinder), Graham Thomas, Helen Gordon (The Royal Bank of Scotland)