RICS Professional Standard Valuation of Licensed Leisure Property (2nd Edition)
- Jen Lemen
- Sep 30
- 5 min read
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What is this blog about?
In this week’s blog, we look at the new RICS Professional Standard Valuation of licensed leisure property (including public houses, bars, nightclubs and restaurants) 2nd Edition, published in April 2025.
This is important knowledge for specialist valuers, as well as for RICS APC candidates interested in deepening their Valuation competency knowledge.
You can download the Professional Standard here.
When is the Professional Standard effective from?
1 July 2025.
Why was the new Professional Standard published?
To address market and regulatory changes over the past 15 years
To expand the guidance to cover the UK, rather than just England and Wales
To make reference to the Red Book Global
To include new guidance for non-valuers
How does it link to the RICS Valuation – Global Standards (Red Book Global) 2025?
The new Professional Standard needs to be read alongside the Red Book Global, in particular VPGA 4.
It replaces the former Guidance Note The Capital and Rental Valuation of Public Houses, Bars, Restaurants and Nightclubs in England and Wales (2020).
What asset types does the Professional Standard cover?
It covers public houses, bars, nightclubs and restaurants. It does not cover unlicensed leisure and hospitality assets, such as cafes and takeaways.
These are trade related properties, where their rental or capital value is linked to their trading potential.
How is the Professional Standard structured?
The Professional Standard covers the following areas:
Glossary of key information
Information for non-valuers – we recommend reading this for a helpful overview if you are not a valuer or you are not a specialist in this area of practice
Introduction
Valuation approaches and methods
Factors impacting valuation
Rental valuations
Tied pubs
Valuations of investment property
Valuations for the purpose of secured lending
All valuers need to read and understand the core definitions in the glossary, including terms such as adjusted net profit, divisible balance, EBITDA, FMOP, FMT and REO.
We have purposefully left these as acronyms…read the guidance to ensure you know what all of these mean!
How should a licensed property be valued?
Section 2 explores the appropriate valuation approaches and methods that you should adopt when valuing licensed property.
Typically, the income approach and profits method is the most appropriate. This will also include the use of the comparable method.
The four key steps in using the profits method to calculate capital value are:
Section 4 looks at rental valuations specifically, which requires use of the comparable method. In this scenario, you will need to consider the terms of the lease, e.g., demise, lease term, user, covenants, alienation, rent review, trading requirements and wholesale supply tie provisions. Tenant’s improvements will also need to be considered by the valuer.
You also need to understand the term, divisible balance – i.e., the apportionment between the landlord and tenant based on the risk and reward adopted by each.
Section 6 relates to the valuation of investment property, which could be for a variety of purposes.
For example, valuations for financial reporting which are covered by VPGA 1 of the Red Book Global and UK VPGA 1 of the UK National Supplement. VPGA 4 of the Red Book Global provides a clear definition, which you should read and understand.
Section 7 relates to valuations for secured lending, which are further discussed in VPGA 2 of the Red Book Global and UK VPGA 10 of the UK National Supplement. Your advice should incorporate commentary on whether the asset provides sufficient security for lending purposes, or not.
What factors affect the value of licensed trade related property?
Section 3 explores a range of factors affecting the value of trade related property, such as:
Physical characteristics
Actual trading results of the incumbent (actual) operator and similar businesses
Terms of trade
Market conditions
Market positioning
Statutory compliance
What else do I need to know when valuing a licensed trade related property?
A lot, as it is a specialist and complex area of valuation practice!
However, here are some things you should consider…
Special assumptions (Red Book Global VPGA 4):
‘a - on the basis that trade has ceased (sometimes with the additional special assumption that no trading records are available to prospective purchasers or tenants)
b - on the same basis as (a) but also assuming the trade inventory has been removed
c - as a fully equipped operational entity that has yet to trade, known by a number of terms, such as but not limited to ‘day one’ and ‘turn key’
d - subject to adopted trade projections. This may be appropriate when considering development of the property. In using adopted projections, all special assumptions must be realistic, relevant and valid for the particular circumstances of the valuation.’
You should read the remainder of VPGA 4 to understand the following:
Definition of a fully equipped operational entity
Assessing trading potential
Valuation for a non-trading property
Apportionment
Section 5 discusses tied pubs, i.e., where there is a contract for the supply of drinks and other services and the pub will be occupied under a lease, tenancy or licence.
You will need to have knowledge of the Pubs Code etc. Regulations 2016 in the UK, as a minimum.
Conclusion
Valuing licensed trade related property is a specialist and complex area of valuation practice, and a robust understanding of the key guidance is required.
If you would like to learn more about licensed property valuations, then why not book in an hour of mentoring with our resident expert, David Broschomb MRICS FAVLP?
As a member of the Expert Group for the production of this Professional Standard, David will be well-placed to support you in developing your valuation knowledge and competence.
This is what he has to say about the Professional Standard:
‘The update reflects the RICS awareness that as time passes, advice and standards need to be reviewed to ensure that they are current and relevant. I know that all of the contributors to the update hope that this 2nd edition is of benefit to members in this sector’.
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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.
