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What is this week's blog about?
In this week’s blog, we take a look at the new RICS Professional Standard Valuation Approach for Properties in Multi-Storey Multi-Occupancy Residential Buildings with Cladding (1st Edition).
This is essential reading for all residential valuers, whether AssocRICS or APC candidates or RICS Registered Valuers.
You can read the full guidance here.
When is the new guidance effective from?
The new guidance took effect from 6 December 2022.
How does the new guidance relate to the existing guidance?
RICS published the Guidance Note Valuation of Properties in Multi-Storey Multi-Occupancy Residential Buildings with Cladding (1st Edition) in March 2021. You can read about this in our blog article. The Guidance Note primarily focussed on when EWS1 forms were required due to combustible cladding.
The new Professional Standard sits alongside the existing Guidance Note and applies to valuations in England. However, it has a different focus than the existing Guidance Note, which is on the impact on value of recent Government remediation schemes and qualifying leaseholder protections. It primarily relates to secured lending valuations, but can be adopted for valuations for alternative purposes.
Valuers need to adhere to the specific lender client’s guidance as this will confirm the valuation approach to be adopted.
What buildings does the Professional Standard relate to?
Residential flats within blocks of 5+ storeys or 11m+ high. This is because the remediation scheme available through the Building Safety Fund applies to buildings of 7+ storeys or 18m+ high.
Cladding is defined as ‘a method of enclosing a building externally by the attachment of finishing materials spanning between given points of support on the face of the building’.
This includes (as defined in Government guidance)):
‘Aluminium composite material (ACM)
Brick slips
High pressure laminate (HPL)
Metal composite material (MCM)
Metal sheet panels
Rendered external wall insulation systems
Plastic tiling systems
Timber’
The guidance applies to buildings where cladding remediation work has been identified and funded and the lender is willing to lend.
Why was the new Professional Standard published?
To help valuers provide consistent valuations
To promote risk-based and proportionate valuations
To provide effective operation of the residential market
To support the public interest mandate of RICS
How can valuers manage risk over this type of valuation work?
Valuers need to ensure that they have sufficient experience, skills and knowledge to undertake this type of valuation work. They also need to check that they are covered by their Professional Indemnity Insurance for the work undertaken. The terms of engagement agreed with the client need to be appropriate and include a liability cap, if appropriate.
Does the valuer need to see an EWS1 form?
Yes (as long as they are within the 5 year validity period), or a Fire Risk Appraisal of External Walls (FRAEW) under PAS 9980:2022 if this has been produced. The latter includes an executive summary to confirm whether remediation works are required or not.
How should valuers reflect the market for this type of property?
Valuers need to comment on the market for this type of property within their valuation commentary. This is likely to change over time!
Valuers also need to comment on the availability of good comparable evidence, which initially may be limited.
Valuers should refer to VPS 3 of the Red Book Global in relation to I) valuation approach and reasoning and to VPS 4 in relation to any marketing constraints they feel apply, as at the valuation date.
What valuation approach should valuers take?
The first step will be to consider the lender client’s guidance, which will direct the valuer as to whether they need to make any assumptions or special assumptions.
The valuer then needs to consider factors such as:
Summary of works affecting marketability and desirability
Impact on amenity and occupancy whilst the works take place
Other repair costs
Heating and cooling issues whilst the cladding is being replaced
Impact of waking watch costs
Disruption to the block and surrounds
The valuer also needs to consider information such as:
Any FRAEW and remedial work required and confirmed dates for any works
Costs of remedial work, if known, and if they can be passed onto the leaseholder (and if so, if they are capped)
Eligibility under a remediation funding scheme
Eligibility of the lease
Valuers should read the Professional Standard in detail for a full explanation of all of the above.
This includes indicative scenarios within section 4.2, which relate to:
No cladding/no cladding repairs needed
Cladding repairs needed (PAS 9980 assessment leading to the need for remedial works)
None of the information to support the valuation process is available to the valuer
Valuers can follow the flow chart on the RICS website to decide which valuation scenario applies to their specific case.
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Stay tuned for our next blog post to help build a better you.
N.b. Nothing in this article constitutes legal, professional or financial advice.