RICS draft guidance note - Valuation of development land, 1st edition

Valuation of development land, 1st edition

Appendix C: Development valuations: illustrative assumptions and special assumptions

C.1 Development property can include existing buildings; a number of the following assumptions relate to such existing buildings.

C1 Illustrative standard assumptions for the valuation of development property

C1.1 Title

C1.1.1 We shall assume that the borrower has or will have a good and marketable title, free from any encumbrances, restrictions or other outgoings of an onerous nature other than those that are disclosed to us; and that if leasehold, the lessee's interest is a qualifying interest for statutory lease extension or enfranchisement in accordance with the relevant legislation.

C1.2 Mortgages or charges

C1.2.1 For the purposes of our valuation, we shall assume that the property be free and clear of all mortgages or other charges on or over them.

C1.3 Compliance with covenants

C1.3.1 We shall assume that the tenant will comply with the lease covenants. Therefore, should we note during our inspection a certain want of repair and decoration in the property, this want of repair will effectively be ignored.

C1.3.2 We shall also assume the tenant will comply with the other terms of the lease and that there are no material breaches of covenant, or unresolved disputes with the tenant, that might affect the value of the property.

C1.4 Site investigation

C1.4.1 We will not undertake any site investigation or geological, mining or geophysical survey and therefore cannot clarify whether the ground has sufficient load-bearing strength to support any of the existing buildings or any other constructions that may be erected in the future.

C1.4.2 The report will give no warranties as to the condition of the structure, foundations, soil and services.

C1.5 Condition surveys

C1.5.1 We shall not instigate any environmental audit or other environmental investigation or soil survey on the property that may evidence any contamination or the possibility of any such contamination. Therefore, we shall assume that there have been no contaminative or potentially contaminative uses ever carried out on the property. Should it be established that contamination, seepage or pollution exists at the property or on any neighbouring land or that the premises have been, or are being, put to a contaminative use (unless stated otherwise in our report), this might affect the values stated in the report.

C1.6 Where existing buildings are present

C1.6.1 We shall not carry out building surveys nor shall we inspect those parts of the properties that are covered, unexposed or inaccessible. Such parts have been assumed to be in good repair and condition, unless we have been informed otherwise. We cannot give any warranty concerning the condition of the properties and have relied on the information provided to us in allowing for the reasonable costs of maintaining the properties in our financial projections.

C1.6.2 We shall not examine or test any of the services installed or connected and will assume that all such services have been installed and connected in accordance with appropriate regulations. We shall assume that they are in full working order and not in need of repair or replacement, unless advised to the contrary.

C1.6.3 We shall not make any allowance for extra repair costs and liabilities that might arise if high alumina concrete or any other deleterious or hazardous substances have been used in any part of the construction. Nor shall we make any specific provision regarding latent defects. We shall not arrange for any investigation to be carried out to determine whether any deleterious material has been used in the construction of the properties or has since been incorporated. We will, therefore, be unable to report that the properties are free from risk in this respect.

C1.6.4 For the purposes of these valuations, we shall assume that such investigation would not disclose the presence of any such material to any significant extent. We shall, therefore, assume the following:

  • there are no abnormal ground conditions, archaeological remains, hazardous or deleterious materials or organic growth, such as Japanese knotweed or other invasive species, present that might adversely affect the present or future occupation, development or value of the property
  • the property is free from rot, infestation and structural or design defect
  • no high alumina cement or other currently known prohibited or suspect materials or techniques have been used in the construction of, or any subsequent alterations or additions to, the property
  • for purposes of this valuation we have assumed that there are no deleterious or hazardous materials or any defects or want of repair of those materials that would have an effect on value
  • the property is not contaminated and is not adversely affected by environmental legislation
  • any processes carried out on the property that are regulated by environmental legislation are properly licensed by the appropriate authorities and operated in accordance with the licence and
  • that all appropriate building regulations have been or will be followed in the construction of the property.

C1.6.5 If any of the above assumptions prove to be inappropriate, the value of the property concerned may be affected.

C1.7 Energy performance certificates

C1.7.1 For the purposes of this valuation, we have not been provided with a copy of an energy performance certificate for the premises. Our valuation assumes that any transaction will be conducted in accordance with the relevant legislation.

C1.8 Plant and machinery

C1.8.1 In accordance with standard valuation practice, our valuation will include land, buildings, site works and all plant, machinery, fixtures and fittings associated with the mechanical and electrical services of the buildings, site and site works. These services will include lifts, window cleaning equipment, heating, lighting, air conditioning and the ventilation equipment normally associated with the building.

C1.8.2 No process plant or installations associated with telephones and computers will be included in our valuation. Goodwill and specialist plant and machinery, including that used for specific computer installations, telephones, computers, tenants' fixtures, fittings, furnishings and equipment, will be excluded from the valuations.

C1.9 Computers

C1.9.1 For the purpose of the valuation, we shall assume that all systems and services that are reliant upon any form of computer or micro-processor are functional and have no inherent software defect that might now or in the future cause them to cease operation. Should it, however, be established that significant cost will arise in achieving continuous operation of these services, the values reported could be reduced.

C1.10 Statutory notices

C1.10.1 We shall assume that there are no outstanding statutory notices other than those that are identified to us.

C1.11 Statutory requirements

C1.11.1 We shall assume that there are no contraventions of any statutory requirements.

C1.12 Tax

C1.12.1 No allowance will be made in our valuation for any liabilities for tax. Our valuation will be expressed exclusive of any tax liabilities that may become chargeable.

C1.13 Service charge

C1.13.1 We have assumed that the service charge is run cost effectively and efficiently and thus not for profit. Also, unless otherwise advised or stated, we have not allowed for any major items of expenditure, which any ingoing tenant/occupier may be liable for and may potentially have an adverse effect on the value/values reported herein. It is also assumed that the service charge is managed in accordance with Service charges in commercial property (1st edition), RICS professional statement - effective 1 April 2019.

C1.13.2 We would recommend that information regarding service charges, including any substantial shortfalls or known and foreseeable major items of expenditure and or repair, are verified by your legal advisors. Upon receipt of further detailed information we will be more than happy to comment on these and, where applicable, the effect on the figures reported herein.

C1.14 Grants

C1.14.1 No allowance will be made for the incidence of grants except insofar as the availability of government financial incentives for industry influences general levels of value.

C1.15 Costs of acquisition

C1.15.1 We shall <insert 'not' as appropriate> reflect a purchaser's costs of acquisition to take account of stamp duty, agents and legal fees, including VAT.

C1.16 Costs of realisation

C1.16.1 No allowance will be made in respect of costs of realisation.

C2 Illustrative special assumptions: examples

C2.1 The paragraphs below are examples of special assumptions that may appear in the report. As with any special assumption they should be specific to the situation. Therefore, any use of the paragraphs below should be adapted accordingly.

C2.1 Development land with existing buildings

C2.1.1 The valuation assumes that the site has vacant possession.

C2.2 Special assumptions for strategic land portfolio

C2.2.1 Our valuations have been prepared on the assumption that all landowners required for the delivery of a comprehensive scheme have entered into agreements that involve the equalisation (or sharing) of cost and value.

C2.2.2 We have assumed that as the owner of the freehold interest of the land that is being valued, <the owner> is also the option holder over the adjoining optioned land.

C2.2.3 The valuations assume that no party claims any special ransom value for the provision of access and/or services and that there are no abnormal costs associated with the construction of infrastructure.

C2.3 For greenfield site adjacent to existing settlement and identified for potential release

C2.3.1 The property is valued with vacant possession.

C2.3.2 The property has planning permission for a comprehensive development of up to <insert number of dwellings> residential dwellings as detailed in the masterplan.

C2.3.3 There is an agreement with the adjoining landowner to work in collaboration to deliver a comprehensive residential development of up to <insert number of dwellings> residential dwellings over both sites.

C2.3.4 Any planning obligation costs are pro-rated between the property and the adjoining site.

C2.3.5 Any payment for the property is likely to be received in tranches.

C2.4 Vacant possession and mortgage default

C2.4.1 The property was occupied at the time of our inspection, but we have reported our opinion of the market value of the freehold interest in the subject property under the special assumption that it is subject to vacant possession at the valuation date.

C2.4.2 Our estimate of market value assuming a restricted marketing period of <insert number of days> days is on the special assumption that the constraint preceded the valuation date due to the default of the mortgagor and the mortgagee being in possession but that the property is the same at the valuation date, or the inspection date (notional or actual) if later, including any tenancy.

C2.4.3 Our estimate of market value assuming a restricted marketing period of <insert number of days> days is on the special assumption that the constraint had arisen at the valuation date due to the default of the mortgagor but that the property is the same as at the valuation date, including any tenancy.

C2.5 New build residential

C2.5.1 Gross development value is the aggregate of the individual unit market values of each unit to be constructed and assumes that they have all been finished to a good standard, in compliance with all information provided for the proposed planning application for a <insert number of storeys> -storey scheme and building control, and that all collateral warranties from the builder and professional team are issued and transferable, and that any appropriate building quality guarantees will be issued.

C2.6 Adjoining land agreement and vehicular access

C2.6.1 The borrower has an informal agreement with an adjoining land owner to sell jointly. Our valuation is subject to the special assumption that this arrangement has been formalised.

C2.6.2 There was no direct vehicular access at the time of our inspection, due to there being <insert specific activity> construction activity in the area. Our valuation is made on the special assumption that the property has direct access to the adopted public highway.