Modern methods of valuation

Modern Methods of Valuation......Page 4
Copyright......Page 5
Contents......Page 6
Foreword......Page 22
Preface to the eleventh edition......Page 23
Acknowledgements......Page 25
Table of cases......Page 26
Table of statutes......Page 30
Table of statutory instruments......Page 33
Acronyms......Page 34
1. The valuer’s role......Page 36
3. A definition of value......Page 37
4. Value and valuation......Page 39
5. Demand, supply and price......Page 40
6. Demand for and supply of landed property......Page 41
7. Landed property as an investment......Page 45
2. Comparison......Page 46
(b) The income approach or investment method......Page 47
(c) The residual approach or development method......Page 48
(e) The cost approach or contractor’s method......Page 49
(f) Conclusion......Page 50
2. Property rights in general......Page 51
3. Freeholds......Page 52
(a) Registered and unregistered land......Page 54
4. Leaseholds......Page 55
(a) Building leases......Page 57
b) Occupation leases......Page 58
5. Licences......Page 59
6. Common law, equity and trusts......Page 60
7. Equitable interests including options......Page 61
8. Co-ownership......Page 62
9. Easements and related rights......Page 63
10. Restrictive covenants......Page 64
11. Commonhold......Page 66
12. Successive interests in property......Page 67
13. Transfers of interests in land and security in land......Page 68
(b) Physical state......Page 71
(e) Time......Page 72
2. Residential property......Page 73
3. Development land......Page 74
2. Rent and net income......Page 76
(a) Supply and demand......Page 77
(b) Demand factors......Page 78
(c) Supply factors......Page 81
(a) Generally......Page 84
(b) Basis of the rent actually paid......Page 85
(c) Comparison of rents......Page 87
(d) Rent and lease terms......Page 88
5. Effect of capital improvements on market rent......Page 90
6. Hierarchy of market evidence......Page 91
1. Introduction......Page 92
(c) Annual repairs......Page 93
(e) Future repairs......Page 95
4. Business rates, water services and council taxes......Page 96
(a) Fire insurance......Page 97
8. Service charges......Page 98
10. Value added tax......Page 100
12. Current issues......Page 101
(a) Nominal and actual or effective rates of interest......Page 102
(b) Timing of payments and yields......Page 103
2. Principles governing yields from investments......Page 104
3. Yields from landed property investments......Page 107
(a) Shops......Page 108
(c) Factories and warehouses......Page 109
(d) Residential properties......Page 110
(e) Ground rents......Page 111
4. Changes in interest rates......Page 112
1. Introduction......Page 114
2. Amount of £1 (A£1)......Page 115
3. Present value of £1 (PV£1)......Page 116
4. Amount of £1 per annum (A£1pa)......Page 121
5. Annual sinking fund (ASF)......Page 122
6. PV of £1 per annum (PV£1pa) or Years’ Purchase (YP)......Page 124
1. Valuation of freehold interests......Page 130
(a) Freehold let at MR......Page 131
(b) Freehold let at below MR......Page 136
(c) Freehold let at more than MR......Page 142
2. Valuation of leasehold interests......Page 144
(a) Provision for loss of capital......Page 146
(b) YP dual rate......Page 147
(e) Annual sinking fund and tax......Page 149
(f) Dual rate adjusted for income tax......Page 151
(g) Leasehold interest where income is less than MR......Page 154
3. Synergistic value, sometimes known as marriage value......Page 156
4. Freehold interest where a building has a terminable life......Page 157
5. Premiums......Page 160
6. Surrenders and renewals of leases......Page 163
7. Traditional valuation techniques and DCF......Page 168
1. Generally......Page 170
(a) The discount rate......Page 171
(b) Rate of growth......Page 172
(c) Cash flow period (see guidance note)......Page 173
3. Internal rate of return (IRR)......Page 175
4. Comparison of NPV with IRR approaches......Page 177
5. Application of DCF and investment value (worth)......Page 178
2. Proceeds of sale......Page 181
3. Costs of sale......Page 182
(c) Costs of finance......Page 183
6. Surplus for land......Page 185
1. Introduction......Page 190
2. Relationship of rent in arrears and in advance......Page 191
3. Taxation of incomes......Page 193
(a) Nature and function of yields......Page 197
(b) Equated yields......Page 198
(d) Valuation of varying incomes......Page 201
5. Leasehold interests......Page 203
(a) Replacement of capital......Page 204
(b) Replacement of capital in real terms......Page 207
(d) Why use dual rate YP?......Page 209
(e) Valuation of variable incomes......Page 211
f) The effect of tax......Page 212
(g) The double sinking fund method......Page 213
(h) Summary......Page 214
6. Valuing in periods of market instability – valuation certainity......Page 215
7. Valuing sustainability......Page 218
8. Conclusion......Page 219
9. Further reading......Page 220
1. The valuation process......Page 221
2. The analysis of rents and prices......Page 224
3. Special purchasers or buyers......Page 226
4. RICS valuation – professional standards, global and UK......Page 227
5. The cost of building works......Page 228
(c) Other methods of comparison......Page 229
(a) Dilapidations......Page 230
(b) Other claims......Page 231
7. Management of investments......Page 232
(a) Maintenance of capital values......Page 233
(b) Rents......Page 234
(d) Reserves......Page 235
(a) The 1947 Act......Page 237
(b) The development plan system......Page 238
(c) Effect of the development plan......Page 239
3. Development control......Page 240
(a) The use classes order 1987......Page 241
(b) Part 3, general permitted development order (GPDO) – changes of use......Page 243
(a) Development orders and local development orders......Page 244
(d) Public authority development......Page 245
(a) Outline planning permission......Page 246
(c) Environmental Impact Assessment......Page 247
(f) Determining planning applications......Page 248
(h) Revocation, modification and discontinuance orders......Page 249
7. Duration of planning permission......Page 250
8. Planning conditions and planning obligations......Page 251
10. Appeals – section 78......Page 252
(a) Appeals and overlapping and repeated applications......Page 253
11. Judicial control of planning decisions......Page 254
(a) Enforcement notices......Page 255
(c) Stop notices......Page 256
(e) Injunctions......Page 257
(f) Appeals against enforcement notices......Page 258
(a) Protection of trees and special buildings......Page 259
(b) Regulation of advertisement displays and caravan sites......Page 261
(c) Unsightly land and hazardous substances......Page 262
2. Valuation approach......Page 264
4. Viability statements (studies)......Page 267
5. Factors affecting value......Page 269
(a) Generally......Page 270
(b) User of land......Page 274
(c) Infrastructure......Page 277
7. Commercial development schemes......Page 278
8. Period of development......Page 279
10. Site assembly......Page 280
11. Hope value......Page 281
(a) New development......Page 282
(b) Refurbishment......Page 283
13. Ground rents......Page 290
(a) Residential ground leases......Page 293
(b) Commercial ground leases......Page 294
(c) Ground rent......Page 295
d) Market value of ground rents......Page 296
1. Generally......Page 298
2. The Rent Acts......Page 300
(b) Security of tenure (1977 Act, Part VII)......Page 301
3. The Housing Act 1988 – assured and assured shorthold tenancies......Page 302
4. Schedule 10 to the Local Government Act 1989, the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993 (Part I)......Page 303
(b) Valuations to determine enfranchisement price – “original method” (i.e. lower value properties only)......Page 306
(c) Market transactions......Page 309
(e) Valuations to determine enfranchisement price –“higher value method”......Page 311
(f) Extension of the existing lease (lower value houses)......Page 312
(g) Landlord’s overriding rights......Page 313
(i) The LRHUD Act 1993 as amended by the Commonhold and Leasehold Reform Act 2002......Page 314
(a) General method of valuation......Page 315
(b) Outgoings......Page 317
(c) State of repair......Page 318
(e) Duration of income......Page 319
(b) Factors affecting value......Page 321
(c) Methods of valuation......Page 322
(d) Sales records......Page 324
(c) Outgoings......Page 325
(d) Net income and yield......Page 327
8. Places of worship......Page 329
(a) Landlord and Tenant Act 1927 (Part I)......Page 331
3. Landlord and Tenant Act 1954 (Part II) (as amended by the Regulatory Reform Order 2003)......Page 332
4. Health and safety at work, etc. Act 1974......Page 340
5. Rent reviews......Page 341
(a) Machinery for review......Page 343
(b) Rent payable......Page 344
(b) Period between reviews......Page 349
(c) Analysis of incentives......Page 350
(d) Comparable evidence......Page 351
8. Court procedure for the grant of a new tenancy or the termination of a current tenancy......Page 352
1. Introduction......Page 354
(a) Location......Page 356
(b) Type of premises......Page 357
(c) Type of tenant......Page 358
(e) Market rent......Page 359
(f) Market value......Page 362
(b) Construction......Page 363
(c) Market rent and market value......Page 364
6. Warehouses......Page 367
(a) Introduction......Page 370
(c) Terms of tenancy......Page 371
(e) Net income and market value......Page 372
1. Introduction to the RICS valuation standards......Page 376
2. Valuations for financial statements......Page 377
(c) Types of property involved......Page 379
(d) The DRC method......Page 380
(e) Straight line depreciation (SLD, GN 6.9.23)......Page 381
(g) S-curve approach (GN 6.9.26)......Page 382
(a) Borrowing against property assets......Page 383
(b) Nature of a mortgage......Page 384
(c) The mortgagee’s security......Page 385
(d) The valuation......Page 386
(a) Generally......Page 389
(c) Effect of under insurance......Page 390
(g) Value added tax on building costs......Page 391
6. Further reading......Page 392
1. General......Page 393
2. Procedure......Page 394
4. Elements of rateable occupation......Page 396
(c) Beneficial occupation......Page 397
5. Principles of assessment......Page 398
6. Statutory basis of assessment......Page 400
8. Methods of assessment......Page 402
(a) Valuation by reference to rents paid......Page 403
(b) The contractor’s method or test......Page 405
(c) The receipts and expenditure or profits basis......Page 408
(a) Agricultural properties......Page 409
(c) Shops......Page 410
(d) Factories and warehouses......Page 415
(e) Cinemas and theatres......Page 416
(h) Garages and service stations......Page 417
2. Procedures......Page 418
3. Basis of assessment......Page 419
4. Compilation and maintenance of new lists......Page 420
1. Taxation of capital gains – capital assets and stock in trade......Page 421
(b) Computation of gains......Page 422
(e) Disposals after 6 April 1998......Page 424
(f) Rates of tax from 23 June 2010 for individuals......Page 425
(g) Exemptions and reliefs......Page 427
(i) Part disposals......Page 431
(k) Sale of leasehold interests......Page 433
(l) Premiums for leases granted out of freeholds or long leases......Page 434
(m) Premiums for subleases granted out of short leases......Page 435
2. Taxable transfers......Page 436
4. Rates of tax......Page 437
(c) Business assets......Page 438
6. Valuation......Page 439
2. Capital allowances......Page 440
(a) Added value......Page 441
(b) Taxable supplies......Page 443
3. VAT and the property market......Page 444
(b) Non-residential property......Page 445
4. Option to tax......Page 446
5. Transfer of a going concern......Page 448
7. Valuation and VAT......Page 449
(b) Statutory and other compensation......Page 450
1. Purchases......Page 451
Reference......Page 452
1. Legal basis of compulsory purchase......Page 453
2. Compulsory purchase procedure......Page 454
3. Compulsory purchase compensation......Page 456
1. Introduction......Page 459
2. General principles of compensation......Page 460
(a) Six basic rules of valuation......Page 463
4. Additional rules of assessment......Page 470
(a) Assumptions as to planning permission......Page 475
6. Certificates of appropriate alternative development......Page 478
8. Summary of general basis of compensation......Page 480
9. Arbitration of compensation disputes......Page 481
10. Valuation......Page 482
11. Home loss, basic loss and occupiers’ loss payments......Page 483
12. Basic loss and occupier’s loss payments......Page 484
13. Interest on compensation......Page 485
1. General principles......Page 486
2. Compensation where part only of the land is taken......Page 487
(a) Accommodation works......Page 488
(b) Severance and injurious affection......Page 489
(c) Other incidental injury (disturbance)......Page 492
(d) Assessment of compensation......Page 493
(a) Injurious affection under section 10......Page 494
(b) Compensation for harm from “physical factors”......Page 495
5. “Before and after” method of valuation......Page 497
1. Disturbance compensation and disturbance payments......Page 502
2. Judicial approach to quantification of disturbance compensation......Page 506
(a) Residential premises......Page 507
(b) Business and professional premises......Page 509
4. Disturbance in relation to development value......Page 523
(a) Blighted land......Page 526
(b) Qualifying interests......Page 527
2. Blight notice procedure......Page 528
2. Purchase notices......Page 531
(a) Compensation as in compulsory purchase cases......Page 534
(b) Revocation, modification and discontinuance orders and other special cases......Page 535
1. Revocation, modification and discontinuance cases......Page 536
2. Revocation and modification orders......Page 537
4. Other cases of planning compensation......Page 542
5. Listed buildings and ancient monuments......Page 543
Index......Page 545