The Material Valuation Uncertainty Leaders Forum (UK) was setup by RICS to consider the unique events relating to the global COVID-19 pandemic and its impact on valuation assignments, with a focus on financial reporting and measures for the accurate and consistent reporting of material uncertainty. It comprises a group of expert valuers covering a wide range of asset classes and specialisms. The terms of reference are attached below.
Update further to the forum of 11 May 2021: the latest forum output recommends that material valuation uncertainty declarations are no longer required for all assets, subject to the terms set out below and in accordance with the criteria on the right of this page. This update is made today as the lifting of material valuation uncertainty now includes assets valued with reference to trading potential, including leisure and hospitality assets such as hotels. Discretion in all cases remains with the valuer.
Please see the RICS practice alert for recommended phrasing for reporting. This phrasing includes reference to ‘the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19’ and we therefore ‘highlight the importance of the valuation date.’ Given the timing of this update and the continuation of end of year valuation reporting, appropriate supporting commentary considering current circumstances and the valuation date may be appropriate. This is detailed further in the RICS practice alert supplement.
The Material Valuation Uncertainty Leaders Forum (UK) has met regularly during the COVID-19 crisis and produces a UK summary output attached below. Given the recommendation above, the group now meets on a less regular basis but will continue to monitor markets and evidence and convene forums at short notice to consider significant events. For transparency, each meeting’s recommendation output will remain available from the RICS website or by request. Please refer to the relevant version. The output assesses material valuation uncertainty against criteria published on the right of this page. The summary output comprises a short statement outlining the forum consensus opinion on markets where reporting material valuation uncertainty may no longer be appropriate. The summary may not include a general market commentary and will only include additional information where necessary.
The outputs of the RICS Material Valuation Uncertainty Leaders Forum (UK) are based on a high-level overview of market conditions, and necessarily cannot consider factors applying to specific assets, regions or markets. RICS reminds regulated members that the decision whether to insert, maintain or remove a declaration that a valuation is materially uncertain is that of the valuer, taking into account the specific attributes and performance of the individual asset and its market. Regulated members should consider on a case-by-case basis whether it would be appropriate to include commentary that a valuation is materially uncertain. They should have a sound rationale for the decision they reach upon such consideration and should maintain a record of that rationale for future reference. The views of the RICS Material Valuation Uncertainty Leaders Forum (UK) are not a substitute for that process.
Neither RICS or any member of the Material Valuation Uncertainty Leaders Forum (UK) accepts any responsibility, duty or liability to any party in respect of the contents of the Leaders Forum output. Any such responsibility, duty or liability is expressly disclaimed. RICS and the Leaders Forum shall therefore not be held accountable, either collectively or individually, for any losses relating to or arising out of a valuer’s decision to insert, maintain or remove any declaration of material valuation uncertainty.
…… The RICS Material Valuation Uncertainty Leaders Forum (UK) has met regularly to discuss material valuation uncertainty in UK real estate markets. The forum assesses this against the published criteria. The forum recommends that material valuation uncertainty declarations are no longer required, subject to valuer discretion for individual cases. Supporting commentary on market conditions is suggested, even where material valuation uncertainty is not being declared.
Recommendation 11 May 2021
All UK real estate. This now includes assets valued with reference to trading potential, including in respect of leisure and hospitality assets such as hotels. This is a general recommendation and it is noted that there are a range of different markets within these sectors. Valuer discretion can still be applied, with the material valuation uncertainty declaration still being used in certain cases.
Recommendation 9 September 2020 (reaffirmed 3 November 2020 and 5 January 2021)
All UK real estate, excluding some assets valued with reference to trading potential. In the latter case, for some leisure and hospitality assets in particular, it is too early to properly assess trading potential and hence value with a sufficient degree of certainty. It is therefore emphasised that in these cases it is appropriate for a valuer to maintain the use of a material uncertainty declaration, based on individual valuer judgement, applied on a case by case basis.
The application of a material uncertainty declaration is intended to consider sharp, unpredicted shocks to a market leading to a temporary suspension of market activity.
Red Book VPGA 10, (Matters that may give rise to material valuation uncertainty) refers to ‘relatively unique’ market factors and, for example, ‘an unprecedented set of circumstances on which to base a judgment’. This may be of particular note when considering the impact of later phases or “waves” of COVID-19, compared to the initial outbreak, including circumstances such as the 04 January 2021 announced national ‘lockdowns’ of England and Scotland (and similar national lockdowns in Wales and Northern Ireland).
It is now some months since the onset of COVID-19 and the declaration by the World Health Organisation (WHO) of a global pandemic on 11 March 2020 and the recommendation by the RICS of the use of the Material Uncertainty Clause on 17 March 2020. The Material Valuation Uncertainty Leaders Forum (UK) are of the opinion that there is sufficient evidence of market activity to warrant recommending this general lifting, subject to the following:
Although it has been recommended that material valuation uncertainty should no longer apply to most sectors and assets, the decision on whether or not to apply the material valuation uncertainty declaration in any sector, should be based on individual valuer judgement and in each case will depend upon the circumstances of the valuation. For example, many of the assets valued with reference to trading potential referred to above have been the subject of enforced closure for a prolonged period and although the vast majority of businesses have now been allowed to re-open, not all have done so and in many cases it is too early to properly assess the trading potential of these assets with a sufficient degree of certainty. In these circumstances it is appropriate for the valuer to continue to apply a material uncertainty declaration until such time as the impact on the trading potential of the asset and sector can be seen more clearly.
Whilst transaction volumes in many sectors remain very low, there are other indicators which can inform the valuer as to market sentiment and pricing such as, for example: rent collection statistics, landlord and tenant negotiations on lease variations to turnover rents, rent reductions and rent holidays and CVA outcomes. This is not an exhaustive list - however these examples may be adequate to provide valuers with sufficient confidence in many cases, but with some assets it will still be appropriate to apply a material valuation uncertainty declaration. Further detail can be found in the forum criteria attached to the right of the page (see Appendix 1).
Recommendations 28 August 2020
All UK residential*
*England first recommended 14 July 2020, Wales 4 August, Scotland 12 August, Northern Ireland 28 August
Recommendations 4 August 2020
*Central London offices first recommended 7 July 2020
All industrial and logistics*, including self-storage facilities
*All industrial and logistics first recommended 11 June 2020
All healthcare*, excluding day nurseries
*Institutional grade primary healthcare facilities first recommended 14 May 2020
Recommendations 7 July 2020
Student housing of institutional grade, which is professionally managed.
Long dated annuity income with a secure covenant such as government or very strong investment grade*
* First recommended 14 May 2020 with at least 20-years unexpired term certain. Recommended term duration now removed.
Recommendations 11 June 2020
Build to rent residential property of institutional grade, which is professionally managed.
Recommendations 28 May 2020
Standalone food stores, including smaller format food stores, let to major operators*
*First recommended 14 May 2020, now including smaller format stores.
Commercial forestry (excluding amenity woodland)
Specialist supported housing of all types, designated either C2 or C3 use class, let to Registered Providers on FRI leases, and usually with a third-party care provider involved in providing care and support to residents, valued on the basis of Market Value
Recommendations 21 May 2020
non-reversionary residential ground rents (in excess of 80 years)
all types of rented social housing or leased shared ownership, owned by housing associations and valued on the basis of Existing Use Value for Social Housing (EUV-SH) only, and therefore assuming that all homes remain within the regulated, Registered Provider sector (but excluding social housing owned by local authorities where valued for Housing Revenue Account purposes under government guidance)
The outputs of the RICS Material Valuation Uncertainty Leaders Forum (UK) are based on a high-level overview of market conditions, and necessarily cannot take into account factors applying to specific assets, regions or markets. RICS reminds regulated members that the decision whether to insert, maintain or remove commentary that a valuation is materially uncertain is that of the valuer, considering the specific attributes and performance of the individual asset and its market. Regulated members should consider on a case-by-case basis whether it would be appropriate to include commentary that a valuation is materially uncertain. They should have a sound rationale for the decision they reach upon such consideration and should maintain a record of that rationale for future reference. The views of the Leaders Forum are not a substitute for that process.