Draft: Valuation approach for properties in multi-storey, multi-occupancy residential buildings with cladding, 1st edition Professional Standard, England

1 Introduction

1.1 Purpose

This document is intended to help valuers undertaking valuations for secured lending purposes on domestic residential flats, within residential blocks of 5 or more storeys or 11 metres or more tall, in line with the remediation schemes and qualifying lease protections (as outlined in section 4), applicable to England only as set out by the government. This document will also be of use when undertaking valuations of such properties for other purposes. For residential blocks and/or flats, 4 storeys or fewer or under 11 metres, the principles contained within this professional standard may be applicable along with the information set out in RICS' Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding, 1st edition. You should confirm the valuation approach with your client prior to commencement of the instruction.

The principles contained within this standard may be applicable in other jurisdictions and valuers should make themselves aware of national variations. This guidance does not apply to individual terraced, semi-detached or detached houses, bungalows or developments considered to be non-domestic.

The Building Safety Act ('the Act') received Royal Assent on 28 April 2022, enshrining in law improvements in building safety, including measures to protect leaseholders from bills to make their homes safe. Qualifying leaseholders will be legally protected from the costs associated with the remediation of historical building safety defects. A number of developers have signed a pledge confirming that they will remediate buildings with safety defects they played a role in developing. The Act also enshrines in law that the cost of removing cladding on buildings of 5 or more storeys or 11 metres or more will be met in full, whether by government or the industry, providing much needed assurance to leaseholders they have no liabilities in this regard, and to wider stakeholders as to where responsibilities lie in terms of funding and remediation.

The Act sets out the responsibilities for remediating buildings and provides greater clarity for a route to remediation funding, whilst also enshrining in law that no cladding related remediation liabilities rest with the leaseholder. Eligibility for government schemes will be set out in each scheme's guidance. Secondary legislation provides clarity on how leaseholders will prove they are qualifying and how landlords will prove they are entitled to pass on remediation costs to leaseholders. This marks a step change in the landscape from the uncertainty that has been present for a number of years. It is now unlawful to pass remediation costs on to leaseholders - save for capped costs for non cladding works in specific, limited scenarios.

Against this backdrop, subject to their lender clients' willingness to lend on properties 5 or more storeys or 11 metres or more that are captured by a scheme or protections, this guidance supports valuers in providing valuation advice on properties in a risk based and proportionate way.

Following consultation with the fire safety industry, valuers, insurers and lenders, this guidance provides an approach that can be used by a competent valuer during a secured lending valuation process to value properties in multi storey residential buildings where:

  • remediation work to cladding for fire safety purposes has been identified
  • a route to funding remediation is clear and
  • lenders have indicated their willingness to lend.

Valuers are reminded of their obligations under the RICS Rules of Conduct and RICS Valuation - Global Standards, PS 2 Ethics, competency, objectivity and disclosures:

'As it is fundamental to the integrity of the valuation process, all members practising as valuers must have the appropriate experience, skill and judgment for the task in question.'

Valuing properties of this type requires a blend of the characteristics outlined above and an understanding of the evolving legislative, funding and best practice landscape. If the valuer does not have the required level of expertise to deal with some aspect of the valuation assignment properly, they should either decline the instruction or discuss and agree with the client what assistance is needed from other professionals able to provide specialist information.

In the period following the publication of this standard, there is likely to be a change in market sentiment as the evidence base for transactions of properties of this type increases. This guidance will remain under constant review to ensure that a proportionate approach continues to be taken to help ease the impact on leaseholders from combustible cladding, while ensuring that lenders and valuers meet their legal requirements to accurately report property values.

The 1st edition of RICS' Valuation of properties in multi-storey, multi-occupancy residential buildings with cladding is available for reference.

See the RICS Building Safety Act information centre for further information.

1.2 Effective date

This standard is applicable to England only and is effective from 1 December 2022 (provisional), with earlier adoption encouraged.