Commercial property - offices - valuation investigation

Question 1

What are the key qualities a valuation report must have?

Answer 1

It must be clear, transparent, and as certain as possible, to avoid misunderstandings with the client.

Question 2

What should a valuer include in the report regarding relied-upon information?

Answer 2

Full details of the information, including its source, to allow the client to verify it if necessary.

Question 3

What should a valuer do if they doubt the accuracy of supplied information?

Answer 3

Advise the client of these doubts and recommend further investigation or advice.

Question 4

What is an example of information that might be outside the valuer’s control?

Answer 4

Tenure or tenancy details, which may require legal verification.

Question 5

What must the valuer do when reporting on details they can professionally verify?

Answer 5

Clearly state the steps taken to verify, e.g., checking floor areas.

Question 6

What basic location information must a valuation report provide?

Answer 6

A clear explanation of the property’s exact location, with any referenced maps appended, so the client can find it easily.

Question 7

What should the valuer include about the surrounding area?

Answer 7

A description of the locality, including whether it’s typical for the property’s use (e.g., office area vs. isolated office).

Question 8

Why is it important to identify other occupiers in the area?

Answer 8

To assess the quality and character of the location – e.g., international firms vs. small local businesses.

Question 9

What should be noted about other land uses in the locality?

Answer 9

Any existing, ongoing, or proposed developments, plus recent changes of use.

Question 10

What broader context about the town or city should the valuer provide?

Answer 10

Socio-economic factors, transport links (road and rail), and local amenities.

Question 11

Why are transport and shopping facilities relevant to an office property’s valuation?

Answer 11

Poor access or amenities may deter staff and tenants, making the property harder to let.

Question 12

How can location factors affect value?

Answer 12

They can positively or negatively influence demand, lettability, and overall investment appeal.

Question 13

How should a valuer logically describe a property in a report?

Answer 13

From outside to inside, and bottom to top when describing the interior.

Question 14

What key external features should a valuer note?

Answer 14

Age, construction, external spec/amenities, and the number of floors.

Question 15

What should be included in the interior description?

Answer 15

Reception, amenities (lifts, HVAC), floor layout, floor-to-ceiling heights, and spec consistency.

Question 16

Why is the floor-to-ceiling height important?

Answer 16

It may restrict future refurbishment potential.

Question 17

What parking information should be included in the report?

Answer 17

Car parking availability and adequacy, and potential impact on rent/value if lacking.

Question 18

What should be considered when assessing suitability of the office property?

Answer 18

Whether it suits current use and if it can be refurbished to modern/fitted-out standard.

Question 19

Why is market norm for lettings (e.g., fitted-out standard) relevant?

Answer 19

It affects market rent and occupier attractiveness – common in cities like London.

Question 20

What repair liabilities should the valuer differentiate between?

Answer 20

Tenant’s internal repairs vs. landlord’s responsibilities, especially with Schedules of Condition.

Question 21

What financial mechanism may offset repair costs in multi-let properties?

Answer 21

Service charge recovery, if structured appropriately in the lease.

Question 22

How might the actual occupation differ from the letting schedule?

Answer 22

A single tenant may sublet or not physically occupy the property, affecting income sustainability.

Question 23

What is ‘useful economic life’ and when should it be included?

Answer 23

The remaining time a property is economically usable – include if the client requests.

Question 24

What should be reported about disrepair or technical concerns?

Answer 24

Flag urgent repairs and advise if specialist investigation (e.g., M&E) is needed.

Question 25

What floor area measurements should be reported, and why?

Answer 25

Include both IPMS and Net Internal Area (NIA) to match market comparables.

Question 26

What RICS guidance should the valuer consider on environmental issues?

Answer 26

The current edition of RICS' Sustainability and Commercial Property Valuation guidance.

Question 27

Why is it important for the valuer to consider their knowledge of environmental issues?

Answer 27

The valuer must assess whether they have the knowledge and indemnity insurance to advise on environmental matters.

Question 28

What should a valuer do if they don’t have the expertise to give advice on environmental issues?

Answer 28

Report observations made during the site visit and recommend further specialist advice if needed.

Question 29

How can a property observation checklist assist the valuer?

Answer 29

It helps record potential environmental concerns, allowing parties to decide if further advice is needed.

Question 30

Why are environmental issues relevant to the valuation of property?

Answer 30

They can impact the property’s loan security and influence investment decisions.

Question 31

What are Minimum Energy Efficiency Standards (MEES)?

Answer 31

Legislation requiring commercial properties to have an EPC rating of E or above for new leases and renewals, with penalties for non-compliance.

Question 32

What changes did the MEES legislation bring in 2023?

Answer 32

From 1 April 2023, all existing lettings must comply with the minimum EPC rating requirement unless exempt (e.g., short-term leases or long-term leases of 99+ years).

Question 33

What is the future target for MEES compliance?

Answer 33

The government aims for a B rating by 2030, with a potential earlier target of C.

Question 34

How should the valuer address concerns related to deleterious materials like asbestos?

Answer 34

Report any hazardous materials observed during the site inspection and check the building's asbestos register.

Question 35

How should the age and construction of the property impact the valuation?

Answer 35

The valuer should assess whether deleterious materials or non-standard construction techniques are present and their implications.

Question 36

Why is cladding particularly important when assessing a property’s environmental risk?

Answer 36

The valuer should note cladding and whether combustibility concerns require further investigation.

Question 37

What external areas should the valuer inspect for environmental issues?

Answer 37

The surrounding areas for issues such as Japanese knotweed or shared access roads that may require repair.

Question 38

What’s the key role of a valuer when it comes to environmental issues during the property inspection?

Answer 38

To identify and report any potential environmental risks and highlight when specialist advice is necessary.

Question 39

What must the valuer clarify in their report regarding statutory regulations and town planning?

Answer 39

The valuer should specify the investigations carried out regarding statutory regulations and town planning, including consultations with the local planning authority.

Question 40

What should the valuer consider regarding the General Permitted Development Order 2015?

Answer 40

The General Permitted Development Order (GPDO) allows the conversion of B1 offices to C3 residential use (subject to prior approval), but certain exemptions may apply, such as Article 4 Directions imposed by local authorities.

Question 41

What is the effect of Article 4 Directions on permitted development?

Answer 41

Article 4 Directions override the GPDO, meaning office-to-residential conversions may require full planning permission instead of just prior approval.

Question 42

Why should the valuer stay updated on permitted development legislation?

Answer 42

The valuer must be aware of size limitations for office-to-residential conversions and keep track of changes to legislation that affect office-to-residential use (e.g., GPDO amendments).

Question 43

What significant change happened to commercial use classes in England from 1 September 2020?

Answer 43

Commercial use classes were reorganized, with A1, A2, A3, B1, and other uses now falling under Use Class E, which offers more flexibility for re-letting vacant properties.

Question 44

How does Use Class E impact the valuation of commercial properties?

Answer 44

Use Class E offers flexibility for re-letting accommodation, and while it might not always be possible to quantify the new uses, the valuer should highlight alternative use possibilities.

Question 45

What should the valuer do if they observe unlawful property use during their investigation?

Answer 45

The valuer should report any unlawful use, and if necessary, recommend that the bank's solicitor carries out further investigation.

Question 46

How should the valuer handle the risk of enforcement action due to unlawful use?

Answer 46

The valuer should note the risk of enforcement action, including potential consequences (e.g., conversion from office to residential), and reflect this in the reported market value.

Question 47

What should the valuer consider regarding listed buildings or properties in conservation areas?

Answer 47

The valuer should highlight if the property is listed or located in a conservation area and explain the implications of this status on the market value.

Question 48

How should the valuer handle proposed redevelopment projects in the vicinity of the property?

Answer 48

The valuer should report any proposed redevelopments with planning consent or under construction that may impact the market value of the property.

Question 49

What statutory issues should the valuer check for in relation to fire escapes and equality legislation?

Answer 49

The valuer must assess whether the property complies with fire safety regulations and equality legislation, and whether it can be adapted if necessary. They should consider the effect on market rent and value if it does not comply.

Question 50

How should the valuer approach statutory regulations when valuing a property?

Answer 50

The valuer should carefully review the property’s compliance with relevant statutory regulations and indicate how non-compliance could affect market rent and market value.

Question 51

What action should the valuer take if a property requires further specialist advice regarding statutory compliance?

Answer 51

If a property has statutory concerns (e.g., building regulations, planning permissions), the valuer should recommend specialist advice (e.g., surveyors, solicitors) to address potential issues.

Question 52

What should the valuer provide in the report regarding the current rating assessment of a property?

Answer 52

The valuer should provide details of the source of the current rating assessment and point out any anomalies compared with the actual use of the property, including practical effects.

Question 53

What should the valuer include in a report if it pre-dates the new rating lists that took effect in April 2023?

Answer 53

The valuer should state both the current and proposed rateable values as of the valuation date, noting any changes due to the revised rating lists.

Question 54

What is the valuer’s responsibility when a property has vacant areas in relation to void rates?

Answer 54

The valuer should comment on the liability for void rates, noting the appropriate multiplier and any potential change in liability due to a revised rateable value from April 2024.

Question 55

When should a valuer provide a reinstatement cost assessment?

Answer 55

A valuer should only provide a reinstatement cost assessment if specifically requested by the client.

Question 56

What should the valuer do if the property is complex and outside their expertise for a reinstatement cost assessment?

Answer 56

The valuer should advise the client upfront and recommend seeking specialist advice if the property’s nature exceeds the valuer's expertise.

Question 57

What should the valuer clarify about the nature of the reinstatement cost assessment if provided?

Answer 57

The valuer should clarify whether the figure is a day-one figure and whether it includes VAT, loss of rent, and other related factors.

Question 58

How should the valuer handle the provision of a reinstatement cost for larger or complex properties?

Answer 58

For larger or complex properties, the valuer should clearly state that they may not have the necessary expertise to provide an accurate reinstatement cost assessment and recommend that the client seek specialist advice.

Question 59

What should the valuer be clear about in regard to the nature of tenure?

Answer 59

The valuer should confirm whether the property is freehold, heritable, or leasehold. For freehold, they should check for concerns like flying freeholds or rent charges. For leasehold, the valuer should understand the nature of the lease and potential impacts on future cash flow.

Question 60

When valuing a leasehold property, what matters should the valuer pay particular attention to?

Answer 60

The valuer should check if the freeholder can forfeit in case of the leaseholder's insolvency, and if there are any head rent provisions or other clauses that might affect future cash flow or the borrower's ability to generate income.

Question 61

What should be included in the tenancy schedule in the valuation report?

Answer 61

The tenancy schedule should include the full tenant name, lease term, current rent, break options, repairing liabilities, rent review provisions, security issues, and alienation provisions.

Question 62

Why is it important for the valuer to know the exact company names of the tenants?

Answer 62

It ensures that covenant checks are made on the correct businesses, which is essential for assessing the financial strength and reliability of the tenants.

Question 63

What should the valuer do if the tenancy details in the report are incorrect?

Answer 63

The valuer should recommend that the client's solicitor verify the information, as any inaccuracies could require reassessment of the market value.

Question 64

What sources of information should the valuer rely on to assess covenant strength?

Answer 64

The valuer should primarily use financial accounts from sources like Companies House or credit ratings for larger companies. If the valuer cannot obtain such information, they should explain why and provide commentary on how the market might perceive the covenant strength of the tenants.

Question 65

What should the valuer first analyze when assessing market rent for a property?

Answer 65

The valuer should first analyze the passing rent at the property. In a multi-let property, they should note the range of passing rents and when they were agreed.

Question 66

When valuing a multi-let property, what should the valuer consider regarding the condition and aspect of the property?

Answer 66

The valuer should note differences in the condition and aspect of the recently let office suite or floor. ## Footnote Higher floors may attract a lower rent if there is no lift, or refurbished areas may command a higher rent.

Question 67

What should the valuer include in their commentary about the rental market?

Answer 67

The valuer should comment on the state of the rental market, including demand sources, prospective tenants, and the likely future letting basis, covering aspects like lease terms, break clauses, void periods, rent-free periods, and market trends.

Question 68

What details of comparable transactions should the valuer provide in the report?

Answer 68

The valuer should provide details including: - Property address - Description of location and accommodation - Specification comparison (e.g., fitted space) - Transaction date - Lease terms, rent, break options, rent-free periods - Per-square-metre or per-square-foot rental analysis.

Question 69

What should the valuer consider when comparing floor area measurements between the subject property and comparable transactions?

Answer 69

The valuer should ensure a like-for-like comparison by considering the basis of measurement (e.g., net internal floor areas as per RICS’ Code of measuring practice) for both the subject property and comparable transactions.

Question 70

What should the valuer do if the passing rent is higher than their market rent assessment?

Answer 70

The valuer should comment on the effect of this ‘over-rented’ situation, taking into account the unexpired lease term, tenant covenant strength, and the tenant's ability to pay the above-market rent for the remainder of the lease term.

Question 71

What is the first step the valuer should take when conducting a market value assessment?

Answer 71

The valuer should briefly summarize the property, its tenure, tenancies, passing rent, and market rent. They should also explain the current capital market and the best method for marketing the property (e.g., auction, private treaty, tender).

Question 72

What should the valuer comment on if a property is substantially over-rented or has a short headlease?

Answer 72

The valuer should comment on the potential impact of being over-rented or the risk of the headlease reducing the value of the property during the loan period.

Question 73

What are the three common methods of valuation for office properties?

Answer 73

The three methods are: 1. Investment method (capitalizing passing and market rent using a yield) 2. Comparable method (for vacant possession or owner-occupier demand) 3. Residual method (for redevelopment properties)

Question 74

When the valuer uses the investment method, what factors should they consider?

Answer 74

The valuer should consider outgoings (business rates, repairs, ground rent), void periods, and market conditions. The comparable method can be used to justify the market rent and yield.

Question 75

When the market value differs from the purchase price, what should the valuer do?

Answer 75

The valuer should comment on the discrepancy, explain the reasons behind it, and justify the market value based on their valuation approach and market conditions.

Question 76

What specific risks should the valuer identify in the risk assessment section of the valuation report?

Answer 76

The valuer should identify risks like the reducing term of a headlease, headlease rent reviews, a tenant with poor covenant strength, or the expiry of an occupational lease.