Development Finance and Funding - Research Paper Example

In the process of formulating leasing practices, most countries tend to maximise government revenue and others maintain low prices. These varied goals bring about differences in regulations from country to country. Leasing practices formulated by the government are meant to achieve optimum resource development with goals of a particular country. This provides a share of income to the resource owners. Among the many cities of the world, London is the most culturally diverse. Today, trend of mere office development has started reversing as the corporation encourages residential use though the population is not meant to exceed 10,000 people. The city has diversified from office use; for instance hotels and department stores have been opened (Adair and Norman 2005, p. 255). This study examines the parameters influencing the form and function of office buildings in the City of London and what effects are brought in terms of location decisions of businesses. Developments are underway for instance the Canary Wharf scheme which is believed to slow the demand that exists from within and outside UK for high quality office buildings and at a lower cost. In 1980s financial instruments were introduced to fund office developments as there was a high demand for new office space. The supply had been restricted by government policy and planning controls introduced in the previous years (Blackwell 2005). This brought about pressure for a realistic and flexible planning framework for office improvement. Richard (1973, p. 30) describes that Information Technology influenced the design and internal configuration of buildings needed. Competitiveness of financial centres depends on the ability to provide the right type of office building for global business. This aims at supporting sustainable growth and providing a high quality life to citizens. The issue is to make London a low carbon city through the provision of spaces and places to live and work. Investments are targeted through design led regeneration plans which tend to combine environmental, housing and transport policies as well as land improvement. Design and development of the physical environment is the major issue in encouraging sustainable growth (Atkin 2004). A lease of commercial building which includes an agreement between the landlord and tenant showing how the building is to be developed, managed and occupied is known as a green lease. These include specific scheduled provisions meant to monitor and improve the energy performance thus helping to achieve efficiency targets such as water, energy and waste. It also minimises the environmental impacts of the structure. According to Vincent (1974, p. 350) these provisions shows the adoption of procedures to ensure that a building operates at an agreed point and this is maintained through regular monitoring and addressing problems as they occur. The barriers hindering the effectiveness of these leases include; lack of awareness and understanding. Most people are not aware that the green lease schedules operate within UK thus this brings about development of the buildings. The other barrier is lack of sustainable metric. Currently in UK there is no rating system for example the Australian Building Greenhouse Rating (ABGR) or the American Energy Star rating which are meant to set standard measures of a buildings environmental performance in the efficiency of energy. This limit development of places meant for business operations (Kreutz 2009). The third problem involves risk averseness. Though most organisations are developing and considering the use of green leases, there is an increased risk of venturing into an untested market. Currently, there is a limited willingness to take the role of leadership to drive green leases development. The cost of retrofitting is the key problem facing the development of leases. This came up during workshop cost of retrofitting a public property and in particular is shows how returns can be achieved by the landlord and the tenant. This issue is very delicate as it needs more consultations between the two parties. This cost of retrofitting is not much significant and is viable for both parties. Studies show that improvements can be achieved at limited cost. Multi- letting another barrier that is commonly felt in UK which can greatly increase the complexity of the establishment of a green lease building. Though, the technological improvement in digital metering enables each tenant to control their energy that can be accurately measured. According to David and Rosalyn (1995) listed buildings also cause a major problem in office development. This mostly applies to those buildings located inside a conservation area. The major factor is the uncertainty felt in this area. It is suggested that the issue of sustainability of buildings increases with the changes in the planning system. On the other hand, there are elements that drive the development of office buildings in London. One of these include; Corporate social responsibility which is the major factor towards the implementation of leases. However, it was argued that CSR can only be applied in large FTSE 500 organisations. Leases can be an avenue to enhancing a company’s social and environmental image in addition to avoiding a negative image by leasing energy poor buildings. The rise climate change is also an advantage that has led to the improvement of infrastructure. Tenants have persuaded their landlords to improve the sustainability of their building in order to cater for the environmental changes. On the other hand the landlords have also persuaded their tenants to take on sustainable behaviours while occupying the building. Future proofing is a major driver for green leases. Since there are no current legal implications for poor energy performance buildings, these implications may come in future due to the introduction of new legislation. Since building variations do not take account of sustainability consideration, it is apparent that this may change in future. Wilbur (1976) describes that the cost of insurance of the buildings also tends to act as a driving factor for development. Adopting green leases reduce the risk of incurring taxation and financial penalties derived from excessive consumption of energy and resource. The other advantage of leases is that the tenants get an opportunity of meeting their landlords. This enables the two parties to share the issues that they face thus enhancing good relations. Future energy costs and in this case high encourages the leasing of buildings and how they are selected. Rising energy casts results to forcing organisations to reduce their resource consumption as the first priority. The other contributing factor is the transparency of roles for environmental performance building. This factor offer accountability to both landlords and tenants for a good performance. They also show who is responsible for any improvement. Finally the opportunity for being a market leader in terms of innovative sustainability initiatives creates a driving force to leases. Organisations that view leases as an essential to future public leases are advantaged for entering the market early. This gives them an opportunity to influence developments in the market. It also introduces innovative and sustainable initiatives that can be simulated on a natural level (Mitchell 2008). In order for the landlord and the tenant to agree on the terms of lease, several recommendations are needed. These include; renting practices where both the landlord and the tenants negotiate on the lease terms considering each view. The other recommendation contains obtaining professional advice where parties seek early advice from either lawyers or professors. The parties then discuss on financial matters where the landlord provides estimate of service charges as well as rent. The main aspect is for parties to be open about their financial standings and the information should be confidential any terms agreed on should be documented. The other recommendation is for the two parties to discuss the duration of the lease. This is where the landlord offers tenants a choice of length of term such as the break clauses with or with out the protection of Landlord and Tenant Act 1954. This should be efficient to avoid imposing restrictions on the length of the lease. Different rents are appropriately priced for each set of terms as the VAT status is properly disclosed to the tenant and other charges are recoverable. Review on rent is necessary to open the market rent. Landlords offer alternatives priced on a risk-adjusted basis. According to Hoyt and Devika (2007) the funding is meant to make every effort to avoid imposing restrictions on rent review that developers or landlords may offer. Tenant’s repairing rules ought to be appropriate to the term’s length as wee as the condition and the age of property. Appropriate price alternatives are considered at full repairing terms. Cases where the landlord is responsible for insuring the premises, the policy terms ought to be competitive. The tenant is given an opportunity to influence the choice of the insurer. Where the property is damaged by a risk that is not insured, the tenant has a right to be allowed to end the lease if the landlord does not agree to rebuild at his own cost. Obtaining the landlord’s consent is not unreasonably withheld therefore the landlords are argued to think about getting an Authorised Guarantee Agreements especially in cases where the assignee has a lower financial standing than the assignor at the time of the assignment. In order to protect the premises value and to adjoin neighbouring premises, the landlord ought to control alterations or changes. The conduct meant to be maintained during the lease includes the ongoing relationship between the landlord and the tenant. The two parties should deal with each other openly, honestly, and courteously throughout the time of the lease. Duties should be carried out fully and on time to avoid misunderstandings. If either party takes a significant action with major consequences to the other party then the party proposing the act should notify the other in time. In quest of consent from the landlord, the tenant has a right to give full information about their proposal as the landlords duty is to respond in time and the impact of the proposal to both the parties. Ensuring that the basis upon which rent is reviewed is followed for example time limits is important to avoid pitfalls (Schaller and Modan 2005, p. 400). Professional advice is important before the date of the review and after receiving a notice on the matter from the other party. The terms of the insurance should be known to the tenant covered by the policy. It is also important for the parties to seek the guarantor’s agreement on proposed changes. A case where the previous tenants are liable to a certain landlord for default by the current tenant, the one responsible and in this case the landlord should inform the rest before the tenant occupies liabilities. Landlords selling their interests in premises take legal advice in ending their ongoing liability under relevant leases. Ratepayers and tenants should take into consideration the assessment of business rates or whether they need to make an appeal. It is also important to observe the guide to good practice in commercial properties. In case of any dispute, prompt and reasonable efforts are made to settle by agreement. Speed and economy should be considered in selecting the dispute resolution method and before embarking on formal procedures is it important to observe mediation. For tenants to regain possession they need professional advice and the landlords should be clear on the rights before operation on forfeiture clause. Since the introduction of the MDGs attempts has been made to estimate financial requirements. Property development builds people together in pursuing their own objective and interests. Property development involves the change of land use or a building in a process combining labour, land and materials as well as finance. This takes place in considerable time period and the end product is either in physical characteristics or location. Development process is divided into several stages such as initiation, acquisition, evaluation, commitment and implementation. Initiation stage is where development is either a parcel if land provided that is suitable for intensive use or the demand for a particular use leading to a search for a suitable site. To identify the appropriate use, initiators seek to identify the market and obtain relevant information needed. Evaluation stage guides the decision making of the developer and it includes market research in both generic terms and specific terms. The process of financial evaluation is important in ensuring that the cost of development is reasonable. Private sector development tends to establish the profit potential in relation to the risks involved. Public sectors and non profit making organisations ensure that the costs are recovered and the other objective is to establish the value of the site (Tanzi 1999). The process is carried out before any thing else to ensure that the developer maintains flexibility. Acquisition stage involves legal investigation where careful preparation is important to establish the existing owners of the rights to the site and also the necessary procedure needed to acquire them. Any error made affects the viability of development. Ground investigation involves the physical assessment of the site for instance drainage and the availability of services such as water, telephone and electricity. Cook (2008, p. 750) argue that appropriate finance for the development should be obtained and in the most favourable terms. This is by arranging both the short-term finance that covers costs at the time of the project and also the long-term finance also known as funding that cover the cost of holding the project that has already been completed. For any development to take place, it requires planning permission that is from the local authority until its commencement. A detailed application contains drawings and information on the site, design, external appearance and landscaping. It is also important for the developer to make realistic estimates of the time and cost during the evaluation stage. The success of the development depends on the ability to secure a willing occupier at the approximate price. Majority of office development takes place in London and South East. In 1992, 8.6 million sq ft office space was completed in London. In choosing a location for office development certain resources are necessary to consider such as road, rail and internet. Taggart (1980, p. 700) show good transport is also vital in case of out of town business. At other levels, the location site is determined by factors such as tradition, proximity to markets, quality of buildings, and availability of parking as well as individual preferences. In London, service industry is underway through structural change and re-organisation. In the mean time, hot- desking which involves sharing of work stations and tele-working where employees work from home have been introduced. Business improvement district (BID) is a partnership between public and private sectors that most businesses in an area pay some tax in order to fund developments in the area surrounding districts. They provide services for example cleaning of streets, provision of security, capital improvements as well as marketing the place. These services are supplements of those other services provided by the municipality. The major role of these organisation is to clean, remove graffiti and to patrol the streets. BIDs have brought about enormous amount for private sector to solve public solutions. This has enabled the local businesses to increase markedly due to cleanliness and orderliness (Pagourtzi et al. 2003, p. 390). In Baltimore for example downtown leaders have dispelled the reputation of the area for crime with the itinerant patrols of uniformed security men who assist tourists and at the same time discouraging panhandlers. In New York, squalid neighbourhoods were made safe and attractive for both shoppers and pedestrians. BIDs accomplishments lies in the distinction of big city government. The organisations operate without rules or red tape as they negotiate labour contracts from a clean slate. They also have the authority of hiring and firing employees without government mandates. BIDs missions are policing and sanitation in addition to the creation of a massive welfare state. They put it that simple things enormously matter to the urban quality of life this shows that they mostly tend to value public space. On the other hand, the organisation catches the attention of opposition especially in New York. It is argued that they try to drive the poor out of public places. Kravis and Davenport (1994) describe that homeless problem in the area has radically improved due to considerable measure to the Partnership’s innovative service programs. These programs brought about direct competition with existing social service providers in the city but later it started feeling the heat. What the Partnership did to help the homeless was accused by the advocates that it was meant to sweep the homeless out of place. Property owners’ arguments were intrinsically unqualified to help the downtrodden, because their motives would always be contaminated. According to Myers (1984, p. 580) the campaign against the Partnership culminated in The New York Times article claiming that the Partnership had deliberately chased homeless people and driven them out of the district.  However, the evidence was not credible as several people said that partnership had been fired for stealing vans.  There was therefore no reliable evidence that the group had ever encouraged or accepted violence towards the homeless. Nonetheless, the advocates won the public battle, and the Partnership was required to refurbish its outreach efforts. BID functions go beyond what even the best-managed city can offer to its citizens. The group members model themselves not only on the megalopolis, but rather on Disneyland, with its scrupulous concentration on cleanliness in addition to customer satisfaction.  They provide various amenities which include roving tourist guides and retail assistance which would be difficult for taxpayers as a whole to support. The economic argument against BIDs shows that they become a positive portray for businesses (Lins and Pereira 2005, p. 80). Recently, buildings have started to advertise membership in the most successful BIDs such as the law firms of Simpson Thatcher & Bartlett and Davis and their decision to move to midtown. Landlords in areas such as the perimeter of Bryant Park show the existence of the BIDs explain the zero vacancy rates of many buildings.  Small landlords especially in the South Bronx and East Williamsburg view the extra expense as a valuable investment. In conclusion, criticism of BIDs originate from a deep thought of private enterprise of which some people believe that it can be up to no good especially where public spaces are involved. BIDs are contradicting that conviction by showing that private interest and the public good can correspond.  They have therefore provided a model of efficient public services which governments should emulate.  In a city like London which is persuaded by anti-business sentiment, BIDs have offered landlords a much-needed voice. Possibly one day, BIDs will not be essential but for now, they provide fundamental and dynamic services to the cities. References Adair, A & Norman H 2005, The reporting of risk in real estate appraisal property risk scoring, Journal of Property Investment & Finance, vol. 23, no. 3, pp. 254–268.  Atkin, B 2004, New sources of development finance, Oxford University Press, Oxford. Blackwell, M 2005, A critical appraisal of the UK Governments proposals for Business Improvement Districts in England, Journal of Property Management, vol. 23, no. 3. 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