RICS proposes guidance note on multi-storey residential valuations

On 3 October 2022, the Royal Institute of Chartered Surveyors (RICS) published a draft guidance note on the valuation of properties in multi-storey residential buildings with cladding. The draft guidance is open for public consultation until 31 October 2022.

Background

It has been recently reported that there are still 10,000 properties which require remediation works further to enactment of the Building Safety Act earlier this year.

In light of uncertainties post-Grenfell surrounding who will be responsible for payment of any fire safety remediation works and what those works should entail, it is perhaps unsurprising that banks have been reluctant to provide mortgages on properties which required remediation works. This has led to paralysis in the market with many flats left unsellable.

In July 2022, a group of lenders including Barclays Bank, Santander and NatWest released a statement stating that banks were now willing to lend on mortgages with fire safety defects so long as there is a fully funded remediation plan in place. This could include a government grant for funding or if the developer had agreed to carry out the works. This has provided some impetus back into the market.

The purpose of the additional guidance from RICS is to ensure that valuers take a consistent and transparent approach when undertaking valuations for secured lending purposes of properties of this type.

What does the draft guidance set out?

It is explained in the draft guidance that there are likely to be challenges valuing these properties as there will be a limited amount of directly comparable evidence for a valuer to utilise. Several indicative scenarios are set out for a valuer to use as guidance when undertaking a valuation.

Factors which a valuer should consider include:

• What works are required, and will this have an impact on the marketability and desirability of the property once complete?
• Are the costs of the remedial work known?
• Is there a possibility that the landlord could pass on remedial costs to the leaseholder?
• Are any potential contributions for the remedial works capped?
• Will the property still be able to be occupied whilst remediation works take place?
• What is the impact of the cost of waking watches?
• Is there likely to be heating/cooling issues at the property whilst the works are being carried out?
• What is the impact of higher insurance premiums?
• Have the dates for commencement and completion of the works been scheduled?

Comment

The draft guidance will be welcomed by stakeholders, including lenders, valuers, leaseholders and purchasers. It is hoped that this will increase the number of mortgages offered on properties which require remediation work.

Given current market uncertainty and the limited comparable evidence available, it is important that valuers clearly set out the assumptions they have relied upon and any limitations in scope in their reports.

The draft guidance acknowledges the risks for valuers and states that reports should be caveated to explain that less weight should be given to the valuation figures given the uncertain market conditions. It should also be made clear that valuations could change very quickly, and up-to-date valuations should always be obtained before advancing a loan. Therefore, clear communication with clients will be imperative to protect a valuer’s liability.

It is expected that the draft guidance will be in effect from 1 December 2022 onwards however, valuers are encouraged to adopt the approach set out as soon as possible. Stakeholders are able to respond to the consultation by following the link here.