RICS jurisdiction guide

RICS professional standards and guidance, UK

RICS Valuation – Global

Standards 2017 jurisdiction
guide: United Kingdom
1st edition, May 2019

rics.org/guidance
 rics.org

RICS Valuation – Global

Standards 2017 jurisdiction
guide: UK

RICS jurisdiction guide

1st edition, May 2019

Author: Paul Batho FRICS

Professional Group Lead: Ben Elder FRICS
Project manager: Ellie Scott
Editor: Jo FitzLeverton

Published by the Royal Institution of Chartered Surveyors (RICS)

Parliament Square
London
SW1P 3AD
www.rics.org
No responsibility for loss or damage caused to any person acting or refraining from
action as a result of the material included in this publication can be accepted by the
authors or RICS.
ISBN 978 1 78321 332 0
© Royal Institution of Chartered Surveyors (RICS) May 2019. Copyright in all or part
of this publication rests with RICS. Save where and to the extent expressly permitted
within this document, no part of this work may be reproduced or used in any form or
by any means including graphic, electronic, or mechanical, including photocopying,
recording, taping or web distribution, without the written permission of RICS or in line
with the rules of an existing licence.
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Contents

RICS jurisdiction guides ������������������������������������������������������ 1

1 Background ��������������������������������������������������������������������� 3
2 Legislation ����������������������������������������������������������������������� 4
2.1 Principal laws governing real estate ��������������������������� 4
2.2 Types of ownership ���������������������������������������������������� 4
2.3 Registration ��������������������������������������������������������������� 5
2.4 Development control �������������������������������������������������� 5
2.5 Commercial leases ���������������������������������������������������� 5
2.6 Residential leases ������������������������������������������������������ 6
2.7 Property measurement ���������������������������������������������� 6
3 Taxation ���������������������������������������������������������������������������� 8
3.1 Value-added tax (VAT) ����������������������������������������������� 8
3.2 Real estate transfer tax ��������������������������������������������� 8
3.3 Property taxes ����������������������������������������������������������� 8
3.4 Taxation of rental income and capital gains ���������������� 8
4 Regulation and standards ���������������������������������������������� 9
4.1 Regulation of valuation professionals ������������������������� 9
4.2 Membership organisations ����������������������������������������� 9
4.3 National valuation standards �������������������������������������� 9
4.4 International standards ���������������������������������������������� 9
5 Application of the RICS Valuation – Global Standards
2017 in the UK ��������������������������������������������������������������� 10
5.1 User’s perspective ��������������������������������������������������� 10
5.2 Red Book – implementation in the UK ��������������������� 10
Appendix A: Other professional organisations
representing property valuers in the UK ��������������������� 11

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RICS jurisdiction guides

Since its first publication in 1976, the RICS Valuation – Global Standards 2017, generally
known as the ‘Red Book’, has set standards for property valuation that are designed to
ensure consistency, objectivity and transparency in the valuation process. The primary
aim of these standards has always been to sustain public confidence and trust in a
valuation undertaken by an RICS member or a valuer working for an RICS regulated
firm.
Over the past 40 years the Red Book has become global in its application, reflecting
the growing internationalisation of the property market and its clients’ requirement for
worldwide consistency of standards. A Red Book-compliant valuation is consistent with
the International Valuation Standards (IVS) and it is augmented in a growing number
of markets by national supplements, which provide guidance designed to ensure that
a Red Book-compliant valuation also meets local legal requirements, regulations and
practice.
The global Red Book and, where they apply, the national supplements are written
primarily for valuers. By contrast, jurisdiction guides will be of use especially to
property owners and professionals who are involved in the valuation process, either by
commissioning a valuation or by providing advice in relation to its outcome. Owners and
their advisers do not usually need to know the full detail of the valuation process and the
regulations that govern it (which are set out in the Red Book), but their understanding of
the outcome of the valuation is likely to benefit from a better understanding of the key
factors that will influence a valuer, and thus the value of the property.
These factors include:
• legislation governing the holding and valuation of real estate
• ownership structures
• lease terms
• planning regulations and development control
• taxation affecting real estate and
• valuation regulations, standards and the application of the Red Book.
These factors will vary significantly between one country and another. Jurisdiction
guides therefore aim to examine each factor in its local context and to highlight those
that are likely to have a significant impact on the valuation of a property located in the
country concerned.
It is important to emphasise that jurisdiction guides are designed to provide a short
overview of what in many cases and countries is a complex situation. They have been
prepared by RICS and based on information from a variety of sources. The content of
this jurisdiction guide is for general guidance only, and the reader is advised not to act
on it without consulting an appropriately qualified and experienced professional.

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Document status defined

The following table shows the categories of RICS professional content and their
definitions.

Publications status
Type of document Definition
RICS Rules of Conduct for Members and These Rules set out the standards
RICS Rules of Conduct for Firms of professional conduct and practice
expected of members and firms registered
for regulation by RICS.
International standard High-level standard developed in
collaboration with other relevant bodies.
RICS professional statement (PS) Mandatory requirements for RICS members
and regulated firms.
RICS guidance note (GN) A document that provides users with
recommendations or an approach for
accepted good practice as followed
by competent and conscientious
practitioners.
RICS code of practice (CoP) A document developed in collaboration with
other professional bodies and stakeholders
that will have the status of a professional
statement or guidance note.
RICS jurisdiction guide (JG) This provides relevant local market
information associated with an
RICS international standard or RICS
professional statement. This will
include local legislation, associations
and professional bodies, as well as any
other useful information that will help a
user understand the local requirements
connected with the standard or statement.
This is not guidance or best practice
material, but rather information to support
adoption and implementation of the
standard or statement locally.

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1 Background

The UK property market is among the longest established in the world and is highly
developed, offering a wide range of property types, locations and opportunities to
occupiers and investors.
The investment market is very large and was ranked third in the world in the MSCI Real
Estate Market Size survey 2017. Market information is freely available and the UK was
placed in first position in the JLL Global Real Estate Transparency Index 2018.

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2 Legislation

2.1 Principal laws governing real estate

The UK legal system is well developed and offers certainty to owners and occupiers.
While the UK parliament has overall responsibility for many aspects of legislation,
significant differences exist between the individual countries that together comprise the
UK. Scotland and Northern Ireland have their own systems of real estate law that differ
in a number of significant ways from the laws applicable in England and Wales. In real
estate, responsibilities devolved to individual countries include:
• agriculture and forestry
• environmental issues
• housing, local government and
• aspects of transport policy.
For these reasons, and because the UK legal system is based on common law
principles, there are no overarching laws affecting property. Instead, a number of statues
have had significant influence in certain areas. In England and Wales, for example, the
Landlord and Tenant Act 1954 is particularly important in the area of commercial
property but it does not apply in Scotland and Northern Ireland. In the residential sector
the Housing Act 1988 has had major influence in England and Wales. Scotland has its
own Housing (Scotland) Act 1988 covering this area but there is no similar legislation in
Northern Ireland.

2.2 Types of ownership

The principal types of property ownership in the UK are:
• Freehold (heritable ownership in Scotland): this is the highest category of ownership,
where the owner has full rights to possess and dispose of the property except in
exceptional circumstances (e.g. a local authority’s powers of compulsory purchase).
• Leasehold: rights to possess and use the property for a limited time, subject to the
terms of the lease.
• Ground leases: this form of ownership is relatively common. The freehold owner
grants a developer or investor a long lease (from 125 to 999 years or more, but a
maximum of 175 years in Scotland), usually for a one-off payment and at a low rent.
The leaseholder generally has relatively unrestricted rights to construct, rebuild, use
and let buildings on the land.
• Commonhold ownership: a hybrid between freehold and leasehold ownership,
relatively unusual.
• Easements: non-exclusive rights granted to third parties to use land, e.g. rights of
way and access.

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2.3 Registration
The UK has had a land registration system since 1925. Separate national registries exist
for England and Wales, Scotland and Northern Ireland. The HM Land Registry is an
online public document.
It is compulsory to register freehold sales and leases of more than seven years. Where
current ownership pre-dates compulsory registration and the title is unregistered, a seller
will need to provide documentary evidence of title.

2.4 Development control

Although planning laws and policies differ between Scotland, England and Wales and
Northern Ireland, they are broadly similar.
Planning decisions are primarily made at local government level. Local authorities are
required to adopt and maintain a local development plan, which defines planning policy
for the area. In England, local forums can influence the use and development of land via
neighbourhood development plans.
Local planning authority decisions may be subject to detailed conditions relating to
matters such as the construction of a development, the provision of affordable housing
and highway improvements, etc. Decisions can be subject to appeal.
Separate consent from the local authority is required for building control. National
building regulations control the construction process.

2.5 Commercial leases

Typical terms for occupational leases are as follows:
• Term: 10–15 years for larger lettings in prime buildings but usually shorter for smaller
and more secondary accommodation.
• Breaks: a lease may include tenant’s lease break options, subject to negotiation.
• Rent: usually payable quarterly in advance. Service charges are payable separately.
• Rent escalation: in longer leases rents are usually subject to rent review every
five years to the market rent at the time of the review. Most reviews are ‘upwards
only’ meaning the rent payable cannot fall even if market rents have fallen since the
previous review or the start of the lease. Rent indexation is rare. In shopping centres,
a proportion of the rent payable is sometimes linked to the turnover of the tenant’s
business.
• Statutory rent control: there is no statutory control of rent.
• Payment for operating expenses: most UK commercial leases are on a ‘full
repairing and insuring’ (FRI) basis, so that the tenant is directly responsible for all
repair, maintenance and outgoings or the landlord can recover all (or sometimes
a proportion of) its costs in operating and maintaining the building, including
management costs, via a service charge.
• Assignment and subletting: usually permissible, subject to landlord’s consent.
• Insurance: usually payable by the landlord, with costs and premium recoverable via
the service charge.

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• Termination: commercial property tenants in England and Wales have a statutory

right to renew their lease under the terms of Part 2 of the Landlord and Tenant
Act 1954. However, it is possible to contract out of the security of tenure provisions
and a landlord may terminate the lease at the time of expiry on certain specified
grounds (for example, if it requires the premises for its own use or has a plan for
redevelopment) in which case compensation is payable.
In Northern Ireland, tenants enjoy security of tenure under the Business Tenancies
(Northern Ireland) Order 1996.
In Scotland, there is no statutory provision for continuation of a commercial lease
after expiry.
It is also possible to occupy commercial property under licence. This provides the
parties with greater flexibility but at the same time reduces security of income for the
landlord and security of tenure for the tenant.

2.6 Residential leases

The most common form of residential lease for private landlords is the assured shorthold
tenancy (AST) (or short assured tenancy in Scotland), introduced by the Housing
Act 1988 (for England and Wales) and the Housing (Scotland) Act 1988 for leases
commencing after 15 January 1989.
The term of a lease under this legislation is usually 6 or 12 months and while there are
no restrictions on the rent to be agreed, the tenant may refer the rent payable to a rent
assessment committee if it is ‘significantly higher’ than rents for comparable premises.
Security of tenure is limited and the tenancy may be terminated in accordance with the
terms of the lease – usually two months’ notice is required.
ASTs do not apply where annual rent is more than £100,000 or less than £250.
Most tenancies granted before 15 January 1989 are regulated tenancies under the Rent
Act 1977. The rent payable under a regulated tenancy is registered and any increases
are subject to significant restrictions. Tenants have security of tenure and cannot be
evicted except by court order in certain specific circumstances. The landlord is usually
responsible for major repairs.

2.7 Property measurement

International Property Measurement Standards (IPMS) for Office Buildings, Residential
Buildings and Industrial Buildings were published in 2014, 2016 and 2018 respectively.
RICS members must adopt IPMS in line with the RICS professional statement RICS
property measurement (2nd edition). RICS members are expected to advise their
client or employer on the benefits of using IPMS, unless there is a significant reason for
departure. It is accepted that in some circumstances IPMS may not be suitable. If IPMS
are not to be used, RICS members must document the reasons for departure.
IPMS for other asset types will be published in due course. In the interim all RICS
members must follow RICS property measurement (2nd edition) Section 1 Application
of the professional statement. In some instances other measurement standards can
be used, such as the RICS guidance note Code of measuring practice (6th edition),
providing the reason for departure is stated.

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Area measurements for valuation and agency purposes are usually quoted in square
feet although some organisations (in particular government agencies) may use square
metres.

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3 Taxation

This summary briefly outlines some of the main taxation issues related to UK property,
but the UK tax regime is complex and property owners are advised to seek appropriate
professional advice in this area.

3.1 Value-added tax (VAT)

Property is generally exempt from VAT but an owner can opt to charge VAT in the case
of non-residential property. This enables input VAT incurred on acquisition, maintenance,
refurbishment, etc. to be reclaimed.

3.2 Real estate transfer tax

Stamp duty land tax (SDLT) is payable by the purchaser of real estate in England, Wales
and Northern Ireland. It is based on the transaction sum.
In Scotland, land and buildings transaction tax (LBTT) replaced SDLT from 1 April 2015.
It is charged on a progressive basis.

3.3 Property taxes

Business rates are payable by the occupier of commercial property to the local
authority at a rate linked to the assessed rental value of the property. If the property is
unoccupied, the landlord is liable.
For residential property, council tax is payable by the occupier, based on the capital
value of the property at a set assessment date.

3.4 Taxation of rental income and capital gains

UK companies and non-UK residents holding UK property as an investment are liable
to pay tax on rental income received. The costs of finance and some capital allowances
can be used to reduce taxable income.
UK companies are subject to corporation tax on capital gains. Non-UK resident
individuals and companies can in some circumstances be liable to pay UK tax on any
capital gains made on the disposal of UK property. Property owners in these categories
should consult an appropriately qualified professional adviser to establish their liability.
Since 2007, companies meeting certain criteria can become real estate investment
trusts (REITs), which allow them to qualify for exemption from tax on distributed income
and capital gains.

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4 Regulation and standards

4.1 Regulation of valuation professionals

Real estate valuation professionals are not subject to state regulation in the UK. While
there are generally no legal restrictions on who may provide valuation advice, RICS
provides a system of self-regulation for its members who are required to comply with its
Rules of Conduct, which set out mandatory personal and professional standards.
Additionally, any RICS member undertaking a valuation assignment must be a
registered valuer. RICS Valuer Registration aims to ensure the quality of valuations, raise
the credibility of valuers and provide clients with a clearly identifiable designation of
international standards, quality and the consistent application of RICS standards.

4.2 Membership organisations

RICS is the biggest organisation representing valuers in the UK with over 13,000
registered valuers. It was established in London in 1868 and is now also the largest
international regulator of property professionals with 125,000 members worldwide.
For a list of other membership organisations in the UK for valuers, see Appendix A.

4.3 National valuation standards

With the exception of some statutory requirements, e.g. for taxation and compulsory
purchase applications, valuation of real estate is not subject to statutory control in the
UK. Valuation professionals are required to operate in accordance with the professional
standards of their professional organisation. In the case of RICS, IRRV and ISVA
members, RICS Valuation – Global Standards 2017 (the Red Book) sets the relevant
standards., supported in the UK by RICS Valuation – Global Standards 2017: UK national
supplement 2018 effective from 14 January 2019.

4.4 International standards

• International Valuation Standards (IVS) – published by the International Valuation
Standards Council (IVSC), which comprises about 100 member organisations
dedicated to setting generic global standards for valuation practice and valuation
professionals. RICS is a member of IVSC.
• RICS Valuation – Global Standards 2017 (the Red Book) – the Red Book
sets out global valuation standards for valuations undertaken by RICS members
and regulated firms. It adopts and applies the IVS and imposes certain additional
requirements with particular reference to ethics, competency, objectivity and
disclosures.
• European Valuation Standards (EVS, the Blue Book) – published by the European
Group of Valuers’ Associations (TEGoVA), an umbrella organisation of European
national valuers associations whose objective is to promote and harmonise European
valuation standards.

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5 Application of the RICS Valuation –

Global Standards 2017 in the UK

5.1 User’s perspective

Global standards
• The Red Book is written to ensure that valuation assignments undertaken by RICS
members and regulated firms (see PS 1 sections 1 and 2) are fully in accordance
with International Valuation Standards (IVS).
• The Red Book complements the IVS by providing detailed guidance and specific
requirements regarding the practical implementation of IVS.
• All valuations provided in writing by RICS members and regulated firms must comply
with the requirements of the Red Book. Surveyors must be suitably trained and have
appropriate qualifications and adequate experience for the task.
• Valuers must be independent, objective and transparent in their approach.
• Adoption of Red Book global standards ensures consistency of approach and aids
understanding of the valuation process and the value reported.
• A Red Book-compliant valuation must provide clarity regarding terms of engagement,
basis of value (including any assumptions or material considerations taken into
account), and reporting.
National supplements
National supplements of the global Red Book are published by RICS in a growing
number of countries to ensure compliance with local legal requirements, regulation and
practice.

5.2 Red Book – implementation in the UK

5.2.1 Red Book application in the UK context
RICS Valuation – Global Standards 2017 is written from an international perspective, in
accordance with the IVS. It expressly recognises (in PS 1 section 4) that in individual
jurisdictions, compliance with specific statutory, regulatory or other authoritative
requirements is necessary, and doing so does not preclude a valuation from being
declared as performed in accordance with the Red Book.

5.2.2 Red Book UK national supplement

The current edition of the UK national supplement to the Red Book is now available
online and applies to valuations from 14 January 2019.

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Appendix A: Other professional

organisations representing property
valuers in the UK

• The Institute of Revenues, Rating and Valuation (IRRV) – the largest professional
institution operating in the field of rating and council tax valuation. It formally adopts
the RICS Red Book, enforces compliance and closely monitors its members.
• The Central Association of Agricultural Valuers (CAAV) – represents valuers
working in rural property. Membership is by examination and the organisation
ensures its members’ professional standards.
• The National Association of Estate Agents (NAEA) – principally represents people
working in the residential sector. Members are expected to comply with its code of
practice and training and qualification programmes are offered.

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Confidence through
professional standards
RICS promotes and enforces the highest professional
qualifications and standards in the valuation, development
and management of land, real estate, construction and
infrastructure. Our name promises the consistent delivery
of standards – bringing confidence to markets and effecting
positive change in the built and natural environments.

Americas
Latin America North America
[email protected] [email protected]

Asia Pacific
Australasia Greater China (Hong Kong)
[email protected] [email protected]
Greater China (Shanghai) Japan
[email protected] [email protected]
South Asia Southeast Asia
[email protected] [email protected]

EMEA
Africa Europe
[email protected] [email protected]
Ireland Middle East
[email protected] [email protected]

United Kingdom RICS HQ

[email protected]

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