Valuations and Why You Need Them
Valuations are the basis for nearly all property decisions. They range from: formal written documents prepared according to strict rules written by the accountancy profession, the regulators of the City and the European Union; valuations for taxation purposes; informal verbal expressions of opinion given during a brief inspection and conversation about a property.
The two types of property, freehold and leasehold, have their own specialist valuation areas.
The reasons companies or individuals need valuations range from asset values for company accounts, valuations for taxation purposes including capital gains tax, through rental valuations for rent reviews. Capital or rental valuations are needed for taking new premises or perhaps renegotiating existing terms. Property represents such a large proportion of business budgets and the whole range of property advice starts with a value based opinion.
The European Union has introduced a large number of regulations which aim to standardise valuation practice across the whole Common Market. The results of this are that commercial property valuations are now more strictly regulated than at any time in history.
We provide all such valuations and advice and comply with Royal Institution of Chartered Surveyors (RICS) Red Book and Professional Indemnity Insurance requirements.
Valuation of Investment Properties
Investment in property does require defined values so that actual costs of acquisition and the likely income from the property can be established, on purchase and later when rent reviews or lease renewals take place, to give the purchaser reassurance as to the likely performance of his investment. Whilst it is not possible to predict the increase or decrease in rental values in the future, the potential for rental increase at the next rent review can be predicted based upon today’s rental values where they exceed the rents payable under a lease. Other issues can be considered such as the likelihood of finding new tenants after the expiry of an existing lease.
Where a portfolio of properties are held, valuations can be carried out on a regular basis with, where necessary, a proportion of the properties being valued each year.
Valuations of Dilapidations (wants of repair)
Most modern commercial leases are written in a form which requires, at the end of the lease, the tenant to return the property to the condition in which it was handed over to him. In some cases leases are written so that the tenant is responsible for the interior of the property and in others both the interior and exterior. The costs of returning accommodation to its original condition has risen dramatically and it is now common for claims on tenants at the end of a lease to be very large. Normally the landlord comes into the property a few weeks before the end of the term and prepares a Schedule of Works which he requires the tenant to carry out. This is served on the tenant who has the opportunity to carry out the works himself or vacate leaving the landlord to do so and paying the costs of the works, his fees and the loss of rent which the landlord suffers for not being able to re-let the property immediately.
The legal and technical issues that arise from these negotiations are considerable and both parties are generally better off getting professional advice to deal with such claims.
Valuations for Rent Reviews and Lease Renewals
Most modern leases of over 3 years (and occasionally some of less) have a provision for a rent review although the market norm is for a 5 yearly review pattern. This means that at the end of a specified period after the commencement of the lease the landlord can require the rent to be increased to the then market value. In times of rapid inflation of rental values rents have been know to double between reviews. In recent years rents have mostly shown much less growth than this. However rental value of a property is capable of more than one opinion and both tenants and landlords are well advised to seek advice from their own valuers. They will have access to a large variety of transactions in the area upon which to assess the value of the subject property and negotiate with the other party to achieve a settlement. Most leases contain provisions for an independent expert or arbitrator to settle rent reviews where the parties cannot agree.
At the expiry of a lease if a tenant wants to remain in occupation of the premises then a new lease can be negotiated. Once again rental valuations are needed to assess the rent, taking into account any changes in the terms of the lease. When a tenant remains in occupation and takes a new lease then dilapidations claims are generally carried forward to the end of the new lease.
General comments on Valuation
As can be seen from the above, valuations are a wide and complex subject. Without doubt a brief informal discussion about these is called for and Shaw & Company are happy to talk to potential clients to establish their needs.