The RICS Valuation Faculty has reviewed its guidance to RICS members in the Red Book regarding the valuation of Specialised Trading Properties ('STPs') which includes several classes of trading properties where direct comparability between properties is difficult to assess except by reference to earnings potential. This includes restaurants, bars, hotels, nightclubs etc.
 
A revised version of RICS Valuation Information Paper No. 2: The Capital and Rental Valuation of Restaurants, Bars, Public Houses and Nightclubs is also to be published in the next few weeks.
 
A principal reason for the review is to address the lack of clarity amongst non-valuers about how valuers use Profit & Loss accounts ('P&L') to assess open market values and open market rents.
 
In addition to property valuers there is another community of 'Business Valuers'; typically accountants, practising brokerage of going concern businesses and advising on remedial action in response to businesses with trading difficulties, failures of management control, or insolvency.

The valuation of properties on the basis of their trading potential is closely related to the valuation of entire businesses and this article

In many cases it is hard to draw a clear distinction between a valuation on a profits based method and a valuation of a business as a going concern, especially where there are few tangible assets other than the trading premises.

To consider the commonalities and differences between property valuers and business valuers a multi-disciplinary seminar took place in April 2005.

Following the seminar, RICS is setting up a working-group of members and non-members to look at standards and methodology for business valuations. The group will meet for the first time in 2006.

In advance of this the Trading Related Valuations Group has produced a discussion paper to explore the different approaches adopted by property valuers and pure business valuers.

The article can be downloaded from the PDF Downloads column on this page.