Red Book UK National Supplement

The latest update to the Red Book UK Supplement was published on 19 October 2023 and came into effect 1 May 2024. It applies to all valuations where the valuation date is on or after this effective date. Specific dates relating to the new rotation policy for some regulated purpose valuations are referred to in responses to questions below.

Following publication of the updated RICS Valuation - Global Standards (Red Book) effective 31 January 2025, references have been updated in the Red Book UK national supplement.

To make valuation governance amendments resulting from the Valuation Review and various technical updates listed on this page in respect of public sector, financial reporting and residential content.

(a) What does subject to UK jurisdiction mean in practice?

Subject to UK jurisdiction can be taken to mean where the performance of the valuation contract is subject to the statutes, rules and regulations of the UK and also of relevance is the jurisdiction in which any claim in relation to the valuation could be brought.

(b) Are the Channel Islands and the Isle of Man included? Is there coverage relevant to the Republic of Ireland?

The Isle of Man, Jersey, Guernsey and the Republic of Ireland are not part of the UK though reference should first be made to point (a) above in terms of whether the Red Book UK National Supplement is relevant to valuations related to these jurisdictions.

(c) Is the Red Book UK national supplement relevant to any regulated firm or valuer operating outside the UK?

Potentially, subject to (a) and (b) above.

No. Residential mortgage valuation advice was previously contained in VPGA 11 of the Red Book UK national supplement effective from 2019 and as Appendix 10 of the 2014 (updated April 2015) edition. The newly updated VPGA 11 sets high level principles for residential valuation as a whole but does not go into significant detail in respect of residential mortgages.

RICS is currently in the process of developing a new UK professional standard for the valuation of residential property for owner occupation. In the interim valuers can still refer to the previous guidance.

Yes. The UK VPS 3 introduction references that the section only applies to valuations of assets for a regulated purpose and those that are not subject to any applicable exceptions from VPS 1–6 under PS 1 section 5.

Following feedback from industry consultation, we have exempted public sector valuation for financial reporting from the UK VPS3 ‘regulated purpose’ definition. This is because a legislative and regulatory framework exists for the public sector, and some valuations are undertaken internally.

We recognise a tailored approach is needed for governance and rotation concerning valuations undertaken for public sector-related investment properties and commissioned a workstream during 2024 to review these standards. This work has focused on examining current RICS guidance requirements in respect of valuer independence and objectivity in the UK public sector (including those undertaken by in-house teams), and expectations around valuer’s culture and behaviours, particularly in relation to the valuation of local authority investment properties for financial reporting purposes.

An expert group considered these issues in a process chaired by Nick French (chair of RICS Global Valuation Standards Expert Working Group) and re-affirmed the original outcome of exempting public sector valuations for financial reporting from the UK VPS 3 ‘regulated purpose’ definition. Please refer to the following link and report for further details: https://www.rics.org/news-insights/rics-decides-on-rules-for-public-sector-valuer-rotation-in-new-report

The answer to this depends on factors such as funding, organisational structure and how the assets being valued are owned. In general terms universities are, in many cases, not public sector and public colleges (post-school, 16-18 further education colleges as opposed to university colleges) are often public sector. The Office for National Statistics (ONS) classifies public sector properties and provides further information that may be relevant to answering this question. As part of this classification, further education colleges in England were re-classified as part of the public sector in November 2022 (colleges in Scotland and Northern Ireland are already part of the public sector. Colleges in Wales remain in the private sector). UK universities are currently recorded by ONS in the private sector however they are currently undertaking a classification review on universities.

Universities and colleges may be not-for-profit or charitable institutions – these are not, by default, exempt from UK VPS 3 and the individual circumstances should be reviewed.

RICS does not typically regulate client firms but does regulate RICS members working in those firms, who are required to follow relevant standards and adhere to our Rules of Conduct.

RICS has published Valuations for real estate investment entities - A guide for clients and valuers. The guide helps clients and valuers to understand the respective roles that they should play in instructing valuations of investment property and how these interact.

The changes to UK VPS 3 regulated purpose valuation governance are driven by the recommendations in the Valuation Review. Peter Pereira Gray’s report made special mention of the necessity to ensure that any changes did not unfairly impact SMEs operating in this area of work. RICS has engaged with SMEs to understand potential impacts and the final standards include measures to make sure impacts are as proportionate as possible.

Valuation for secured lending is not included as a regulated purpose valuation and is therefore excluded from the UK VPS 3 regulated purpose valuation governance requirements (which include mandatory rotation). Mandatory Red Book Global Standards governance requirements (PS2) apply. The advisory Red Book Global Standards rotation policy applies (to rotate valuers at intervals not exceeding seven years).

The Red Book UK Supplement UK VPS 3 defines large companies as those that do not qualify as a micro entity, small or medium company under the Companies Act 2006 (sections 384a to 34b, 381 to 384 and 465 to 467). This is generally those that have two or more of the following: 

• Turnover more than £36 million 
• Balance sheet total more than £18 million
• Number of employees more than 250
   

The Companies Act 2006 also contains relevant information about the financial year(s) to be considered.

Amendments to the Red Book UK National Supplement establish specific new governance standards under UK VPS 3.3, developed following feedback from industry consultation. The new governance rules introduce a compulsory rotation cycle for valuation firms and responsible valuers valuing an asset (as opposed to for example, the client’s parent company) for regulated purposes. The new rotation requirements include:

• a maximum single engagement period of five years
• a maximum period of ten years before the rotation of a valuation firm - this might include multiple engagements
• a maximum period of five years before the rotation of an individual ‘responsible’ valuer
• a minimum three-year break after rotating off an engagement
• a two-year transition policy up to 30 April 2026 (simplified from the consultation version)
• where there are truly exceptional circumstances, a carefully controlled option to deviate from the requirements, including notification to RICS Regulation (which can be undertaken by emailing the relevant detail to: declarations@rics.org).
   

A process map illustrating the rotation policy can be found here. 

Note responses to some more specific rotation questions are included below.

The changes concern those involved in instructing or undertaking regulated purpose valuations upon which third party reliance is placed, such as for example, financial reporting, takeovers/mergers, and collective investment schemes. Secured lending valuation (which includes residential mortgage valuation) and public sector financial reporting valuation are excluded.

In respect of valuations for financial reporting under UK VPGA 1, the additional provisions are only applicable in respect of assets owned or part owned by entities whose transferable securities are admitted to trading on a regulated market or large companies (i.e., those that do not qualify as a micro entity, small or medium company as respectively defined in sections 384a to 384b, 381 to 384 and 465 to 467 of the Companies Act 2006).

The additional provisions also relate to the assets held by charities but only in respect of those charitable organisations that are also defined as large companies or admitted to trading on a regulated market.

The transition policy included within UK VPS 3 for the rotation policy, seeks to provide valuers and clients with a reasonable timescale to transition of a maximum of two years from 1 May 2024.

Under the transition policy a valuer and/or firm could undertake the valuation of an asset that would otherwise be in breach of the requirements

1. where they are under an existing engagement to do so, or
2. where this is necessary to allow the client to organise an orderly transfer to a new responsible valuer or valuation firm
    

(subject to individual engagement terms – refer to the full policy).

The rotation policy applies to certain regulated purpose valuations, effective from 1 May 2024. It considers the period for which a valuer and valuation firm have valued the asset(s); this consideration may extend back prior to 1 May 2024. It is important to note the test applies to the period for which the valuer and valuation firm have valued the asset(s) – which may be different to the period for which they have undertaken work for the client.

It excludes public sector financial reporting and is only in respect of the valuation for financial reporting under UK VPGA 1 of assets owned or part owned by entities whose transferable securities are admitted to trading on a regulated market or large companies (those that do not qualify as a micro entity, small or medium company as defined in the Companies Act 2006).

Not necessarily. Valuations undertaken for internal purposes only (as defined in Red Book Global PS 1 section 5) are excepted. However, regulated purpose valuations undertaken by internal valuers that a third party (such as a regulator or client) may rely on, may fall within the scope of the rotation policy in certain cases – such as where the purpose is financial reporting under UK VPGA 1. Furthermore, the firm (or organisation) the internal valuer works for may fall within the rotation policy also. Public sector financial reporting valuations are excluded.

The valuer rotation policy applies to the responsible valuer. It is understood that multiple valuers and other professionals can be involved in the valuation process, and firms should, where possible, consider appropriate rotation of others involved.

Responsible valuer is a term adopted from the Red Book Global Standards and refers to a named valuer who accepts responsibility for the valuation and is appropriately qualified. The terms of engagement and reporting standards mandatorily require the identification of a responsible valuer. Note sometimes internal and external governance policies put in place by a valuation firm and/or agreed with their clients require more than one signatory to a valuation. This does not conflict with the RICS requirement set out above so long as a named responsible valuer can be identified.

The policy applies in certain cases from 1 May 2024. Note also that it is the point at which a valuation is undertaken that the test of time valuing the same asset(s) is applied, which may be different to the time when, for example, a master contract or service level agreement is renewed or agreed.

The answer to this is subject to individual circumstances and may be different in light of the nature of the amended corporate structure, contractual arrangements etc. 

UK VPS 3.3 states: ‘In order to undertake the valuation, the responsible valuer must be able to confirm to the client in agreed written terms of engagement (as an addition to VPS 1) that the period for which the valuation firm has valued the asset(s) for the same regulated purpose does not exceed ten years and will not have exceeded the period by the completion of the engagement.’

The valuation firm refers to the firm being engaged to provide the valuation service. Note there is also a valuer rotation policy which is not altered by a change in firm.

A valuer must be competent and experienced to complete the work to the required standard as a first principle. There may be circumstances where a firm will need to consider whether they can continue with a valuation engagement if they do not have another competent and experienced responsible valuer to rotate to. A firm should not assume that rotation of the instruction to another firm will result in a responsible valuer who is not competent and experienced.

There may be circumstances where the mandatory rotation policy applies to valuations for financial reporting under IFRS and UK GAAP. This is subject to the individual valuation circumstances and appropriate professional judgement.

In terms of jurisdiction, the Red Book UK National Supplement ‘sets out specific requirements, together with supporting guidance, for members on the application of the RICS Valuation – Global Standards (Red Book Global Standards) to valuations undertaken subject to UK jurisdiction.’

The UK VPS 3 Regulated purpose valuations: supplementary governance requirements apply to: valuations for financial reporting under UK VPGA 1 (excluding public sector…). UK VPS 3.3 covering rotation applies to a subset of the above, in terms of financial reporting specifically:

• ‘valuations for financial reporting under UK VPGA 1, excluding public sector and only in respect of assets owned or part owned by entities whose transferable securities are admitted to trading on a regulated market or large companies (those that do not qualify as a micro entity, small or medium company as defined in section 381 to 384 of the Companies Act 2006)’
   

UK VPGA 1 is referenced as the measure for the type of financial reporting covered. UK VPGA 1 covers ‘Valuation for financial reporting: general matters’ and refers to both IFRS and UK GAAP financial reporting.

The UK VPS 3 standard recognises that in exceptional circumstances, such as for some assets that require highly specialised knowledge and experience, there may be an extremely limited pool of available competent valuers or valuation firms with the capability of providing a regulated purpose valuation service. In these circumstances the valuation firm may accept valuation instructions that would otherwise be in breach of the requirements, subject to a mandatory process set out in UK VPS 3:

Valuers and their clients will make decisions about whether, in their professional judgement, there are exceptional circumstances which justify a deviation from the rotation policy set out in UK VPS 3.3. These decisions must be notified to RICS Regulation (by emailing the relevant detail to: declarations@rics.org), including the approval of an independent client party and responsible principal. This will allow RICS Regulation to monitor these notifications and take action if notifications give rise to concerns. RICS will not prescribe exceptional circumstance scenarios, which should be discussed with appropriate client parties, with professional judgement applied in advance of instructions being accepted.

The following FAQs provide further clarification on the application of exceptional circumstances under UK VPS 3, including the decision-making process, notification requirements, supporting evidence and safeguards.

Note: These FAQs provide operational clarity specifically on the application of the "truly exceptional circumstances" deviation under UK VPS 3.3. They do not alter exceptions from Red Book Global PS 1 and PS 2 under PS 1 Section 5, public sector financial reporting exemptions in UK VPS 3, or out-of-scope non-regulated purpose valuations.

Who decides whether “exceptional circumstances” apply?

Exceptional circumstances notifications form part of UK VPS 3, which states at paragraph 6:

‘It is recognised that in exceptional circumstances, such as for some assets that require highly specialised knowledge and experience, there may be an extremely limited pool of available competent valuers or valuation firms with the capability of providing a regulated purpose valuation service. In these circumstances the valuation firm may accept valuation instructions that would otherwise be in breach of [mandatory valuer and/or firm rotation]’

Decisions on whether exceptional circumstances apply should be made using professional judgement against the criteria set out in UK VPS 3 paragraph 6. In practice, this assessment would normally be led by the Responsible Valuer, with the involvement of the client and the approval of the Responsible Principal where required by UK VPS 3, before the valuation firm accepts the instruction.

Decisions will be based on professional judgement, supported by clear evidence, and documented at the time the decision is made.

Exceptional circumstances are intended to be used rarely and there should be clear evidence to demonstrate why the client has genuinely been unable to appoint an alternative valuer and/or firm. This distinguishes genuinely exceptional circumstances from situations where rotation may simply be difficult or inconvenient.

Does RICS approve or reject exceptional circumstances notifications?

UK VPS 3 paragraph 6 mandatorily requires RICS to be notified of exceptional circumstances to valuer and firm rotation.

RICS does not operate an approval or pre-clearance regime and will not formally approve or reject exception requests. RICS regulation does monitor submissions and may make additional enquiries regarding a notification where necessary to satisfy itself that appropriate records and supporting evidence are in place and that the requirements of UK VPS 3.3 have been addressed Notifications submitted to declarations@rics.org form part of wider RICS monitoring and assurance activities but a direct follow up to every notification is not expected. All notifications must meet each of the mandatory requirements at UK VPS 3.3 paragraph 6 (i)-(iv) and RICS Regulation may contact notifiers directly in circumstances where one or all of these requirements are not met.

What is the purpose of notifying RICS of exceptional circumstances?

Notification enables RICS to monitor the use and frequency of exceptional circumstances, identify emerging risks or patterns, and inform regulatory engagement and monitoring. It also informs thematic review with governance groups such as the Valuation Assurance Committee (VAC). It does not imply endorsement of the exceptional circumstances decision.

Who undertakes the exceptional circumstances notification?

The Responsible Valuer with the support of the Responsible Principal, must notify RICS Regulation in writing before the instructions are accepted in accordance with the provisions set out at UK VPS 3.3 paragraph 6 (i)-(iv).

What evidence is expected to support an exception?

Notifications must be able to demonstrate that the client was unable to appoint an alternative valuer and/or firm (see UK VPS 3 paragraph 6 point (i)) for the asset in question (not the fund or other vehicle).

To support this request a notification could include details demonstrating:

• that a reasonable and proportionate search for alternative valuers has been undertaken;
• why alternative valuers were not suitable or available (and what actions such as tendering were undertaken to demonstrate this);
• why continuation with the existing valuer is necessary to protect the public interest;
• what safeguards are in place to maintain independence and objectivity.
   

What constitutes exceptional circumstances?

Exceptional circumstances may arise where there is an extremely limited pool of suitably qualified valuers.

Exceptional circumstances are expected to be rare and interpreted narrowly.

The following do not constitute exceptional circumstances:

• client preference for continuity
• internal resourcing constraints
• commercial or fee considerations
• convenience or timing pressures
   

Do certain scenarios (e.g. portfolio wind-downs, specialist assets, or pension mandates) qualify as “exceptional circumstances”?

These factors are not, in isolation, sufficient to justify an exception.

While such circumstances may be relevant context, the notification must still demonstrate that:

• the client is genuinely unable to appoint an alternative valuer
   

Another consideration might be whether proceeding with a change would give rise to a material risk to the public interest.

Considerations such as cost, convenience, continuity preference, or internal governance structures will not, on their own, meet the required threshold.

How can independence and objectivity be maintained?

Firms can ensure that independence and objectivity are maintained through appropriate compliance measures.

Firms might also want to consider enhanced safeguards such as:

• independent internal review or second sign-off (note it is mandatory for the valuation - firm's Responsible Principal to agree in writing to accept the instructions within any notification).
• enhanced disclosure to the client and, where relevant, auditors.
• rotation of supporting team members where possible.
   

Note: While internal review processes serve as an essential safeguard when an exception applies, they do not replace or substitute for the requirement to rotate valuers under UK VPS 3.3 or PS 2.

The rotation policy is designed around the asset and there are no specific considerations for later acquisitions or the proportion of assets in a fund within the standards. There possibly would therefore need to be rotation in respect of the single asset in this example.

Red Book Global Standards VPS 1 paragraph 3.2 point (b) requires terms of engagement to include identification of the client or clients, which is confirmation of who the valuation assignment is being produced for. It also refers to representatives of the client. Any individual identified in this process is an instructing client party. Where the client(s) or representative(s) of the client include firms or organisations – any employee of those firms or organisations who would receive a direct fee or benefit as a result of the valuation, including, where relevant, its comparison to performance indices or other benchmarks should be considered as instructing client parties for the purposes of the above section.

The level of detail required to be included in the terms of engagement and valuation report is for the agreement of the valuer and client(s), subject to appropriate professional judgement and any other relevant standard or regulation. It should as a minimum explicitly reference that the valuation has been instructed by client parties who receive a direct fee or benefit as a result of the valuation. Note the minimum requirement is to confirm whether this is the case – not to name individuals or detail the fee or benefit. This information can then be considered by intended users of the valuation and aids with transparency. The statement should not be seen as undermining or giving uncertainty to the valuation conclusion but should be presented as a governance measure.

It is not expected that valuers maintain a comprehensive personal record of assets valued and when, other than relevant records within a firm. Where it is reasonable to make enquiries to ascertain information from a previous firm relevant to a UK VPS 3.3 rotation decision, the valuer may do this and make a record of their enquiry. If the valuer is aware that they are in breach of the rotation policy in respect of being the responsible valuer, the valuation must be declined. If the valuer is not aware and could not reasonably be aware they can proceed subject to all other relevant standards.

RICS intends for valuations of real estate for financial reporting purposes relating to LGPS to be subject to mandatory valuer rotation, aligning them with their private sector counterparts. For financial reporting purposes, these valuations should be considered Regulated Purpose Valuations (RPV) under the Red Book UK National Supplement, subject to the full scope and provisos of UK VPS 3.

No, not yet. While the intention is to include them, a formal change to UK VPS 3 is required. Until that amendment is made and formally implemented, LGPS are not currently required to rotate.

RICS intends to introduce the formal requirement for mandatory rotation through an amendment to UK VPS 3 which will be subject to a public consultation and the prior approval of RICS’ Standards and Regulation Board. This change will take place at the next scheduled update of the UK National Supplement, which is currently expected to be around 2028 at the earliest. Once implemented, valuations for financial reporting purposes relating to LGPS will become subject to mandatory valuer rotation where the other criteria of UK VPS 3 apply and no other provisos within UK VPS 3 are applicable (e.g. the large companies/transferable securities financial reporting valuation proviso).  

RICS is providing this advisory signal now in the public interest for several reasons. Importantly, the Government has recently published their report on the Pensions Investment Review which has considered how to tackle fragmentation and inefficiency in the LGPS system in England and Wales to unlock its investment potential. In particular the recommended move towards larger, FCA-regulated asset pools for LGPS, significantly strengthen the argument for RICS to eventually apply mandatory valuer rotation to LGPS property assets.

This provides strong justification for a specific future carve-out from the general public sector exemption. While the "public sector" designation might still apply broadly, the nature of these funds as investment vehicles, managed in a more commercial and regulated environment, makes them more akin to private sector investment funds where rotation is already deemed essential for good governance and risk management. RICS's proposed actions in this space can be seen as a proactive response to align its valuation standards with the evolving landscape of LGPS.

RICS members should be aware of RICS's stated intent to include LGPS in mandatory rotation. While not formally required yet, it's prudent to consider this future requirement in their professional practice and client discussions regarding LGPS valuations. RICS will provide clear statements about the intent to make any necessary formal changes in due course, subject to the usual consultation and governance processes.

A5: The application of mandatory valuer rotation to valuations undertaken for financial reporting purposes relating to charities depends on their financial reporting standards and how their accounts are consolidated.

Valuations undertaken for financial reporting purpose relating to charities that are considered Non-Departmental Public Bodies (NDPBs) and whose accounts are wrapped up in the Whole of Government Accounts (WGA) (having regard to IAS 16 Property Plant and Equipment as adopted for the UK Public Sector by FreM) or relating to Academy Trust Schools in England under the 2010 Academies Act (whose accounts are incorporated into the WGA), are not subject to mandatory valuer rotation. For financial reporting purposes, these valuations should not be considered Regulated Purpose Valuations (RPV) under the Red Book UK National Supplement. This aligns with the "excluding public sector" limb of the UK VPS 3.3 - 3.5 scope.

Providing the other criteria/scope of UK VPS 3 apply (e.g. the large companies/transferable securities financial reporting valuation proviso), valuations undertaken for financial reporting purposes relating to charities reporting under FRS 102 alone are subject to mandatory valuer rotation. For financial reporting purposes, these valuations should be considered Regulated Purpose Valuations (RPV) under the Red Book UK National Supplement.

A8: Based on current understanding, the existing wording of UK VPS3 is believed to already achieve the desired outcomes for valuations undertaken for financial reporting purposes relating to charities. Therefore, RICS intends to clarify this position through guidance, such as these FAQ’s, rather than requiring a change to the wording of UK VPS3 itself for valuations undertaken for financial reporting purposes relating to charities.

The UK VPS 3 Regulated purpose valuations: supplementary governance requirements were designed for particular valuation circumstances and include exceptions and provisions that limit their scope. UK VPS 3 is also limited to valuations which are undertaken subject to UK jurisdiction and cross references material in UK VPGA 1 and UK VPGA 2 that focus on UK standards and regulation.

Valuations subject to UK jurisdiction, for financial reporting under UK VPGA 1, and in respect of assets owned/part owned by a non-large company that only had transferable securities on a non-UK market such as The International Stock Exchange (TISE, headquartered in Guernsey), would not be subject to UK VPS 3.3-3.5 (note UK VPS 3.1-3.2 could still apply).

Were the entity owning/part owning the assets in question a large company or were the valuation circumstances any of those covered in UK VPGA 2, UK VPS 3.3-3.5, including mandatory rotation could apply. This would also be the case if the owning/part owning entity had transferable securities admitted to trading on UK and non-UK markets.