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Blog: Gordon Gibb responds to the resignation of Neil Baxter

1427977_Gordon_Gibb

Following the resignation of Neil Baxter from the position as secretary and treasurer of the Royal Incorporation of Architects in Scotland (RIAS), fellow architect Gordon Gibb tells Scottish Construction Now that Baxter deserves recognition as a champion of Scottish architecture over his ten-year tenure.

The concerted efforts of a small group supported by up to sixty members of the RIAS, questioning governance, direction and voice of the organisation, have led directly to the resignation of its long serving secretary, Neil Baxter.  I think that it is a shame that Neil resigned and that we shall miss his quirky delivery, approachability, commitment and passion for the promotion of Scottish architecture.

In my experience Neil has been a very positive influence in his work for the incorporation and he should receive our thanks and not our condemnation.  As an aesthete and appreciator of culture and the society that is the profession, he has been a great supporter.   He also helped put the RIAS on a much more secure financial footing, through the successful negotiations to reduce the proportion of the subscription to be handed over annually to the RIBA.  Not unknown for his showmanship, he has directly engaged in education, and using his networks has certainly helped to place architecture within the scope of the arts in Scotland and has championed the role of the architect at the highest levels possible, in government.  He may have been deluded in that last endeavour, given the way procurement has changed, but perhaps to no greater extent than the profession itself is deluded.

I don’t believe for a second that the RIAS has got it right.  Indeed, it could be argued that the idea of there being a learned society furthering excellent architecture is an anachronism in this society where finance and expediency increasingly affect the client relationship and the quality of the built product.  It is also important in this new age that governance is squeaky clean and fully financially accountable.  It is a weakness of many an elderly institution, under the current purges.  For the New Chapter Group to take some form of stand, in my view, is justified.  But, do they really care that much about governance, or is this just a stalking horse, and are there other agendas to do with personalities or political control?  The voice of the organisation, the choice of president, and the right of those outside the elected order to choose one, are central to the agenda.   Of course, the whole New Chapter and its personalities arose coincident with the delivery of an RIAS-curated public pop-up display of little houses, including the work of the group’s senior members, that so offended them.  So, are they really speaking for everyone, or do they just want one of their own number to lead and expound instead?

I would suggest that if this group really wants change, they should learn the language of politics and know what they could have gained by asking politely, like the contents of the Royal Charter.  They should also find out what the RIAS is for, and they should find out about what may be public and may be private, before each public declaration.  In their latest statement they seek an explanation for Neil’s resignation.  That either shows an extraordinary lack of awareness of the consequences of their own actions or perhaps an attempt to justify an unintended outcome.  Maybe the RIAS has been too cosy, maybe it does need to hear the voice of the rank and file and it does need to become more inclusive, but I would suggest that it does Scottish architecture no good at all to have a small and far less representative group of members without portfolio self-harming, by publicly stabbing an imperfect but staunch ally in the back.

Finally, I would say that given its limited resources, the RIAS has been a rather better champion of architecture and architects than its larger neighbour and probably much less profligate.  At least the RIAS has not expended our subscriptions on numerous attempts to take over the functions of the regulator and efforts to change architectural education to suit its corporate needs.  The RIAS also does some very good things, and belatedly, the New Chapter group have acknowledged at least one; not surprisingly the practical one that keeps them on the straight and narrow and helps them when they are in trouble.  It is a pity that none of them mentioned one other benefit, that they have been happy enough to put themselves forward for, and accept, the awards and accolades bestowed and publicised by the Incorporation, as expanded, curated and inimitably compered by Neil Baxter.

  • Gordon Gibb B arch, Dip Arch LLM FRIAS RIBA MCIArb is chair of APSA (the Association for Professional Studies in Architecture), an ARB Investigations Panel member, Director of Professional Studies at the Mackintosh School of Architecture, an expert witness, adjudicator and former Vice Chair of ARB.

Blog: Lessons in payment notices and pay less notices

Shona McCusker

Shona McCusker

Shona McCusker looks at two recent cases highlighting the difficulties in practice with payment and pay less notices.

Payment disputes in the construction industry are rife and more frequently we see payments awarded by adjudicators and subsequently enforced by the courts as a result of “smash and grab” adjudications where one party’s failure to carry out its obligations in respect of the payment procedure in the Housing Grants Construction and Regeneration Act 1996 (as amended) (“the 1996 Act”) results in another party’s financial gain.

In the past month, two cases considering the impact of not issuing payment or pay less notices as required by the 1996 Act were: Muir Construction Limited v Kapital Residential Limited a decision of 18 October from the Outer House of the Court of Session; and Adam Architecture Limited v Halsbury Homes Limited a decision of 2 November 2017 from the English Court of Appeal.  Although each case was decided on different sides of the border, the relevant provisions of the 1996 Act that were considered broadly have UK wide applicability.

Before considering Muir and Adam, a brief recap of the 1996 Act requirements for payment and pay less notices:

payment notices blogSimple enough? In practice, no! Muir and Adam highlight some of the difficulties: Muir Construction Limited v Kapital Residential Limited [2017] CSOH 132

In Muir the court had to consider whether a pay less notice issued by the Employer provided a basis on which the sum noted therein was calculated.

The court asked whether a reasonable recipient of the pay less notice would have been able to: work out the basis on which the figure in the pay less notice was calculated; understand how the figure was calculated; and make sense of the figure arrived at by the Employer. The Employer’s pay less notice sought to pay £0 to the Contractor on the basis that the value of remedying defects outweighed the sum held in retention. The court did not consider this a basis for substantiating the zero figure and deemed the pay less notice invalid.

While the decision does not analyse the full detail (or lack thereof) of the pay less notice, it does provide useful guidance that was previously lacking. The court set a minimum standard:

“[A] pay less notice in order to provide a basis needs at least to set out the grounds for withholding and the sum applied to each of these grounds with at least an indication of how each of these sums were arrived at.”

Adam Architecture Limited v Halsbury Homes Limited [2017] EWCA Civ 1735

In Adam the contract between the Employer and the Architect was terminated and the Architect issued its final account. Among other matters, the court was asked whether the Employer’s failure to issue a payment or pay less notice in respect of the final account, resulted in the sum claimed by the Architect in its final account becoming the “notified sum”, by virtue of s.111 of the 1996 Act.

The parties did not dispute that s.111 applied to interim payments. It was also the Architect’s position that s.111 extended to final payments and the Employer disputed this point. Further, the contract between the parties only required the Employer to issue a pay less notice in respect of interim applications, not the final account. Following consideration of the “clear words” of the 1996 Act and a body of case law, the court confirmed that irrespective of the terms of the contract, s.111 did apply to both interim and final payment applications. Had the Employer sought to pay less than the notified sum it ought to have issued a pay less notice in respect of the final account. Its failure to do so rendered it liable to make payment to the Architect of the sum claimed in the final account.

This decision follows precedent and does not come as a surprise. It does however demonstrate the importance of contract operators having a sound understanding of the contract, and the payment provisions in the 1996 Act. The consequence of not being clued up could result in an Adjudicator’s award in favour of the Contractor, subsequent enforcement proceedings and the Employer having to pay up and argue later in a subsequent litigation or arbitration. These costs could be avoided if the correct knowledge and administrative procedures are in place from the contract’s inception.

Lessons to Learn

  • Take care in drafting payment or pay less notices. Would a reasonable recipient of the document have a clear understanding of the reasons and figures?
  • Be clear on the terms of the contract and the requirements of the 1996 Act.
  • The requirement under the 1996 Act to issue payment and pay less notices does not die when the contract ends. If a Contractor submits a payment application after termination of the contract or practical completion, the Employer’s obligation to issue a payment notice or pay less notice remains.
  • Even if a Contractor’s payment application appears invalid, an Employer should issue a payment or pay less notice to avoid potentially paying out the full sum claimed by the Contractor.

 

  • Shona McCusker is a solicitor at MacRoberts

Blog: Are payment provisions working in Scotland?

Julie Scott-Gilroy

Julie Scott-Gilroy

Julie Scott-Gilroy looks at how well the construction industry’s payment regime is working.

Payment in the construction industry is regulated by the Construction Act 1996, as amended by the LDEDC Act 2009. One of the reasons behind the introduction of the Construction Act 1996 was to ease cashflow and speed up payment. However, it has to be questioned whether this aim has been achieved (and I note this is the sort of issue raised in the English consultation on the Act, which was published recently).

What is the payment process in Scotland?

Taking the SBCC 2011 as an example as it is reflective of the statutory payment provisions (just like the JCT is in England), the interim payment process commences when the contractor makes an application for payment. The employer is then required to issue a payment notice in the form of an interim certificate not later than five days after the due date setting out the sum the employer considers due at the due date and the basis upon which this is calculated. It should be noted that the due dates are the dates specified in the Contract Particulars. If no payment notice (or interim certificate) is issued, the amount of the interim payment due will be as stated in the contractor’s application.

If the employer wishes to pay less than the due sum, the employer is required to issue a pay less notice. A pay less notice must be served no later than five days before the final date for payment and it must state both the amount considered to be due to the contractor and the basis on which it is calculated. The SBCC contract provides for the architect/contract administrator, quantity surveyor or employer’s representative (or any person who the employer notifies as authorised), to give the pay less notice.

It is worth noting that it is also permissible for the contractor to issue a pay less notice to the employer.

A similar payment regime applies at the final account stage but the final date for payment is 28 days rather than 14 days from the due date (which applies to interim payments).

What is happening in practice?

Invariably, the payment rules are ignored. One of the most common queries I deal with is in respect of a party’s failure to make payment. There appears to be a number of reasons why the payment process is not being followed. These include:

  • A failure to understand the contract’s payment provisions.
  • A failure to diarise the dates for payment notices, pay less notices and the final date for payment.
  • Non-receipt of applications for payment.
  • An inability to process payments within the contractual timescales due to the volume of projects being dealt with.
  • The inexperience of those administering the contract’s payment provisions.
  • Parties changing the payment provisions during the course of the contract and, when there is a change in personnel, these changed provisions are not apparent to those who take over.
  • Entering into contracts that do not comply with the statutory requirements and failing to understand that the Scheme for Construction Contracts (Scotland) Regulations 1998 steps in to replace the non-compliant provisions (its provisions act as implied terms, just like in England).

The big question arises as to what happens when no payment is made and no pay less notice is given. The simple answer is that the contractor can head off to adjudication and get an order for the sum due, either as set out in the payment notice or its application for payment. These are known as “smash and grab” adjudications.

This essentially means that there is no defence to non-payment and the contractor will generally be awarded the sum that it claims. However, that is not always the end of the matter as employers/main contractors will invariably seek to commence separate proceedings to determine the true value of the contractor/sub-contractor’s claim, which leads to uncertainty and a costly dispute process for all parties involved.

Is there an answer?

There is no quick fix to this issue. One piece of advice I always give to parties is to understand their payment process as soon as the project goes live. It is helpful to make a flow chart so it is easy to follow the steps that are required. The payment process has been agreed for a reason and it should be followed to avoid the inevitable disputes that will follow.

  • Julie Scott-Gilroy is an associate at BTO Solicitors LLP

Blog: Deleterious materials in construction contracts

Jonathan Hyndman

Jonathan Hyndman

Jonathan Hyndman, partner at Rosling King LLP, discusses the key legal issues that parties to a construction contract must consider when negotiating provisions as to prohibited materials.

The inclusion of deleterious or prohibited material clauses in both building contracts and professional appointment documents is widespread within the construction industry. Whilst the form of these clauses will vary from contract to contract, their common purpose is to prohibit the use of unsuitable or dangerous materials in construction projects.

Deleterious materials are those materials which are capable of causing damage or harm to the individual, the environment or to buildings and infrastructure. Whilst some legislative prohibitions are in place to limit or prevent the use of known hazardous materials, it is inevitable that further legislation will need to be enacted as new deleterious materials are discovered. Sometimes, at the point in time when the materials are used, they are not known to be problematic and it is only later that the harmful effects of their use become known, like the fatal use of asbestos in building projects or the use of polyethylene cores in cladding products.

However, a material does not in itself have to be deleterious to warrant its prohibition in a project. Often concerns over a material’s sustainability or reliability may also factor into the decision to exclude its use in a particular project.

It is important therefore, that both developers and consultants and contractors consider the specific circumstances of the individual project when negotiating the scope of the obligation not to specify or use prohibited materials.

There are a number of key legal issues that parties to a construction contract must consider when negotiating provisions as to prohibited materials.

The first important point to consider is the extent of the definition of prohibited materials in the construction contract. There is no standardised industry form and the contracting parties are free to define the scope as broadly or as narrowly as they see fit having due regard to the nature and circumstances of the project.

Options include defining prohibited materials by reference to a detailed list, to specific official standards or by reference to independent publications on the selection and use of materials, the most popular being the “Good Practice in the Selection of Construction Materials”, or a combination of the two. Each of the above will usually be supplemented by an express general obligation to exercise an appropriate standard of care not to specify for use, or use, materials which are generally suspected within the construction industry as being deleterious at either the time the material is specified and/or the time the material is used.

The extent of the obligation is a common point of contention between the parties – the issue here is whether the obligation on the contractor or the consultant not to specify or use deleterious materials should be an absolute obligation or whether the obligation should be caveated by the contractor or consultant exercising reasonable skill and care. Whilst developers will obviously prefer an absolute obligation, this is invariably resisted by contractors and consultants whose professional indemnity insurance may not provide cover in circumstances where the contractor or consultant is found to be in breach of such an absolute obligation.

The second important issue parties must bear in mind, is the point in time as to when a material is deemed to be deleterious. Parties will inevitably differ in opinion on whether the relevant time as to when a material is deemed deleterious extends to both the circumstances at the time the material was specified and the circumstances at the time the material was used in the project. Whilst contractors, who are the party actually using the materials, should be prepared to the relevant time as being the time of use, consultants will be concerned that a significant amount of time can pass between the specification of a material and that material’s actual use in the project.

Again, developers will prefer that the trigger point as to when a material becomes deleterious extends to the point in time when the materials are actually; whilst contractors should be prepared to accept this, consultants particularly those with no ongoing monitoring responsibility, should be very reluctant to agree.

Letter to the Editor: Homes for Scotland clears up ‘anti social housing’ claims

Nicola Barclay

Nicola Barclay

Further to an interview in The Sunday Times in which I emphasised that solving Scotland’s housing crisis required a whole-system all-tenure approach, it appears that some people may have misinterpreted my remarks (indeed some misrepresenting them completely), framing them as being “anti social housing”.

With everything Homes for Scotland does focused on ensuring our growing population has access to a complete range of housing options in order to meet diverse need and aspiration, this is clearly not the case. Indeed, since it was established, Homes for Scotland has consistently highlighted the need to recognise the inter-dependencies between the public and private housing sectors and the importance of achieving a balanced tenure mix (as highlighted in our manifesto for the last Scottish Parliamentary elections).

For the sake of clarity, Homes for Scotland has never said (or implied) that “affordable and social rented house building was actually stymying the development of market housing”.  And we are certainly not attempting to “stymie social housebuilding”.

It is also exasperating to see the myth surrounding land banking being trotted out again. Despite a number of studies, no evidence has ever been found to substantiate claims that this is being used to restrict the supply of homes or housing land. With it simply making no sense for developers to allow land that they have bought to lie idle when the only way of getting a timely return on their investment is to build and sell homes, the main constraints on the use of land for housing are related to obtaining all of the necessary approvals and agreements – a process which is lengthy, complex and unpredictable.

What I was actually highlighting in the body of The Sunday Times story was that focusing on one tenure at the expense of others will not, in itself, solve our housing crisis. The stark reality, whether some people choose to accept it or not, is that the current 50,000 affordable housing target can only be achieved if we also have a healthy private sector – since not only do private home builders make significant direct contributions in this regard, the same issues that affect them (such as the poorly performing planning system, front-funding of infrastructure and education provision) also affect the public sector.

Of course, it is right and proper to have a robust debate on the way forward for housing in Scotland, but please let’s read beyond regrettably-worded headlines and look at the real substance of the matter. Some, however, will never seek to engage positively and constructively. I believe that it is this kind of approach that does those looking for a new home, whatever the circumstances, the most misdeed.

Nicola Barclay

Chief Executive

Homes for Scotland

Blog: CITB’s new approach to targeted funding

Geeta Nathan

Geeta Nathan

Geeta Nathan blogs about CITB’s approach to targeted funding, productivity, technology, innovation and recruitment.

As an industry, we need to continually evolve and improve in order to meet increasing demand. At CITB, we’ve identified areas that we need to focus on and develop in order to keep up with the strong pipeline of work – areas like productivity, technology, innovation and recruitment.

And now we have a new way of helping bring about projects that address specific industry-related issues: commissioning.

Commissioned funding is different from our other funds in that we demonstrate the need using our evidence base. Employers then bid for the funding, outlining how they would deliver a programme that meets that need. We set the amount of funding available and devise a list of required outcomes.

This way, employers use their expertise, ideally in collaboration with other employers, to respond to industry-specific issues. And because we’ve identified the need in the first instance, the funds are ready to go to the successful applicants.  The resulting projects should directly help meet the industry’s priorities and have a greater chance of success.

Productivity

There is just one month remaining for you to bid for the new CITB Productivity Fund. We hope successful projects will help reduce avoidable errors, defects and rework in construction projects – and in turn boost profit margins and productivity.

Whether you are an employer, a federation or training group, you have until 5pm on Friday 20th November to enter your applications.

CITB has identified that in the UK construction sector, the direct cost of avoidable errors is on average 5% of project value. This equates to about £5bn per year and greater than the average profit margin for a typical construction project. This figure rises to over 20% of project value when unrecorded process waste, indirect costs and latent defects are included.

This is why we have decided to invest £500,000 in five successful applications.

The projects can be up to 18 months in duration, and must have a clear focus on reducing construction-related errors whilst increasing early identification of errors.

This will ultimately help us significantly improve the productivity, profitability and performance of our industry.

How can I apply?

Current commissions include:

  • Productivity
  • Assessment Infrastructure
  • Assessor Infrastructure
  • Higher Education
  • Contextualised Curriculum

For full details about current and upcoming commissions, guidance notes and application forms please visit here.

And if you want to apply for a commission but don’t have a partner or are open to engaging more, we are happy to help you collaborate. All you have to do is register your interest.

  • Geeta Nathan is head of economic analysis at CITB

Blog: Construction industry votes yes – now CITB must change

Sarah Beale

Sarah Beale

CITB chief executive Sarah Beale on the Levy consensus and the need for reform.

Our industry has decided.

By a clear majority, construction employers have decided to retain CITB’s Levy-raising powers for the next 3 years.

That support isn’t restricted to certain types of firms in particular areas of the country.
In every nation and for every size of employer, at least 3 in 5 firms that took part in the Consensus process supported the continuation of our Levy.

We know, however, that this vote wasn’t a ringing endorsement of CITB. There was, in fact, a united  call for change.

This is a vote that says: “Yes, continue. But only if you change significantly.”

We have heard that call from large employers, we have heard it from the federations, and we have heard it from the SME firms that dominate our industry.
That call will be answered.

CITB is an organisation that, as an absolute necessity, must reform.

We are completely committed to changing our organisation by renewing governance, ensuring accountability and improving outcomes and we stand ready to take the tough decisions to make this happen.

We know that not everyone supported us this time around. Four federations voted no, and a fifth of employers rejected our Levy proposals.

In order to improve our offer to those that didn’t support us as well as those that did, we need to become more accountable, more representative and provide greater impact from our core activity.

The Government’s review of industrial training boards (ITBs) is due over the next few weeks. It, along with our response, will set out a clear path to a focused, modern, reformed CITB. We call on all of our industry – no matter how they voted – to share their views and insight supporting this vital work.

There is a lot going on already.

Plans in train include making the Grants Scheme simpler and easier to access – particularly for smaller firms.

We are developing a national skills register and a training directory of CITB-approved training providers. This quality assurance role is integral to our offer to industry.

Research pieces like our recent future skills reports into immersive learning and offsite construction, will help provide the evidence base for how training needs to change to keep pace with other sectors.

Our funding, increasingly through a commissioning approach, will help direct levy-payers’ money where it can have the most impact.

All these efforts, with more to come, are directed towards CITB becoming  the industry’s Training body, which will offer excellent value in supporting industry’s skills needs of today and tomorrow.

Effectively, industry has given CITB 3 years to change and demonstrate impact.

Now is the time to deliver, and we will.

Blog: Will Dundee’s new local development plan create opportunities?

Ian Livingstone

Ian Livingstone

While Dundee’s proposed new Local Development Plan (LDP) provides continuity, Ian Livingstone says more flexibility is required to attract investment and meet current demands.

Dundee’s latest Proposed Local Development Plan (LDP) was published at the end of August, with a statutory period of public consultation concluding today.

The draft plan sets out Dundee City Council’s spatial strategy and policies for development across the local authority area until 2029.  It identifies land for a wide range of uses and provides specific requirements relative to housing and employment land.

In broad terms, the vision and objectives of the proposed LDP continue in a similar vein to the existing LDP for the city.  There is a focus on Dundee as the economic driver for the Tayside region and development is prioritised at three locations. These are: Linlathen where 40 hectares of employment land is allocated; the Central Waterfront which is identified for mixed use development including commercial, housing and port related uses; and the Western Gateway where 750 houses and 50 ha of employment land is allocated.

According to the proposed LDP, the council aims to construct 480 houses a year in Dundee until 2029. However, little additional greenfield land has been included for residential purposes. In fact, just one new site at Ballumbie, allocating 150 units, has been added. The greenfield land allocation at Dykes of Grey in the existing LDP has been carried forward, but the majority (66%) of housing is skewed towards brownfield land.

Brownfield sites by their very nature are more challenging and costly to redevelop due to the presence of existing buildings and contamination issues arising from previous uses. As such their appeal to housebuilders and developers is restricted.  The effectiveness of these sites in contributing to the housing supply target is therefore limited. The solution would be to allocate more greenfield land, but this is largely prevented due to the sites being located out with the Dundee settlement boundary. Other solutions must therefore be investigate in order for the city to fulfil its housing requirements.

Development opportunities are still available at Dundee Waterfront

Development opportunities are still available at Dundee Waterfront

In contrast to housing land supply, the availability of employment land stock in Dundee is extensive. The most recent Business Land Audit, published alongside the proposed LDP, identified 160 ha of available land. To put this into context, 24.53 ha of land was taken up during 2013-17. Four years prior to that take-up averaged at 0.91 ha per annum.  The supply of employment land relative to demand is therefore extremely healthy. This provides the opportunity for more flexible development to be introduced in areas of the city that were traditionally restricted to business and industrial use, without prejudicing the stock of available employment land.

The council proposes to regenerate the industrial area of Blackness, highlighting the potential to reuse redundant land and buildings for a wider variety of commercial and complementary uses. This is an encouraging start, especially for an area in Dundee that exudes potential, has good connectivity and boasts close links with the universities.

Further potential for mixed use development exists at other central areas that are partially occupied and have the attributes to integrate effectively with the surrounding built and natural environment, such as at Annfield Road and exemplified by the regeneration around Morgan Street. Such development will help to reinvigorate communities and assist with meeting changing business requirements e.g. low cost accommodation for start-up businesses.

At a time when significant and concerted efforts are focused upon the success of the Waterfront, the proposed LDP considers opportunities for other areas of the city to contribute to enhancing the vibrancy of Dundee.  Progressive thought and vision is necessary however to effectively capture and maximise the levels of investor interest expected to arise as a ‘ripple effect’ from the V&A and associated development at the Waterfront.

Overall the proposed LDP provides continuity to the existing LDP. However, given Dundee’s present aspirations, a more proactive approach to the appropriate redevelopment of brownfield land for mix use purposes should be included, as well as a more generous allocation of effective land for housing which is proven as deliverable in the short term. This will provide Dundee with the flexibility required to attract investment and meet the changing demands of the current market.

  • Ian Livingstone is senior planning consultant at Ryden

Blog: The Land and Buildings Transaction Tax is killing the Scottish housing market

Ken McEwan

Ken McEwan

Ken McEwan says we all face having to pick-up the tab for what he refers to as the Scottish Government’s “botched” Land and Buildings Transaction Tax as he appeals for an urgent reform to the property tax.

When the Scottish Government introduced the Land and Buildings Transaction Tax as a replacement for Stamp Duty in 2015, I predicted demand for second homes and buy-to-let properties could fall by up to 50%. It gives me no great pleasure to report that I was right.

Our most recent sales figures show that, in the first year of the tax, sales in those categories halved. We have also seen a 25% drop in demand for homes worth over £500,000 and a fall of 40% in demand for £1 million plus properties. At this end of the market we’re witnessing a virtual stagnation.

The Scottish Government introduced the tax as a copycat measure for a similar levy introduced by the Conservative Government at Westminster.

The LBTT imposes a charge of 2% on homes worth more than £145,000 up to 12% on those which sell for more than £750,000. Buyers of holiday homes, buy-to-let properties and other second homes are charged an additional 3% under the Additional Dwelling Supplement (ADS).

Such punitive rates could be justified in England, particularly in the South East, where there’s a problem with first time buyers gaining a toehold on the property ladder due to inflated prices.

Ministers have a particular policy ambition of cooling down the London market which is distorted by the presence of rich, foreign owners many of whom don’t even live in the properties they buy.

In Scotland the market is entirely different; houses are more affordable compared with average earnings and there’s a shortage of rental property. In the major cities such as Edinburgh, it’s difficult to secure a rental property. Students, professionals, foreign nationals and those on benefits are all competing for the same available rental lets.

The Scottish Property Federation (SPF) has calculated that revenues generated by the LBTT in the past year are £57m down on Scottish Government forecasts because of fewer sales.

Before its introduction, ministers estimated the tax would raise £1.8bn from residential sales by 2021. That has since been revised down to £962m, a drop of 46%.

Any school pupil studying economics will tell you that when taxes rise, consumers change their behaviour accordingly, so it should be no great surprise to ministers that homeowners, faced with a massive increase in the cost of moving house, are opting to stay put.

The Royal Institution of Chartered Surveyors (RICS) said last month that the property market in Scotland was ‘stagnant’ with a fall in the number of new instructions.

A survey by The Halifax, published this week, shows that planning applications for home extensions have risen by 183% in the past five years as homeowners opt to upgrade their existing properties.

Someone buying a home worth £400,000 faces a transaction tax bill of £25,300 which is seen by many as a massive disincentive to move, particularly if they haven’t yet sold their own property.

Buyers earning £50,000-a-year will have to raise the equivalent of their annual salary just to meet the cost of the property tax. It’s clogging up the market right across the property bands.

In June Derek Mackay, the Scottish Finance Secretary hinted at the prospect of a u-turn on the tax by raising the thresholds at which the bands kick-in but there has been no word since and the longer he sits on his hands, the more the slowdown will persist.

The greatest negative impact has been on the purchase of second homes and buy-to-let properties. Tax revenues are small compared with the high risks of restricting liquidity in the buy-to-let market and the knock-on effects on other businesses that rely on a buoyant property market.

Before the LBTT and the ADS were introduced, a Council of Mortgage Lenders survey showed that 79% of properties bought with a buy-to-let mortgage were for those worth less than £145,000.

It was clear then that the introduction of the ADS, which had no consideration for progressive bandwidths, would significantly add to transaction costs and undermine market liquidity.

Though definitive figures have yet to be published, anecdotal evidence suggests the effect has been to reduce the number of buy-to-let landlords, unwilling to take on the extra cost, and to increase rents to cover the rising costs of ownership.

Some landlords with highly-geared portfolios have made losses and are in the ridiculous position of having to pay tax on those losses. This has happened at a time when they have had to weather changes to the Private Housing (Tenancies) Bill, based on improving tenant rights with no consideration for the financial risks and challenges faced by landlords from rogue tenants.

Many landlords are taking the view that they’ve had enough. The LBTT and the 3% ADS are part of a bigger picture which also includes significant reductions in mortgage interest relief and the removal of 10% ‘wear and tear’ relief.

With a significant reduction of available lets in the private rented sector, the Scottish Government will be forced to meet that housing shortage at considerable cost to taxpayers.

  • Ken McEwan is chief executive of Edinburgh-based estate agency McEwan Fraser Legal

Blog: Trams can keep Leith revitalisation on track

edintrams_elmrow_18thMay2017_smallerGVA’s Peter Fraser on why proposals to extend the tram service to Leith could see the area’s conversion into one of the premier places in Edinburgh to live, work and visit.

Other than the famous footballing rivalry between Hearts and Hibernian, you may struggle to find a more divisive subject in Edinburgh than the trams.

However, if done properly, plans to extend the tram service to Leith could be good news for the area as well as the city as a whole. The council has approved the outline business case for the extension and if it happens it could unlock Leith’s potential as a business destination.

Leith has undergone something of a revitalisation in the past few years and people have noticed. It’s been compared to London’s Shoreditch and named one of the trendiest places in the UK.

As well as range of stylish bars and restaurants popping up, Leith has also seen a surge in office take-up. It increased by over 35%, from 31,000 sq. ft. in 2015 to 49,185 sq. ft. in 2016 and this trend has continued this year. Businesses know amenities local to an office are important to attracting and retaining the best staff and Leith ticks those boxes.

Compared to the city centre office rents in Leith are much lower. A refurbished open plan space in Leith is around 40% cheaper than in the centre. Residential prices are also generally lower than across the rest of the city so it’s an attractive place to live and work.

So, how does the tram extension fit in to all this? To continue its resurgence and build on momentum to date, improving public transport to Leith (and, given population growth forecasts, Edinburgh) is essential. Creating ease of access from Leith, through the city centre and out to the airport will only increase the area’s appeal.

Those looking for office space will welcome Leith as an option. Edinburgh is like no other city when it comes to planning due to its UNESCO World Heritage Status, and rightly so. But we face a limited supply of office space in central Edinburgh and whilst the business parks in West Edinburgh are well established, they do not suit all occupiers so another urban business district is needed.

Locations like Leith, which has an abundance of brownfield sites and does not face the same planning restrictions, are essential to meet demand and must be used to address the shortfall.

Edinburgh has won plaudits as a hub for exciting tech firms but a shortage of new development stock will harm its ability to retain these and help new ones flourish. Many well-established tech firms started out in Leith and it retains an appeal for the sector. However, once businesses reach a particular size many find themselves driven to the centre to secure larger offices. Infrastructure development could help Leith retain start-ups or even bring back some that have moved.

We must fully consider the implications of building the tram extension and ensure the mistakes made last time are not repeated. But the extension could be the investment in Edinburgh’s infrastructure that simultaneously addresses the lack of office space, further modernises the city’s public transport network and completes Leith’s conversion into one of the premier places in Edinburgh to live, work and visit.