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New industry-wide process agreed for valuation of high-rise buildings

New industry-wide process agreed for valuation of high-rise buildings

  • The Royal Institution of Chartered Surveyors (RICS), The Building Societies Association (BSA), and UK Finance have today agreed a new industry-wide valuation process which will help people buy and sell homes and re-mortgage in buildings above 18 metres (six storeys).
  • The industry is also encouraging the owners of these buildings to proactively pursue independent testing of external wall materials to safely speed up the process for buyers and sellers.

RICS have been leading a cross-industry working group to consider best practice in the reporting and valuation of tall buildings within the secured lending arena, to agree a new standardised process. This will be used by valuers, lenders, building owners and fire safety experts in the valuation of high-rise properties, with actual or potential combustible materials to external wall systems and balconies.

This is endorsed by RICS, UK Finance, Buildings Societies Association, IRPM and ARMA. MHCLG are supportive of the approach.

Mortgage approval, valuation and insurance on high rise blocks of flats that have external walls consisting of potentially combustible material have been causing difficulties across the market, and has been impacting transactions.

RICS has an important leadership role to play in this area, acting in the public interest and utilising the expertise of our professionals to solve critical issues in the market.

The new External Wall Fire Review process will require a fire safety assessment to be conducted by a suitably qualified and competent professional, delivering assurance for lenders, valuers, residents, buyers and sellers. The Review has been developed through extensive consultation with a wide range of stakeholders. Only one assessment will be needed for each building and this will be valid for five years.

RICS are issuing this notification, to create consistency in the process and reporting of the valuation of tall residential buildings over 18m, with external wall systems comprising potentially combustible material. This is to combat issues in the valuation and sale of buildings in this category.

Details of notification

  • Since Grenfell, policy was created banning combustible material on some newly built property with effect from 21 Dec 2018. Government has directed that Aluminium Composite Material (ACM) external wall systems, in certain circumstances, are to be removed from residential tall buildings.  They also introduced guidance (see MHCLG Advice Note 14) for circumstances where there are other potentially combustible materials on existing tall buildings. These include but are not limited to: Metal Composite Materials (MCM) faced with other metals such as zinc, copper, and stainless steel; High Pressure Laminates (HPL); and rendered insulation systems.   The review of the Building Regulations is ongoing.

    RICS Members must maintain up-to-date knowledge of latest MHCLG guidance, further information can be found on www.rics.org/firesafety and www.gov.uk/government/collections/grenfell-tower.

  • The MHCLG has no remit in Scotland. However the Scottish Government guidance is that whilst the Ministry of Housing, Communities and Local Government guidance applies to England, the same general principles of the guidance should be applied in Scotland in the valuation of tall buildings. The guidance in full can be found via the following link: www.gov.scot/publications/grenfell-responding-in-scotland/

  • Fire safety is one of the key considerations an RICS member takes into account, and a valuer and their valuation must meet the requirements of RICS Valuation – Global Standards 2017 and RICS Valuation – Professional Standards UK January 2014 (revised April 2015) or RICS Valuation – Global Standards 2017, or UK National Supplement 2018 - depending on which UK Red Book Mortgage Specification is adopted.

    RICS members must fulfil their obligations relative to the instruction on a valuation. Lending policy varies between lenders and valuers, and should follow reporting requirements as per the lender instruction.

  • Standardised Approach

    This applies to tall residential buildings over 18m, which is consistent with MHCLG advice. RICS Members must still consider each property individually and reflect in value and report accordingly if fire safety issues exist in buildings below 18m.

    A pro-forma, EWS, has been created, to be provided to the RICS Member and Lender during the valuation process. The EWS form is a clear and transparent pro-forma completed by a fire expert, on behalf of the building owner, who will advise whether works are required.

    Due to legislative differences in Scotland, factors (property managers) need majority approval from individual flat owners to obtain the EWS. To ensure safety of occupation and ability to buy and sell, flat owners should speak with their factors to discuss how to resolve obtaining the EWS form and avoid duplication per block.

    You should always obtain the EWS form where the building appears to comprise - or does comprise - combustible materials to the external wall system or balcony, as this has been agreed as the industry standard approach to confirming whether works are required.

    If an EWS form is not available, you should refer to lender guidance and consider withholding the valuation figure or condition advice until one is made available to you.

    It is likely lenders will provide standard paragraphs for you to use when you either request or have sight of an EWS form. You should use the following phrase where this is not available to you. This will allow the borrower to understand your role and responsibilities.

    In arriving at the valuation for mortgage purposes, your mortgage lender and the mortgage lender's appointed valuer (where applicable) we have relied on the EWS1 form in good faith by a professionally qualified third party. There is however, no liability to the lender, the valuer or to you, the borrower for any losses or potential losses arising directly and solely from the valuation being provided in reliance upon the EWS1 form. If you require further information then please seek independent advice prior to legal commitment to purchase.

    It is important a disclaimer is used in all reports. You should always check that the person who has completed the form has completed the information set out in Notes 2 and 3 and that the information in the EWS1 form is complete and appears to make sense.

    You should also speak with your lender clients regarding a disclaimer between you and your lender. The suggested disclaimer is:

    "We (insert name of lender) formally acknowledge that where a valuation prepared for mortgage lending purposes by [you/identify valuation firm]] [our appointed valuers and valuers panel] has been  prepared in reliance upon the EWS 1 form (or as revised) in the full knowledge and understanding that this document is produced in good faith by a professional third party but excludes any liability to the lender, the valuer, valuer panel or the borrower and we agree that we will not, and any person deriving title to the mortgage from us will not, pursue a claim against the valuer for any losses or potential losses arising directly and solely from the valuation being provided in reliance upon the EWS 1 form.”

    RICS Members and Firms should always take independent steps to seek their own legal advice, which is tailored to the circumstances of any individual case.

    To the extent permitted by law, RICS excludes all liability and responsibility for any direct, indirect or consequential loss or damage incurred by any person or entity arising in connection with any reliance placed on the attached wording.

  • The EWS form must only be completed by competent chartered professionals with suitable fire expertise. Please note that the valuer does not complete this form or select which option is suitable. The fire expert does this and it is for the fire expert to assess which option is most appropriate.

    RICS Members and Firms with suitable fire expertise may be involved in the completion of an EWS Form. RICS Members and Firms doing this must refer to RICS Professional Statement Conflicts of interest,1st edition (March 2017) and RICS Valuation – Global Standards 2017 (and any subsequent versions) PS 2 before accepting a valuation assignment for the same building/client where an EWS form has been completed. RICS Members and Firms are reminded of their professional obligations to act independently and without an adverse conflict of interest.

  • The EWS form has two options, Option A or Option B. Two options exists to allow ease of reference to whether buildings do or do not contain materials which would lead to combustibility.

    A full version of the EWS form is provided below. The front page details the relevant information valuers and lenders need for valuation and lending purposes respectively.

    You may receive all or just the front page of the EWS form. The relevant section is page 1 and you should always have at least Page 1 where further information about the external wall system or balcony is needed.

    Download the EWS form here

What do the options mean and what should I do?

Option A

Option A will be completed where the building does not contain materials likely to support combustion or does contain materials likely to support combustion, but ONLY to an addition (such as a balcony).

A1 and A2 are not likely to lead to any further action but you should refer to lender guidance and always reflect in your valuation where necessary. A3 will be completed where there are combustible materials but only to an addition, such as a balcony. Where A3 is hilighted by the fire expert, you should refer to lender guidance or ask for the cost of remedial works and reflect in your valuation. Balconies of combustible materials have been confirmed to represent a fire risk but the cost of remediation is considered to be lower than external wall systems. Therefore lender guidance may require a different action, such as retention of a set amount. Where lender guidance does not exist, or lender guidance does not adequately reflect the impact on value, you should request remediation costs and reflect in your valuation.

Option B

Option B is where there are known combustible materials in the external wall system. B1 is where there are combustible materials but in the fire expert's opinion works are not required; this will be because other mitigating circumstances exist.

B1 is not likely to lead to further action but you should refer to lender guidance and reflect in your valuation where necessary.

Option B2 is where works are required. You should obtain the cost of remediation works, refer to lender guidance and reflect in your valuation.

Where RICS Members request further information about the external wall system or an attidtion, such as a balcony, RICS Members must have sight of the EWS form and ensure its content is adequately recorded for future reference, together with a full rationale for the valuation advice given.

This will not only ensure the context of the valuation advice is understood but also mean that adequate records are available in the event of a future query.

When do I use this form and how will I know which is the correct version?

RICS and all sponsoring organisations have and will communicate widely to ensure RICS Members and Firms, and supporting organisations and lenders, are aware of the EWS Form.

It is important only to use the correct version – downloadable from our website.

Do I need the form for newly constructed buildings?

Since Grenfell, policy was created banning combustible material on some newly built property with effect from 21 Dec 2018. The Building (Amendment) Regulations 2018 (S.I. 2018/ 1230) (the "Amendment Regulations") were made on 28 November 2018 and laid before Parliament on 29 November 2018 and effective from 21 December 2018.

Although the Amendment Regulations came into force on 21 December 2018, the Amendment Regulations will not apply where a building notice or an initial notice has been given to, or full plans deposited with, a local authority before 21 December 2018 and either the building work to which it relates: (a) has started before that day; or (b) is started within the period of two months beginning on that day.

Buildings may still be being constructed which are not to Building (Amendment) Regulations 2018.

An EWS Form should be requested where you are not satisfied the building has been built to The Building (Amendment) Regulations 2018.

Does the EWS Form have a shelf-life?

During the development of the form it was decided that it would be reasonable to refer to the EWS Form for 5 years after it was created.

However, RICS Members should request a new EWS Form if it is thought alterations have been made, such that the EWS Form may no longer provide a reasonable assessment of the external wall system and/or balcony.

This suggested approach is provided for know how sharing purposes only and, does not constitute the provision of legal advice by RICS.

RICS Members and Firms should always take independent steps to seek their own legal advice, which is tailored to the circumstances of any individual case.

To the extent permitted by law, RICS excludes all liability and responsibility for any direct, indirect or consequential loss or damage incurred by any person or entity arising in connection with any reliance placed on the attached wording