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What is this week's blog about?
This blog article summarises what you need to know about the new RICS Guidance Note, Valuation of Properties in Multi-Storey, Multi-Occupancy Residential Buildings with Cladding (1st Edition).
This is essential reading for any candidates who are involved in valuing residential property, particularly in relation to the Valuation and Loan Security Valuation competencies.
You can download a copy of the Guidance Note here. It is supported by a Supplementary Information Paper, available here.
When does the new Guidance Note apply from?
5 April 2021.
What is the aim of the new Guidance Note?
The new Guidance Note aims to assist valuers when valuing multi-storey, multi-occupancy residential buildings (i.e. blocks of flats) with cladding, particularly for secured lending (mortgage) purposes.
It specifically provides criteria ‘that can be used by a competent valuer during a standard valuation inspection to identify buildings where remediation work to cladding for fire safety purposes that may materially affect the value of the property is likely to be required’.
The guidance will help valuers to understand the EWS1 form process and when one will be required due to visible cladding being present. It will also help other stakeholders to understand the process of buying and selling affected buildings.
What property types does the Guidance Note not apply to?
Residential houses which are individual terraces, semi-detached or detached, bungalows or non-domestic developments.
What is cladding defined as?
Cladding is ‘a method of enclosing a building externally by the attachment of finishing materials spanning between given points of support on the face of the building’. Examples include aluminium composite material (ACM), brick slips, high pressure laminate (HPL), metal composite material (MCM) and timber.
There are a number of external wall systems excluded from the Guidance Note, which include masonry panel construction, traditional cavity wall construction, timber framed buildings (with a brick, block or stone outer leaf), concrete panels and stone panels.
What is an EWS1 form?
An EWS1 form requires a competent fire expert to provide information about whether remedial works are likely to be required for a building with affected cladding. This allows the valuer (and lender, in turn) to assess the impact on value.
Previously, there has been a lack of specific criteria about when remediation work to cladding or balconies may materially affect value.
RICS address this in the Guidance Note by setting out criteria when an EWS1 form is required and resultant remediation works to the cladding or balconies may materially affect value:
‘For buildings over six storeys, an EWS1 form should be required where:
There is cladding or curtain wall glazing on the building or
there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber) or the decking is constructed with combustible materials and the balconies are directly linked by combustible material.
For buildings of five or six storeys, an EWS1 form should be required where:
There is a significant amount of cladding on the building (for the purpose of this guidance, approximately one quarter of the whole elevation estimated from what is visible standing at ground level is a significant amount) or
there are ACM, MCM or HPL panels on the building* or
there are balconies which stack vertically above each other and either both the balustrades and decking are constructed with combustible materials (e.g. timber), or the decking is constructed with combustible materials and the balconies are directly linked by combustible materials.
For buildings of four storeys or fewer, an EWS1 form should be required where:
There are ACM, MCM or HPL panels on the building*.
* Note: metal cladding and ACM/MCM are visually very similar, so if metal panel cladding is present, the valuer should confirm with the building owner or managing agent in writing that they are not ACM/MCM, or, if confirmation cannot be obtained, an EWS1 inspection should be requested’.
There are a number of scenarios where an EWS1 is not required, e.g. a building over 18m has a valid Building Control certificate or the building owner has met the advice in the Government’s consolidated Advice Note.
Valuers should ensure they record full site notes and justification for their decision in relation to the requirement for an EWS1 form. It should also be noted that the presence, or not, of an EWS1 form does not confirm that there are no fire or life safety risks.
How does a valuer establish if an EWS1 form is required?
The RICS have published a EWS1 decision tree and a number of in-depth case studies on their website, which are useful tools for valuers.
How can valuers manage risk and liability around this issue?
Valuers need to ensure that their valuation reports are clear and transparent in relation to the liabilities they assume. RICS provide recommended wording in the Guidance Note (section 3), which valuers should use in their reports to reflect various scenarios, e.g. EWS1 form requested or not requested.
RICS also recommend that valuers include a disclaimer within their Terms of Engagement relating to the valuation of affected buildings. Suggested wording is again provided in the Guidance Note.
If in doubt, valuers should speak to their Professional Indemnity Insurance broker or provider and/or a legal adviser to ensure that they have sufficiently managed the risk and liability of the work they undertake.
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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, professional or financial advice.