Delft University of Technology

Faculty of Architecture and the Built Environment

AR2R016: Management & Finance 2 (10 credits)

18 April 2018, 9:00 – 12:00 hours

Course coordinator: Ph. W. Koppels

The subject matter is in accordance with the course book

Exam information:
- This exam consists of 4 closed questions and 11 open questions;
- has 17 pages (including this front page);
- has a weight of 40% in the total course grade [30% law; 10% economics].
- the maximum number of points to be obtained is 160 points;
- of which 120 points for law and 40 points for economics;
- the weight of each (sub)question is stated in the exam.

Exam instructions:
- Put your name and student number on each first page of a section (see the page header).
- Provide your answers in English and write legible (readable).
- Please argue your answers unless stated otherwise, because too short answers are difficult to rate.
- This is an open book exam; you can use all materials, except old exam reference answers.
- Suggested time division: 2 hours and 15 min. for the law part and 45 min. for the economics part.
- Mention, if applicable, relevant articles from the law.
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 AR2R016 Name: ……………………………………………….
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Part 1: PRIVATE LAW

Questions 1 through 4: choose the correct alternative; do not motivate your choice.
1. The terms contract and obligation are synonymous. |5 points
a. The definition is not correct. An obligation can arise from a contract,
but that is not the same as the statement.
b. The definition is not correct. An obligation is a multilateral juridical act
because more than one person or party is required to agree for it to
come into being.
c. The definition is not correct. The terms agreement and obligation are
synonymous.
Answer is a, p. 2 Book.

2. A contract that came into being by use of misrepresentation is not a valid |5 points
contract.
a. This statement is right, because misrepresentation is ground for
nullification of the contract.
b. This statement is wrong, only after successfully invoking the
nullification is the contract, retro-actively, not valid.
c. This statement is wrong. Misrepresentation affects the will of one of
the parties and art. 3:33 CC requires for a juridical act to be valid that
there is nothing wrong with the will of the parties.
Answer: b, p. 8.

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AR2R016 Name: ……………………………………………….
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3. The city of Delft needs a new city hall. Since the TU Delft has a very famous |5 points
architecture faculty (the building is property of the city) the city asks the
faculty to design the new city hall. The city will not pay the faculty for this
work; instead it will not ask rent for the use of the faculty building for one
year. This way the city does not have to follow any tender procedure.
a. The city is not making a mistake: this way it does not pay for what it
gets in return and in that situation the procurement rules are not
applicable.
b. The city is not making a mistake: there is no law that states that cities
have to pay for what it gets. Payment is a contractual matter and not a
matter of procurement law.
c. The city is making a mistake: the city is a contracting authority and there
is a pecuniary interest (in the form of not having to pay rent for a year).
So the requirements of the procurement rules are met and the project
has to be tendered.
Answer: c, p. 139.

4. Chinese walls are meant to keep Chinese businesses out of the European |5 points
market.
a. This statement is correct.
b. This statement is wrong. Chinese walls mean that persons/businesses
involved in the phase before the tender procedure really starts, are not
allowed to join the tender, because they might know more that other
people/businesses.
c. This statement is wrong in general and only applies when and insofar
the Chinese market is closed to non-Chinese entities.
Answer: a, sheet 7, third class 7.

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AR2R016 Name: ……………………………………………….
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5. A UAC-IC 2005 employer A enters into a contract with a contractor B. During |20 points
the works the contractor asks the employer for drawings and information of
the land where the contractor is working. These drawings were made a year
before the contract came into being and are in the possession of A. A refuses
to give the drawings, stating he is not under any obligation with this type of
contract to give anything to the contractor.
Explain if this is a wrong or a right statement and why.
Answer
Par. 5.3.2 Book: art. 7 of the MBO could have been mentioned here, but par. 3,1a is the most
important point in the answer. The employer is under an obligation to supply the contractor
with information which are in his possession and which is necessary for the contractor to do his
job. So the statement of the employer that given the type of contract he is under no obligation
to give drawings to the contractor is not right and far too absolute. It depends on the elements
of a) does he have such information and (cumulatively) b) does the contractor need the
information.

It was remarkable that a few students wrote in their answer that they only studied the UAC
2012. The whole book and all the sheets were study material as announced so the UAC-IC 2005
were part of the material to be studied for the test.

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AR2R016 Name: ……………………………………………….
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6. Architect A has designed a bridge for the city of Delft. The bridge is built by |20 points
contractor B. After take-over it turns out the bridge was badly designed. It is
a fact that the contractor could not have known this.
The bridge has to be repaired (euro 7.000). During the reparations the city
cannot use the bridge. This way the city misses out on the profits from the toll
€ 75.000. Which damages and for how much can the city claim from the
architect? Would it make a difference if the architect turned out to be a very
problematic person who said no to everything the employer suggested and
whose mistake was one even first year students would be expected to have
avoided?
Answer
Pages 38 and p. 44 of the Book contain the answer to this question. The question was on the
amount of damages and the kind of damages the city was entitled to. The question was not on
the question if the city was entitled to damages as such, that was a given.
The answer to the calculation of the damages is to be found in the DNR 2011, or in case one
thought these conditions were not applicable: in the Civil Code. Under the law (CC) a limitation
of the total amount of the damages is not possible, since art. 6:98 CC gives the employer a right
to the full damages (as a main rule). The DNR 2011 limits the damages to be paid by the
architect in several ways. The most important being: in type of damages (direct or not, see art.
14) and secondly in total amount (art. 15).
Once the total amount of damages to be paid has been established the question can rise if the
behaviour of the architect is a reason to deny him the right to having to pay only a part of the
damages caused by him. That can happen indeed when he has acted in a manner that can be
considered unacceptable.

A number of students paid a lot of attention to the question if there was a culpable mistake
(art. 13 DNR 2011, art. 6:74/75 CC). No points were given for that because that was not the
question asked. Some students thought that this question was governed by the UAC 2012. This
is wrong, because the question is on the liability of the architect.

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AR2R016 Name: ……………………………………………….
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Part 2: PLANNING LAW

7. A owns a piece of land. In the land-use plan, the land-use objective for his |15 points
piece of land is ‘storage of goods’. A uses the land for storage of goods in a
shed. After some time, A comes to the conclusion that his business needs
more office space. He wants to demolish the shed and replace it with a new
office building. The land-use objective in the land-use plan has remained
unchanged. A submits an application for an environmental permit for the
office project. However, the municipal executive denies the permit
application. A is of the opinion that he has damages (losses) because of the
stipulations of the land-use plan. Therefore, he requires planning
compensation from the municipality.
Does A qualify for planning compensation? Substantiate your answer.

Answer
No. A does not qualify for planning compensation. Planning compensation is possible under
two circumstances.
(1) Indirect damage. This relates to damage as a result of construction on a neighbouring
property. This does not apply in A’s case.
(2) Direct damage. This relates to damage as a result of restriction on one’s own property due
to a new of modified land-use plan. The new of modified land-use plan takes away development
rights that existed under the old land-use plan. This does not apply to A’s case either. In A’s
case, there is no new of modified land-use plan. The land-use plan has remained unchanged.
Therefore, A does not qualify for planning compensation. See Planning and Development Law
in the Netherlands, page 19.

Some students gave an answers that was substantially correct, but without adding a clear
answer ‘yes’ or ‘no’. In that case, 12 points were awarded.

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AR2R016 Name: ……………………………………………….
18 April 2018 Student number: ………………………………………………
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8. X is a project developer. He wants to convert a vacant office building into

apartments. In the land-use plan, the land-use objective for the plot is still
‘offices’. However, the municipal executive has indicated that they are happy
to co-operate to realize the conversion. Therefore, they are willing to grant an
environmental permit for deviation from the land-use plan.
a. What is the handling period for the permit? That is: what is the |6 points
maximum length of the period that the municipal executive can use to
come to a decision regarding the permit application?
Suppose that in the direct neighborhood of the project a number of citizens
oppose against the conversion project. They are afraid that the project will
result in a high demand for parking space in the area.
b. From a legal viewpoint, how many moments do the citizens have to |9 points
protest against the conversion project? Please explain. (It is given that
the citizens are ‘interested parties’.
Answer
(a) The handling period is maximum 26 week + 6 weeks extension. It is given that the project
needs an environmental permit for deviation from the land-use plan. Such permits need to
follow the extended permit preparation procedure. This procedure takes maximum 26 + 6
weeks. See Planning and Development Law in the Netherlands, page 38.
Quite some students answered that the regular procedure (8 weeks + 6 weeks extension)
applied. However that is not the case.
(b) The citizens have three moments to protest against the conversion project.
It is given in question 8 that the project needs an environmental permit for deviation from the
land-use plan. Such permits need to follow the extended permit preparation procedure.
1. The draft of the permit will be published. The citizen can submit ‘views’ regarding the draft
permit to the municipal executive.
2. Should the views be dismissed by the municipal executive, the citizens can lodge appeal with
the district court.
3. Should the district court dismiss their appeal, the can lodge higher appeal with the
Administrative Jurisdiction Division of the Council of State. See Planning and Development Law
in the Netherlands, page 40.
So, in total there are three moments for citizens to protest.

Quite some students answered that there are two or three moment to protest against an new
of modified land-use plan. As indicated above, in this case, not a new of modified land-use plan,
but a permit to deviate from the land-use plan was at play. Nevertheless, full points were
awarded if students correctly pointed out that there are maximum three moments to protest
against a new or modified land-use plan.
1. Public participation (compulsory) or municipal bye-law offering participation (optional).
2. Submitting views against a draft land-use plan.
3. Appeal with the Administrative Jurisdiction Division of the Council of State.
See Planning and Development Law in the Netherlands, page 61.

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AR2R016 Name: ……………………………………………….
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9. Municipality O is in great demand from house buyers. That is why the |15 points
municipality wants to change an agricultural area into a new residential area.
The land in the area is owned by farmers. Their businesses are doing well. The
municipal council is enthusiastic about a new residential area. It adopts a new
land-use plan. The land-use objective is ‘residential area’.
Explain why the adoption of the land-use plan does not guarantee that soon
new dwellings will be built. Tip: do not exclusively base your answer on the
issue of land ownership.
Answer
A land-use plan that is adopted by the municipal council is no guarantee for complete
realisation of the intended (urban) development. After all, a land-use plan in principle has the
character of a permission plan (Dutch: toelatingsplan) – i.e.: a plan on which the permissions
to build can be based - and not the character of an implementation plan (Dutch:
uitvoeringsplan). Land owners, in the case the farmers, are not obliged to implement the plan;
that is, they are not obliged to realise the land-use objectives. The land-use plan primarily is a
plan that indicates which developments on a particular territory will be allowed. Anything that
is in conflict with the land-use plan can be forbidden. Establishment of a land-use plan doesn’t
guarantee if and when a particular part of a land-use plan will be realised. This is called the
principle of development control planning (Dutch: toelatingsplanologie). See Planning and
Development Law in the Netherlands, page 87.
Apart from this, the land is not owned by the municipality or property developers. Land owners
have the right to develop. Since municipality nor property developers are land owners, they do
not have the right to develop. First, either of them has to become land owners. See Planning
and Development Law in the Netherlands, page 16. There are several ways they can become
land owner.
If the students’ answers only related to the issue of land ownership, 4 points were awarded.
Some students put in their answer emphasis on the word ‘soon’ in the question. These students
mentioned that the procedure of a land-use plan takes a lot of time, certainly if parties lodge
appeal. Or, they mentioned other arguments why the new buildings will not be built ‘soon’. This
type of answer was awarded with 4 points.
If students received 8 points, it was because the referred to the issue of land ownership (4
points) and also referred to the issue of ‘soon’.

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AR2R016 Name: ……………………………………………….
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Part 3: ENVIRONMENTAL LAW

10. The brochure of the Dutch Association of Municipalities (VNG) regarding |8 points
‘Businesses and Environmental Zoning’ is in practice often used by
municipalities in the preparation of their land-use plans. The municipality of
Delft intends to use this brochure in the explanation of a new land use plan
for ‘innovative student housing nearby an existing industrial area (ICT and
Nano-Tech Steel Industry)’.
Question: what would be your advice to the municipality based on what you
have learned from case law?
Answer
A: see PDL 114
If: very general answer, not untrue, but no remarks about brochure at all: 2 points.
If: general answer + separate vulnerable functions and functions that create nuisance: 4 points.
If: good answer, but no remarks about distinction new/existing: 7 points.
If: research, noise pollution: 1 point.
If: brochure, deviation well explained, but not other remarks regarding the brochure: 6 points.

The start-up LBQ2 (Let’s Build Quick with Quality) wants to develop a small |7 points
housing project in the historical center of Schiedam. The project developer
has found some archeological maps from the year 1981. He states that it is
not feasible for his small company to do research in the soil of the building
location.
Question: what would be your response to this statement of the project
developer?
Answer
A: See PDL p. 130.
If: advice is: not to create something there: 1 point.
If: good answer, but no remarks about map from year 1981: 6 points.
If: general answer, but no specific answer regarding archeological research and map: 4 points,
If: only general and vague answer about research: 2 points.

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AR2R016 Name: ……………………………………………….
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Part 4: Urban Economics and Real Estate

11. Economies of Agglomeration

A. What type of agglomeration economy is depicted in the graph above? Please |6 points
explain how this type of agglomeration economy leads to productivity
advantages.
Answer
Economist Alfred Marshall made a distinction between internal and external economies of
scale. When a company reduces costs and increases production, internal economies of scale
have been achieved.
Internal economies of scale: Economies of scale refer to reduced costs per unit that arise from
increased total output of a product. When more units of a good or a service can be produced
on a larger scale, yet with (on average) fewer input costs, economies of scale are said to be
achieved.
B. Does this type of agglomeration economy leads to a push towards few and large |3 points
cities or to, just the opposite, a push towards a large number of small cities?
Answer
A push towards few and large cities, because when economies of scale exist, and outweigh
transport costs, producing in larger volumes is cheaper than producing in small volumes at
multiple sites.

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C. Argue if the location quotient is a measure (indicator) better suited to identify |5 points
localization or urbanization (agglomeration) economies?
Answer
The location quotient (LQ) is often used to identify (spatial) concentrations of economic
specialization; and, therefore is an indicator of localization economies. The LQ is defined as the
proportion of local employment in a given industry compared to the proportion of the same
industry in total national employment. A LQ of 1 indicates that the same proportion of local
workers is employed in a given industry as the national average; a LQ below or above 1
indicates respectively, that proportion of local employment is less or more than the national
average.
12. Theories of Land Rent
The “law of rent” was formulated by David Ricardo (1772-1823) around 1809
and was the first clear exposition of the source and magnitude of land rent.

A. Ricardo states “it is not the value of the land that determines the price of grain, |4 points
but the price of the grain determines the price of land”. What does Ricardo’s
statement imply?
Answer
The demand for l and is a derived demand and land only has value because it enables
production or consumption of goods and services; (residual) land value is the difference
between the value of what is produced (products and services) on the site minus the cost of the
mobile factors of production. Land is one of the factors of production that have to paid by the
revenues from the produced product and/or services. Land differs from the other factors of
production, because it is immovable and “can’t run away”. The price a user can pay for the land
is what is left over after the other mobile factors of productions have been paid. Therefore, the
value of the products or services produced determines how much is left over and can be paid
for the use of the land, that is, its residual value.

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AR2R016 Name: ……………………………………………….
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David Ricardo argued that land rent is determined by the natural endowment
or advantages the land yields to the user. In an agricultural economy these
natural endowments relate to the fertility of land.
B. Which location factors influence the “fertility” of land (location) in a service |6 points
economy?
Answer
In David Ricardo’s model farmers that leased more fertile land were able to produce more crops
per acre than farmers who leased less fertile land (fertility determined the production
efficiency). In a service economy, on the other hand, it is not the fertility of land in agricultural
sense of the word that determines the production efficiency, but it are conditions that relate
to:
 Input factors in the production process:
- Natural resources
- Human resources: highly qualified labor force
- Physical infrastructure
- Administrative infrastructure
- Information infrastructure
- Scientific and technological infrastructure
 Supporting and specialized service provides: intermediate inputs
 Context for firm strategy and rivalry: conditions that encourages appropriate forms of
investment and sustained upgrading
 Demand conditions: sophisticated and demanding local customers
The first three conditions relate to localization economies, and to a lesser extent urbanization
economies, and are specialized knowledge related; knowledge has become the most dominant
factor to realize competitive advantage (production efficiencies).

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AR2R016 Name: ……………………………………………….
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13. Three-sector model: Commercial, Residential and Agriculture

The governmental decides to impose a tax on commuting that increases the

households commuting costs, but doesn’t influence the transport costs of the
commercial firms.
A. How does an increase in the commuting costs effect the urban land use pattern? |7 points
Please, illustrate in the graph above and argument your reasoning.
Answer
Primary shift
 The households bid-rent curve turns clockwise, because:
 Households are willing to pay less for location far away; more for nearby locations
 Therefore, urban boundary moves inwards (to city centre); urban area becomes smaller
 Households move towards to city centre; boundary commercial-residential moves inwards
Secondary shift
 The same number of firms now have to compete for a smaller area of land;
 As result, the commercial bid-rent curve moves upwards;
 Therefore, the commercial boundary moves slightly outwards.

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AR2R016 Name: ……………………………………………….
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B. Explain why zoning policies leads to discontinuities at the boundaries and an |3 points
unstable and less than optimal equilibrium.
Answer
Zoning policies interfere with the workings of the private (competitive) market and land at all
location is now not be definition used according to its highest and best use. In other words, the
outcome reached when a zoning policy is in place deviates from the equilibrium reached in a
private (competitive) market and this results in discontinuities at the boundaries of land uses.
The discontinuities at the boundaries provides landowners a huge incentive to get the
designated use of their land changed to the alternative use - causing instability - which has a
higher bid-rent than the use prescribed by the zoning policy.

14. Economic base and growth of cities. |6 points

What is an economic base analysis (EBA) and how does it relate to the export
base (theory) of a city or region?

Answer
The economic base of a city is understood as the source of income of a region. As such, it is the
economic engine that drives and underlies all real estate activities and values in a region. When
examining the economic base, the local production of goods and services, an distinction is made
between products produced for local usages and for export. Economic activities that produce
for local usage depend ultimately, directly or indirectly, on the export base of the region. An
decline or increase of the export sector influences the local consumption (demand) and the
employment in non-export sectors is considered a function of the change in the export sector
employment. Therefore, the export production is seen as the source of local economic growth
and the export base theory states that the economic growth of a region is entirely dependent
on growth in the export sector.

-- End of the exam ---

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