Stella Bliss reviews the latest steps in the global effort to pull together an international property measurement standard
According to JLL, building measurement variations across different world markets have historically been as high as 24%. Standards for measuring buildings have varied enormously, with some jurisdictions including common space, such as lifts and hallways, in floor area measurements and others even including swimming pools and car parks. This inconsistency has had implications in particular for institutional investors and multinational tenants seeking the ability to make comparisons across jurisdictions as to the size of the buildings they occupy.
Acknowledging this undesirable position, about three years ago a coalition was formed of organisations across the globe that sought to put together a set of measurement standards that would be adopted internationally in order to standardise measurement practice. The coalition currently comprises more than 60 organisations, of which the RICS is one.
RICS Property Measurement
In November 2014, the coalition published International Property Measurement Standards: Office Buildings (IPMS). The RICS consulted on incorporating the IPMS into its own guidance and on 18 May the RICS launched RICS Property Measurement (1st ed). The new publication incorporates the RICS Code of Measuring Practice (6th ed) and the IPMS. The effect of the new standards is to remove offices from the ambit of the RICS Code of Measuring Practice (6th ed) and incorporate the IPMS as standards for the measurement of office buildings.
Those surveyors accustomed to measuring premises based on the Code of Measuring Practice (6th ed) should therefore be aware that the standards incorporated in RICS Property Measurement (1st ed) are now the relevant measurement standards for all building classes, and that RICS contemplates that office accommodation will be measured in accordance with the IPMS.
The RICS has indicated that the intention is for its members to use the IPMS when measuring office accommodation, rather than the Code of Measuring Practice (6th ed). It will be interesting to see how the RICS approaches the issue of monitoring the use of the new office measurement standards. It is not clear at this stage whether the RICS will go to the lengths of undergoing exercises of re-measurement to ascertain whether particular premises have been measured in accordance with the new standards.
It may be that the real driver of take-up and acceptance of the new measurement standards for office buildings will be property owners and occupiers themselves, who wish to see greater clarity in building sizes across international portfolios. This is likely to be true internationally; no matter how clearly the relevant professional bodies across the globe advocate the use of the IPMS, their success will be down to those who actually benefit from standardisation.
Embedding the standards
One of the areas to be considered by legal professionals in particular is the extent to which use of the new standards is referred to in the legal documentation used for property transactions. At present, it is relatively common for development agreements for lease, which are conditional on the construction or substantial redevelopment of premises, to provide for the measurement of those premises on practical completion of the building works. The resulting measurement is multiplied by a rent expressed on a psm (per square metre) basis, to set the rent payable for the premises when the lease is granted.
Lawyers will need to give thought to updating their precedent documents to reflect the new standards. As the RICS Code of Measuring Practice (6th ed) is itself no longer the only applicable set of measurement standards, it would be appropriate to make the necessary changes to refer to RICS Property Measurement (1st ed).
In the case of agreements for lease that have already been exchanged, and which contemplate measurement of office premises in accordance with the Code of Measuring Practice (6th ed), it remains to be seen how developers and their prospective tenants will approach the issue of measuring those premises on practical completion.
Some agreements for lease will refer to measurement being carried out in accordance with the Code of Measuring Practice (6th ed), or any updated measurement standards published by the RICS from time to time. In such instances, the position is clear and there should be no scope for debate as to which measurement standards are to be used. In cases where the agreement for lease does not envisage changes to the RICS’ measurement standards, there is technically an area of risk for both parties if either seeks to argue that the new standards should be used instead, as measurement under one set of standards may give a different result to measurement under the other set, but we anticipate a pragmatic solution being reached between the relevant parties.
Apart from instances where an agreement for lease or other development document is already in place, which allows for measurement of premises and the setting of rent based on that measurement, it is probable that in practice the change in the standards used by the RICS for the measurement of office premises will not impact rents payable by tenants. In reality, landlords and tenants agree a rent as part of an overall deal, of which rent comprises a significant, but not the only, part. It seems unlikely that the transition of the RICS’ standards to RICS Property Measurement (1st ed) will result in landlords or tenants benefiting or losing out as a result of the recent change.
Johnny Dunford, corporate real estate director at BNP Paribas Real Estate, who was involved in drafting the IPMS, considers that the publication of the new standards is simply a natural step for the RICS to take in an increasingly multinational market. The standards should not add complexity for property professionals, but instead they acknowledge that the previous position where areas of premises varied so much was an unsustainable position. He welcomes the new standards as a “common currency” that will increase transparency in measurement practice across the globe.
The next step
The committee responsible for the publication of the IPMS for office buildings is now looking to residential premises as the next category of real estate requiring a standard approach to measurement internationally. The committee has published a paper, inviting comments on the proposals for residential buildings. The consultation closes on 30 September.
Following the subsequent publication of IPMS: Residential, the committee has pledged to continue its programme of work and prepare IPMS standards for industrial, retail and mixed-use premises. It may well be that variances in building measurements across the globe will soon be a thing of the past.
Stella Bliss is a senior associate at Hogan Lovells International LLP
