by Jen Lemen
Hot Topic Highlight - RICS Red Book UK National Supplement
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This week, we are looking at the new RICS Red Book UK National Supplement, which will be a hot topic for the Spring 2019 RICS APC final assessment interviews.
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RICS have published RICS Valuation - Global Standards 2017 - UK National Supplement to replace the previous 2014 edition.
When does this apply from?
14 January 2019.
Why is there a separate UK edition?
To provide advice on specific requirements and supporting guidance on the application of the global Red Book to UK valuation work.
Both need to be read together, i.e. the UK edition does not replace the global Red Book, although some elements of it may supplement or modify the global guidance.
How is the new UK supplement structured?
The new supplement is split into mandatory and advisory sections:
- UK Professional and Valuation Technical & Performance Standards (UK PS and VPS) - Mandatory
- UK Valuation Practice Guidance Applications (VPGAs) - Advisory
Which sections are mandatory?
UK PS 1 - Compliance with valuation standards within the UK jurisdiction
UK VPS 1 - Terms of engagement (scope of work) and reporting: Red Book compliance
UK VPS 2 - Terms of engagement (scope of work) and reporting: supplementary provisions in Scotland
UK VPS 3 - Regulated purpose valuations: supplementary requirements
- 1+ properties are acquired within 12 months of the valuation date, AND
- A valuer/firm has received an introductory fee or negotiated purchase on behalf of the client
The valuer cannot undertake a regulated purpose valuation unless another firm unconnected with the valuer’s firm has provided a valuation at the time of, or since, the transaction was agreed.
A conflict can, therefore, arise where a valuer/firm is involved in the introduction and acquisition of a property and in the provision of regulated purpose valuation relating to the same property.
Additional disclosures are required for this purpose, which should be set out in a simple and concise statement:
- Proportion of total fees in the preceding financial year paid by the client to the total fee income expressed as either less than 5%, or, if more than 5%, then within range of 5%
- Where, since the end of the last financial year, if it is anticipated that there will be a material increase in the proportion of fees payable by a client, the valuer must include a statement to this effect
Which sections are advisory?
UK VPGA 1 - Valuation for financial reporting: general matters
- Discusses use of IFRS or UK GAAP for different types of entities
- The purpose of financial statements is to provide information about the financial position and performance of reporting entity, to satisfy requirements of Companies Act 2006 (as amended) and to inform decision making for end users
- VPGA 1 generally relates to UK GAAP, but principles still apply to IFRS
- The guidance discusses the bases of value under FRS 102, e.g. fair value, and how leases will be treated under changes to IFRS 16
UK VPGA 2 - Valuations for other regulated purposes
UK VPGA 3 - Valuations for assessing adequacy of financial resources
UK VPGA 4 - Valuation of local authority assets for accounting purposes
UK VPGA 5 - Valuation of central government assets for accounting purposes
UK VPGA 6 - Local authority and central government accounting: existing use vale (EUV) basis of value
UK VPGA 7 - Valuation of registered social housing providers’ assets for financial statements
UK VPGA 8 - Valuation of charity assets
UK VPGA 9 - Relationship with auditors
UK VPGA 10 - Valuation for commercial secured lending purposes
UK VPGA 11 - Valuation for residential mortgage purposes
- RICS Residential Mortgage Valuation Specification in UK Appendix 10 of the January 2014 (revised April 2015) edition of RICS Valuation – Professional Standards UK may still be adopted, a new edition is likely to be published in future
- Valuers should not advise on the mortgage term, size of advance or lending outcome
- Valuers may have a duty of care to the prospective purchaser, whether or not they are provided with a copy of the report
- The guidance also discusses bases of value, the use of special assumptions relating to planning consent for future development, Project Market Value, reinstatement cost, inspection limitations and leasehold assumptions
UK VPGA 12 - Valuation of residential property for miscellaneous purposes
UK VPGA 13 - Residential secured lending guidance for other related purposes including RICS HomeBuyer Service
UK VPGA 14 - Valuation of registered social housing for loan security purposes
UK VPGA 15 - Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax and the Annual Tax on Enveloped Dwellings
UK VPGA 16 - Valuations for compulsory purchase and statutory compensation
UK VPGA 17 - Local authority disposal of land for less than best consideration in England and Wales
UK VPGA 18 - Affordable rent and market rent under the Housing Acts in a regulatory context
What are the key changes?
- Re-ordering of the guidance and minor changes to the various component sections
- Changes to IFRS 16 reflected, a separate global Guidance Note is also likely to be issued
- Guidance on the DRC method of valuation for financial reporting incorporating published as a separate UK Guidance Note (1st Edition)
- Former UKGN 4 archived due to overlaps with VPS 2 and VPGA 8 of the Global Red Book and other associated RICS guidance
- UKGN 6 retired for review, with the intention of it being published as a separate Guidance Note
- UK VPGA 10 and 16 introduced relating to commercial secured lending and valuations for compulsory purchase and statutory compensation respectively
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Stay tuned for our next blog post to help build a better you
N.b. nothing in this article constitutes legal or financial advice.