Supplementary memorandum submitted by
I refer to your letter of 13 March setting out
some queries with regard to the recent Hearing. I am now able
to respond as follows:
1. RICS, as a professional body, is mainly
concerned with valuation standards. This involves both reporting
and presentation standards and relevent experience of the member
providing the valuation. The valuation standards are contained
within a formal publication, The RICS Valuation Standards,
which is an international publication, meeting the requirements
of the international valuation standards set by the International
Valuation Standards Committee. It is colloquially known as the
Red Book. Within the Red Book, Guidance Notes are published to
give greater clarity to particular forms of valuation, or valuations
relating to particular types of property. The Red Book is only
mandatory for members of RICS, it is widely consulted and referred
to by other professionals.
All members of the RICS must comply with the
Valuation Standards when undertaking instructions, except where
the instruction is not covered by Red Book matters, as stated
within the publication, or where the client requires the member
to deviated from the Valuation Standards, in which case the report
must set out the extent of the deviation.
Most rent reviews are not covered by the Valuation
Standards as the rent review process is a matter of negotiation
between landlord and tenant, taking into account the terms of
the contract between the parties, as set down within the lease.
There is no formal legal requirement that Chartered Surveyors
must be involved in the rent review process. Indeed, quite often
the landlord and tenant will discuss and agree matters direct.
Chartered Surveyors are trained in analysing market transactions
and apolying that evidence to specific circumstances. This may
be capital or rental valuations, or rent reviews. Quite often
pub companies have standard leases and undertake internal training
of non-Chartered Surveyor staff, who deal with rent reviews as
2. GN1 of the Red Book relates to Trade
Related property valuations. There are a number of different valuation
methods and techniques that are applied to different types of
property. Trading assets, where the property is either specifically
built, or substantially adapted, for a particular business are
invariably valued using what is known as the Profits Method of
Valuation. The Profits Method is usually adopted for properties
that are trading businesses, that usually change hands at prices
related to the trading potential of the business. A wide variety
of leisure properties, examples of which are stated within GN1,
are valued using the Profits Method of Valuation. This includes
fuel stations and cinemas. A considerable number of fuel stations
are operated by way of lease with a tie to a specific supplier.
This is therefore similar to the tied lease model adopted by many
of the public house owners.
The Profits Method of Valuation is widely used,
as GN1 states, for hotels, restaurants, theatres and care homes.
In addition, one could add a wide range of leisure facilities
and businesses, visitor attractions, marinas, ports, etc. Also,
the shopping centre market widely adopts turnover related leases
which are forms of the Profits Method of Valuation. Thus, the
profits method is not unique to the public house industry.
3. As stated in (1) above, RICS sets valuation
standards. The appropriate method of valuation to be adopted by
the valuer is largely determined by evidence of real transactions
between market participants. It is important to understand that
market valuation seeks to mirror real transactions in the market
place, and not to ascribe values based on a set of preconceived
Whilst the Red Book does not generally prescribed
detailed methods of valuation we do publish a range of Valuation
Information Papers which inform the practitioner of the common
valuation approaches in the valuation of specific property types.
There do not have a mandatory status, but are designed to provide
best practice recommendations where a specific market approach
is evident. If a particular method or practice was considered
obsolete the VIP would say so. As stated in the various Valuation
Information Papers, valuers should have relevent experience of
the type of property that they are valuing and will therefore
be fully aware of market transactions and how buyers/sellers and
landlords/tenants appraise and negotiate transactions.