RICS draft guidance note - Risk, liability and insurance, 3rd edition

Risk, Liability and Insurance - 3rd edition

Appendix D: Valuations for investment funds and public offerings

D1 Public offerings including IPOs

As well as CMBS, there are other transactions in which finance will be raised in capital markets against the security of property. The most obvious example is an operating company whose property assets form a significant part of its balance sheet value, which either floats on the stock exchange for the first time (an Initial Public Offering (IPO)), or is already listed and seeks to raise more finance through the stock exchange. In a London Stock Exchange public offering, and in the case of most comparable jurisdictions, including Ireland and the United States, the prospectus or equivalent document must refer to a valuation from an independent valuer. That can only be done with the consent of the valuer.

If asked to consent to a valuation being referred to in this context, members should take specialist advice, because the risks associated with the valuation being relied upon by investors - including potentially investors in other jurisdictions - are significant. For example, it is not usually legally permissible to agree a liability cap in this context.

Where the valuation is referred to in a public offering document, members should consider taking specialist legal advice about limiting liability. However, in broad terms, it is not permitted for a valuer to impose a liability cap on the purchasers of the investment instruments issued, but:

  • it should be possible to limit liability to the lender and other professional parties and
  • where there is a private offering to a finite number of investors on a limited number of loans (such as in a private CMBS), it may be possible to agree with those investors a cap on the valuer's liability.

It is important to note that the valuer should only approve references to their own valuation, and not inadvertently approve the whole prospectus or circular, as this significantly increases the valuer's responsibility and liability.