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What is this week's blog about?
In this week’s blog, we take a look at the new RICS Valuation – Global Standards: UK National Supplement (2023 Edition).
This is essential reading for all RICS APC and AssocRICS candidates and Chartered Surveyors undertaking valuation work in the UK.
You can find out more and download the full guidance on the RICS website.
Why has a new edition been published?
The new UK National Supplement has been updated following the independent Valuation Review led by Peter Pereira Gray. Concerns raised by the Review included valuation reliability, valuer independence and market dynamics.
How do I apply the new edition in practice?
The UK National Supplement does not replace the Red Book Global. It is, instead, intended to be applied alongside the Red Book Global, where UK valuation work is being undertaken.
In several places, the UK National Supplement cross references the Red Book Global so it is worth having both open on screen to avoid any misunderstandings.
When reading the UK National Supplement, anything in bold a mandatory requirement. All other guidance (i.e., not in bold) is advisory or best practice.
When does the new edition apply from?
1 May 2024.
RICS have confirmed there will be a 2 year transitional period in relation to the UK VPS 3 valuer rotation policy, i.e., from 1 May 2024 until 30 April 2026. During this time, existing engagements can continue even if they breach the mandatory requirements of the updated UK VPS 3.3. This will allow valuation firms and clients time to make new arrangements.
How is the UK National Supplement structured?
There are various introductory sections, including a helpful glossary of technical terms.
There is one UK Professional Standard (UK PS); UK PS 1 - Compliance with valuation standards in the UK.
There are three UK Valuation Technical & Performance Standards (UK VPS):
UK VPS 1 and 2 – Terms of engagement and reporting
UK VPS 3 – Regulated purpose valuations
There are 17 UK Valuation Practice Guidance Applications (UK VPGA), covering a range of matters. This includes UK VPGA 10 Valuation for commercial secured lending purposes and UK VPGA 11 Valuation of UK residential property.
What changes have been made to the UK VPS?
Whilst UK VPS 1 and 2 have not been substantially updated, UK VPS 3 has been completely overhauled.
This relates to valuations for regulated purposes, where there is third party reliance on the valuation advice.
This includes valuations for financial reporting, inclusion in prospectuses or circulars issued by UK companies, in connection with takeovers and mergers, for authorised collective investment schemes and for unauthorised and unregulated collective investment schemes. Please see UK VPGA 1 and 2 for further detail on these purposes.
UK VPS 3 does not include valuations for excepted purposes (under VPS 1-5 of the Red Book Global, e.g., internal purposes only), secured lending valuations or financial reporting valuations relating to the UK public sector.
UK VPS 3 seeks to deal with conflicts of interest, particularly where a valuer or their firm is involved with the introduction and/or acquisition and then the regulated purpose valuation of the same property.
As a mandatory requirement, a valuer cannot undertake a regulated purpose valuation if the property or properties were acquired by the client within 12 months of the valuation date and the valuer or their firm received an introductory fee or negotiated the purchase.
The only exception to this mandatory rule is if an unrelated firm has valued the property for the same client after the acquisition completed. This fact must then be clearly stated in the regulated purpose valuation report.
For all regulated purpose valuations, additional disclosures must be made under UK VPS 3.2: The total fees paid by the client proportionate to the turnover of the valuation firm (in the preceding 12 months), effectively stated within a 5% range
A statement disclosing the nature and duration of the client relationship and previous work undertaken (and if there is no prior relationship, then this should be clearly stated)
A major change relates to UK VPS 3.3, which introduces a mandatory valuer rotation policy for regulated valuations. This policy applies to each asset being valued and must be clearly stated in the valuation firm’s terms of engagement.
In simple terms, for a regulated purpose valuation of one asset:
A single ‘responsible valuer’ can be engaged for up to 5 years (before they must be rotated)
A valuation firm can be engaged for up to 10 years (before they must be rotated)
A valuation firm cannot agree to be engaged for more than 5 years (before they must be rotated)
A minimum 3 year period is required before re-engagement
Deviation from UK VPS 3.3 is only permitted in exceptional circumstances and where RICS Regulation have been notified.
UK VPS 3.4 also sets out requirements relating to the valuation firm’s instruction from a suitable authority within the client organisation, together with any benefit or direct fee that the client may receive as a result of the valuation. Confidentiality and data security requirements are also reiterated.
UK VPS 3.5 provides guidance on applying PS 2 relating to preliminary advice and draft reports for regulated purpose valuations. All discussions with the client must be recorded on the file, evidencing that the valuer and the valuation firm have not been unduly biased or their advice compromised by the client. Any adjustment to a valuation figure following a conversation with the client must be fully justified and recorded on file.
What changes have been made to the UK VPGAs?
In terms of the amendments to the UK VPGAs, we recommend reviewing those which specifically relate to your area of valuation practice. Some are fairly specialist and will only be relevant to a smaller pool of valuers.
Minor amendments have been made to:
UK VPGA 1 – clarification of various issues and updating the guidance to reflect recent RICS guidance
UK VPGA 3 – updating relating to regulatory framework changes, such as Basel III
UK VPGA 9 – clarification on minimum requirements relating to information for auditors
UK VPGA 10 – paragraph on sustainability and ESG added in
UK VPGAs 5, 7, 14, 15 and 16 – clarification of minor issues only
Major amendments have been made to:
UK VPGA 2 – amendments relating to external regulatory changes at the FCA and Takeover Panel have been incorporated
UK VPGA 4 – completely rewritten to provide clarity and transparency on valuation of local authority assets for accounting purposes
UK VPGA 6 – substantial changes made based on the new RICS Professional Standard Existing Use Value (EUV) for UK Public Sector Financial Statements (1st Edition)
UK VPGA 8 – substantial changes reflecting the Charities Act 2022
UK VPGA 11 – broadened to cover all UK residential property valuations, not just secured lending valuations. Former UK VPGAs 12 and 13 have been included into UK VPGA 11 (we will cover the changes to this specifically in a future blog article)
UK VPGA 17 – guidance updated to include specific issues for Northern Ireland and Scotland
UK VPGA 18 - UK Affordable rent and market rent under the Housing Acts in a regulatory context has been deleted completely
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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.