Pub Companies - Business and Enterprise Committee Contents

Supplementary memorandum submitted by RICS

  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 they arise.

  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 assumptions.

  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.

March 2009

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