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What is today's blog about?
In this week’s blog, we take a look at the new RICS Guidance Note Japanese Knotweed and Residential Property 1st Edition.
This is essential reading for residential RICS APC and AssocRICS candidates pursuing the Inspection and Valuation competencies. Although the guidance is primarily aimed at residential surveyors, it is of wider relevance to any candidates with Inspection or Valuation as technical competencies.
You can download a full copy of the Guidance Note here.
Why has new guidance been published?
The new Guidance Note replaces the former 2011 Information Paper, reflecting the current position and understanding of Japanese Knotweed. There has been extensive research and media attention drawn to Japanese Knotweed in recent years and the new Guidance Note seeks to readdress the reality of the plant and it’s impact on the built environment.
When is the new Guidance Note effective from?
23 March 2022.
What is Japanese Knotweed?
Japanese Knotweed is a hardy deciduous perennial plant, which is a bit like bamboo. It grows extremely quickly (up to over 2m during the Spring and Summer months) and can spread underground through rhizomes or shoots.
Under the Wildlife and Countryside Act 1981, it is an offence to ‘plant or otherwise cause Japanese Knotweed to grow in the wild’. This means that Japanese Knotweed is typically classified as ‘controlled waste’ under the Environmental Protection Act 1990. Contaminated soil, therefore, needs to be removed by a licensed contractor at an additional cost.
Is Japanese Knotweed a problem?
The public perception of the severity of the Japanese Knotweed problem does not necessarily reflect the reality.
Recent research suggests that structural damage to houses is rarely caused by Japanese Knotweed, although damage can be caused to lightweight structures, freestanding or retaining walls, paths, hardstandings and drains. Other plant species, such as Buddleia, have actually been found to cause more structural damage to major structures than Japanese Knotweed.
However, Japanese Knotweed treatments are expensive and disruptive in comparison to the eradication of other species, such as Buddleia. In particular, soil contaminated by Japanese Knotweed requires removal and disposal by a licensed contractor, at not insignificant cost.
There are also issues over the control and treatment of Japanese Knotweed outside the boundary of a property, e.g., on adjacent land. This can lead to expensive legal proceedings given the impact on the neighbouring land and lack of control over the treatment by the affected owner. This is compounded where the issue affects a block of flats, leading to an impact on saleability if the issue is not dealt with appropriately.
After Japanese Knotweed has been identified and inspected by a specialist contractor, a report and Management Plan should be prepared. There are a variety of remediation options, including chemical control using herbicides, excavation to physically remove the plant, on-site burial or stockpiling/bunding.
Despite the physical impacts of Japanese Knotweed, public perception means that its presence currently has a significant impact on saleability and value – irrespective of the actual structural damage that it may or may not cause to dwellings. In the worst case scenario, a property can be blighted for some time by the stigma of being associated with Japanese Knotweed.
The key issue for valuers, is, therefore – how do we ‘follow and not lead the market’ when the public perception of Japanese Knotweed is out of balance with it’s actual physical impact on the built environment?
How should surveyors consider Japanese Knotweed when inspecting properties?
As a starting point, surveyors cannot simply exclude liability associated with Japanese Knotweed in their Terms of Engagement, under the Consumer Rights Act 2015. Therefore, surveyors must be aware of how to deal with Japanese Knotweed when inspecting and reporting.
There is a difference in the depth of inspection between a valuation (opinion of value) and a survey (an appraisal of condition and a property’s physical structure), in addition to the purpose of inspection and any specific client requirements (i.e., scope of service).
For mortgage valuations, surveyors need to refer to UK VPGA 11 of the UK National Supplement, which sets out the scope of inspection relevant to the purpose. This includes a visual inspection of the property and outbuildings and recording any factors or problems affecting value, such as Japanese Knotweed.
For condition-based surveys, the scope of inspection is defined in the Home Survey Standard, split into survey levels 1 (Condition Report), 2 (Home Survey) and 3 (Building Survey). Level 2 Home Surveys may or may not also include a valuation (which must be undertaken in line with the Red Book Global 2022). We recommend referring directly to the Home Survey Standard for the scope of inspection required for each survey level.
If Japanese Knotweed is identified on inspection, the surveyor must be able to advise the client on the issue and risk, appropriate to the level of inspection that they have agreed with the client.
However, if a client requires specific advice on Japanese Knotweed presence and remediation action, surveyors should recommend seeking advice from a specialist remediation company.
How can a surveyor identify Japanese Knotweed?
Prior to inspecting a property, surveyors should be undertaking comprehensive desktop research. This could include publicly available resources, e.g., some local authorities publish maps indicating local Japanese Knotweed infestations. Aerial maps and online street views can also show the property at different times of years, helping surveyors to establish if Japanese Knotweed may be present.
When on site, surveyors (and their clients’ legal advisors) should also make enquiries of the vendor/owner or their agent in relation to the presence of Japanese Knotweed.
Physical signs of Japanese Knotweed are specifically outlined in the Property Care Association (PCA) guidance, Japanese Knotweed – Guidance for Professional Valuers and Surveyors.
Some of these are shown below:
It is also important to note that Japanese Knotweed can present differently throughout the year. It is also commonly mistaken for other plant species, such as Common Bindweed, Dogwood, Dock, Himalayan Honeysuckle, Lilac and Russian Vine. A plant identification app or book may help to rule out whether a plant is Japanese Knotweed or not.
How should surveyors record the presence of Japanese Knotweed during inspection?
The presence of Japanese Knotweed should be noted on a site plan, alongside comprehensive notes and photographs. Section 3.8 of the RICS Guidance Note provides further guidance on exactly what should be recorded – this is a useful page to print off and take to site in the event that Japanese Knotweed is identified.
How should surveyors report on the impact of Japanese Knotweed?
Sections 4 and 5 of the RICS Guidance Note sets out how surveyors should report on the impact of Japanese Knotweed to clients. We recommend reading these sections to draw out the detail relevant to your reporting purpose, e.g., secured lending or a level 2 Home Survey.
This includes the following Management Category assessment, which effectively replaces the former ‘7m rule’:
How can the presence of Japanese Knotweed affect value?
Our challenge, as valuers, is to advise our clients on the impact of the presence of any Japanese Knotweed on value.
This reflects the extent to which a purchaser in the market would reduce their bid to reflect the presence (or former presence) of Japanese Knotweed (in comparison to an unaffected property).
In the Guidance Note, RICS state that ‘unlike normal building defects, Japanese Knotweed poses a number of particular problems for the homeowner and the current public perception can mean that when properties are affected by Japanese Knotweed the impact in the marketplace can be out of all proportion to the cost of remediation’.
Valuers are advised not to take a simplistic approach, either by only incorporating the cost of remediation in their valuation or by applying a standard % reduction. Neither approach is justified by the evidence and does not account for the market impact and perception of the presence of Japanese Knotweed.
As a result, RICS recommend that five factors are taken into account when valuing property affected by the presence of Japanese Knotweed:
1. Impact on the market prior to remediation
2. Restrictions on use
3. Impact during remediation
4. Impact of infestation present on adjacent land
5. Post-remediation impact on saleability
These should then be added to the cost of remedial works, reflecting the ‘the amount by which a prospective purchaser with full knowledge might wish to reduce a purchase bid for the property, compared with its infestation free value. This theoretical figure would reflect not only the cost of remediation but also all of the implications for occupation and eventual resaleability, together with an assessment of the risks associated with any infestation on adjoining land, over which there is likely to be no control’.
After this, the valuer should then (as always!) step back and consider whether the adjustments made are realistic and representative of the wider market.
For example, the adjustment in a strong market with limited supply may be very different to a slow market where there is an oversupply of similar properties. The sense check should also consider the implications of the Japanese Knotweed on the vendor and the actions they may take, e.g., withdrawing the property from the market and remediating the problem themselves before remarketing the property – instead of selling at a reduced price.
In the absence of direct comparables affected by Japanese Knotweed, this is a suitably robust and alternative way to provide a justified opinion of value.
Finally, the case of Ryb v Conways Chartered Surveyors and Others (2019) set precedent in this respect. The case stated that the difference between the market value of a property without Japanese Knotweed and that same property where Japanese Knotweed is present can be defined as ‘the sum representing the discount on the otherwise market value which the buyer could reasonably have sought and the vendor ought reasonably to have agreed’.
Is there any other guidance to be aware of?
Residential valuers should also be aware of the Property Care Association (PCA) Guidance Note Japanese Knotweed – Guidance for Professional Valuers and Surveyors (January 2022). You can download a copy here.
Furthermore, any valuers also need to ensure that they comply with the RICS Valuation – Global Standards (Red Book Global 2022 - download a copy here), particularly in relation to VPS 2 and investigations and reporting. Residential valuers will additionally need to comply with the Home Survey Standard.
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N.b. Nothing in this article constitutes legal, professional or financial advice.