What does it cover?
On 1 May 2024 the update to the Red Book comes into effect and covers a number of changes both technical and those based on the recommendations from the Valuation Review.
One of the main changes is to specific governance standards which apply to Regulated Purpose Valuations.
What's the Impact?
Valuer Rotation
UK VPS 3 introduces a compulsory rotation cycle for valuation firms and the lead individual valuer. This is based on duration that a valuation is provided at an asset level (not client or fund level).
Implications for new contracts
- A maximum initial engagement period of five years following which renewal permitted subject to independent sign off by client
- A maximum period of five year tenure for the primary report signatory
- A maximum period of ten years before a mandatory rotation of a valuation firm
- A minimum three-year break after rotating off an engagement
Implications for existing contracts
- There is two-year transition policy ending date 30 April 2026
- Where a firm has been valuing an asset for more than 10 years – then the firm must be rotated from the valuation contract by 30 April 2026
- If an existing contract extends beyond 30 April 2026 and the 10 years limit applies then, from 1 May 2026, a valuer or firm may only undertake this valuation where they are obliged to do so under an engagement that they cannot lawfully terminate (without penalty) or in compliance with exceptional circumstances and must notify RICS Regulation in either circumstance
- Where a firm has been valuing an asset for less than 10 years at contract renewal, then a contract can be extended providing the extension is only up to the ten year maximum period and each contract period must be no more than 5 years.
Exclusions
- The exclusion of all public sector valuations (local authority, central government and government agencies).
Exceptions
- Where there are truly exceptional circumstances, a carefully controlled option to deviate from the requirements with notification to and approval of RICS Regulation
Terms of Engagement
A valuer must obtain written approval for the valuation instructions from one of the following authorities at the client:
- A non-executive director
- An independent chair of their audit committee or equivalent
- A corporate compliance officer or equivalent.
Preliminary Advice Draft Reporting and Clients Discussions
It is mandatory to include a file note of discussions with the client on draft reports or valuations and must include:
- The information provided, or the suggestions made, in relation to the valuation
- How that information was used to consider a change in material matters or opinions, and
- The reasons why the valuation has or has not been changed.
- The file notes must be capable of being produced for third parties where needed.
Forthcoming updates to the UK Red Book:
We are anticipating further updates to the RICS Red Book to deal with other matters raised in the Valuation Review including DCF methodology and role of Valuation Compliance Officer. We will issue further updates at that time.
