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Red Book scope and

Red Book exceptions


Issued by the RICS Valuation Standards Board, February 2016

Introduction
A recent internal review of Valuer Registration has highlighted that there are genuine doubts among
some members about the extent to which all or part of their work falls within the scope of the Red
Book, more particularly whether it is, or is not, within one of the exceptions specified in PS 1 section
6 paragraph 6.2.
Although not formally part of the Red Book, the material below is intended to assist members by
addressing some of the practical issues that arise in their day-to-day work, providing more detailed
explanation and comment, which it is hoped will cover most situations. The material is in three parts:

Part 1 addresses issues about the overall scope or reach of the Red Book
Part 2 covers the principles underlying the Red Book exceptions in more detail
Part 3 considers some practical examples drawn from real world situations.

Parts 1 and 2 are of global application. Part 3 initially contains mainly UK examples, but will be
progressively developed to include examples from all World Regions.
Following issue of this clarification material, it is anticipated that members and firms will wish to
undertake any internal checks or reviews they judge necessary to ensure they are fully compliant
with the Red Book and also with the requirements of Valuer Registration where it applies in the
jurisdiction within which they practise.

RICS Valuation Professional Standards 2014 (the Red Book)


general scope
Q. Is the 2014 edition of the Red Book materially different in scope from its
predecessors?
A. No. The current (2014) global edition did not alter the overall scope of the Red Book, which has
remained substantially the same throughout the past several editions. The reason the previous
(2012) edition was rewritten was to make improvements to the overall structure and text, removing
some duplication, achieving better integration of the International Valuation Standards (IVS), and
making it easier for the global edition and the individual jurisdiction-specific volumes to be published
separately.
However, the 2014 edition did introduce new guidance relating to business valuation and intangible
assets, recognising the growing number of members who practise in these areas.

Q. Is some valuation work completely outside the Red Book?


A. No. If supplied in written form, all valuation advice given by RICS and IRRV members is subject
to at least some of the requirements of the Red Book there are no exemptions (PS 1 paragraph
1.1). For the provision of oral advice, see the separate Q and A below.
Thus PS 1 (compliance) and PS 2 (ethics, competency, objectivity and disclosures) are mandatory
in all cases (Introduction para 12 and PS 1 paragraph 7.1). In other words, they apply to all
members whatever type of valuation activity they are engaged in. This should be no surprise as the
requirements simply embody what being a professional valuer, and more specifically being a
member of RICS or of IRRV, is about in other words, they set out the associated RICS Rules of
Conduct for members engaged in valuation work. However, given the sheer diversity of valuation
activity undertaken by members, and the diversity of jurisdictional contexts in which valuations and
valuation advice are delivered, the Red Book does introduce some differentiation between particular
types of assignment. These aspects are considered in more detail below.

Q. How do I determine how much of the Red Book applies to the work I undertake?
A. Paragraphs 13 and 14 of the Red Book Introduction provide the starting point thus:
VPS 14 are mandatory in all cases unless otherwise stated (Introduction para 13).
VPGA 19 are not mandatory but offer further implementation guidance in specific instances
and also embody best practice procedures that in the opinion of RICS meet a high
standard of professional competence in relation to the issues covered (Introduction para 14).
There is an expectation, albeit not a requirement, that members will follow them. And indeed
it is in members best interest to do so, as they could be disadvantaged in the face of
challenge, including litigation, if they have not had regard to the VPGAs.
VPS 14 are about the process of valuation, ensuring amongst other things the delivery of an
IVS-compliant valuation, whereas VPGA 19 are about specific assignments or circumstances.
It will normally be very straightforward to decide whether any and, if so, which VPGA applies to
the specific task in question, but it may be rather less straightforward to identify those cases in

which application of VPS 14, although advisory, is not mandatory. These instances fall either
into the category of exceptions (PS 1 section 6) or of departures (PS 1 section 7). In brief:

When and where a departure properly falls to be made is usually specific to an individual
case and is always to be determined on the particular facts and circumstances (PS 1
paragraphs 7.27.5).
In contrast, exceptions are not specific to individual cases but cover particular categories or
aspects of valuation activity (see PS 1 paragraph 6.2) in view of the importance of
understanding when and where such exceptions arise, and how they should be dealt with,
further detail is given in the separate Q and A section below.

Q. What exactly is a departure?


A. A departure is a special circumstance where the mandatory application of a VPS may be
inappropriate or impractical or the valuer may be asked to comply with standards other than those
of RICS. In all cases other than those specified in PS 1 paragraph 7.4 (see next sentence), a
departure must be confirmed and agreed with the client as a departure and a clear statement to that
effect included in the terms of engagement, the report and any published reference to it. PS 1
paragraph 7.4 recognises that in some cases the valuation has to be provided in compliance with
prescribed statutory or legal procedures that are mandatory in the particular context or jurisdiction.
In such cases, i.e. where the valuer has no option but to comply, this is not regarded as a departure:
however the requirement to so comply must be made clear.
Valuers are reminded that they may be called upon by RICS/IRRV to explain their reasons for
making a departure.
No departure, in any circumstance, is permitted from PS 1 and PS 2, which are mandatory in all
instances.

Q. The term Red Book valuation is sometimes used by valuation users or by


valuation providers is it a recognised term?
A. Although not defined (i.e. not included in the RICS glossary), the term is not objectionable in itself
in the sense that it means a valuation undertaken in accordance with the Red Book (for example, as
opposed to being undertaken in accordance with some other valuation standard). However, it can
be misleading if interpreted as implying a body of valuation activity that lies wholly outside the Red
Book. That is why its use is generally discouraged.

Q. Doesnt compliance with the Red Book in relation to small tasks simply increase
costs and render the valuer or firm concerned uncompetitive?
A. The objective of the Red Book, and indeed of valuation standards generally, is to promote
consistency, accuracy, transparency and confidence but it does not follow that the process of
valuation itself cannot reflect the needs and circumstances of the individual assignment. In
particular the need for proportionality in reporting is recognised (Red Book Introduction paragraph
8b).

Q. Are terms of engagement needed in every case?


A. Even though the content of VPS 1 may not be mandatory in exception cases, it cannot be too
strongly emphasised that terms of engagement should be clear and unambiguous and appropriately
documented (PS 2 section 7 paragraph 7.4). This is as much in the interests of the valuer as that of
the client, ensuring that there is no ambiguity about what is being requested and what is being
supplied.

Q. Can informal rather than formal advice be given and, if so, does it lie outside of
the Red Book?
A. The Red Book does not recognise a distinction between informal and formal valuation advice.
Neither are defined in the RICS glossary, and indeed the Red Book actively discourages the use of
these terms (see PS 2 paragraph 1.4) as they may give rise to misunderstandings, particularly but
not exclusively regarding assumptions that a member may or may not have made.
More generally, whether and to what extent the Red Book applies in individual cases must always
be determined on the basis of the facts and circumstances. Generally it is safer to assume that it
does apply.

Q. What about oral valuation advice is that subject to the Red Book?
A. While the Red Book does not formally extend to the provision of oral valuation advice, valuers
are advised to exercise great care, not least to ensure clients fully understand the nature of the
advice being given and the terms under which it is provided. The mere fact that advice is provided
orally does not mean that it is therefore provided without liability the valuers responsibilities and
obligations will always depend on the facts and circumstances of the individual case.
In some countries, the provision of oral valuation advice is in any event subject to specific
jurisdictional standards or requirements. Furthermore, in all jurisdictions valuers acting as expert
witnesses should be alert to the fact that both oral and written advice will be subject to the same
criteria see the RICS practice statement Surveyors acting as expert witnesses (4th edition, 2014),
which must always be followed.

Red Book exceptions an overview of the principles


Q. What exactly is covered by the Red Book exceptions?
A. Exceptions are not specific to individual cases but cover particular categories or aspects of
valuation activity (see PS 1 paragraph 6.2), namely:

provision of agency or brokerage work in respect of acquisitions and disposals of an asset


to which activity the RICS practice statement and guidance note Real estate agency and
brokerage guidance (2nd edition, 2014) applies
acting or preparing to act as an expert witness where the RICS practice statement
Surveyors acting as expert witnesses (4th edition, 2014) is to be followed
performing certain statutory functions where the relevant statutory provisions will define the
task and also frequently govern the manner in which it is to be carried out
providing valuations to a client purely for internal purposes, without liability, and without
communication to a third party
providing valuation advice expressly in preparation for, or during the course of, negotiations
or litigation.

Each is considered in more detail below.


For all exceptions (save those where the activity is expressly covered by other RICS standards or
guidance), the fact that VPS 14 are not mandatory does not mean that they are simply to be
ignored as a matter of good practice they should be followed where not precluded by the specific
requirement or context (see PS 1 paragraph 6.1).

Q. What is covered by the provision of agency or brokerage exception?


A. This covers the provision of advice in the expectation of, or in the course of, an agency
instruction to acquire or dispose of an interest in an asset. It also covers advice on whether a given
offer should be made or accepted. However the exception does not cover a purchase report that
includes a valuation.
For the avoidance of doubt, a purchase report valuation means the provision of an opinion which
is, or includes, an assessment of market value and/or (IFRS 13) fair value. Where advice is
provided solely in relation to the specific investment or operational objectives of the client for whom
the agent or broker is acting, and the extent to which those may be satisfied by the proposed
transaction, i.e. advice relating solely to worth, or investment value, then the matter would remain
within the exception i.e. VPS 14 is advisory not mandatory. The requirements of VPS 14 cannot,
however, be circumvented by obtaining separate but parallel instructions to provide different forms
of valuation advice in relation to the same asset for the same proposed transaction.

Q. What is covered by the expert witness exception?


A. The reason for the exception is to recognise that a surveyor acting as an expert witness must
follow very precisely the specific rules and procedures laid down by the court, tribunal or other
judicial body before which the surveyor will, or may, be appearing. In addition the surveyor must
meet and observe very high standards of impartiality and objectivity.

Since the context in which the surveyor may be providing a valuation opinion as an expert will vary
widely, and since the rules and procedures of the judicial body and also any legislative requirements
concerning the basis of value and related assumptions, etc. must always be strictly observed and
followed, it is not appropriate for the content of VPS 14 to be made mandatory in such cases.
However, VPS 14 may still provide a useful guidance in terms checklist of matters that need to be
covered.
Members should always refer to the RICS practice statement Surveyors acting as expert witnesses
(4th edition, 2014). Note that oral advice as an expert witness is subject to the same requirements
and standards as written advice.

Q. What is covered by the statutory functions exception?


A. The emphasis in this exception is on the word function, i.e. the performance of a statutory role
or duty involving the exercise or enforcement of certain powers that are expressly defined or
recognised in legislation, normally involving the formal appointment of an individual to that specific
role.
The mere fact that a valuation is being provided in accordance or compliance with legislation is not
the point hence the illustrative reference in PS 1 section 6 to the provision of a valuation for
inclusion in a statutory return to a tax authority, which involves compliance with the law but not the
exercise or enforcement of it.
Statutory functions are most often, though not invariably, carried out by valuers in the employ of
government, a public authority or a government-authorised agency. However, the fact that a valuer
may be employed in the public sector or may be acting for a public sector client does not mean that
all work undertaken by that valuer involves the performance of a statutory function in many cases
(if not most), it will not. In the absence of legislation specifying and defining a specific role or
function, and an individuals express appointment to discharge it, the exception will not apply.

Q. What is covered by the internal purposes exception?


A. The internal purposes exception is designed to recognise that there are occasions where
advice is sought from a valuer by a client often by a regular portfolio valuation client that will be
without liability, and will not be released to third parties, for example in connection with proposed
asset management initiatives or proposed acquisitions. Where members undertake such work it is
vital that the terms of engagement and the written advice itself are quite explicit about the
prohibition on disclosure to any other party and/or use for any other purpose and about the
exclusion of liability. Such advice often does not attract an additional fee and this element of the
valuation service may or may not be explicitly referred to in the terms of engagement for a regular
portfolio valuation.
It is strongly recommended that VPS 14 are followed in all cases even though they are not
mandatory. Note also that:

the mere fact that the provider of the valuation is an internal valuer does not bring the
valuation assignment within the exception the focus here is on the internal only purpose
of the valuation and not the process or means of its delivery
it is possible for an external valuer to provide an internal purposes valuation, though where
that is so, the need for the terms of engagement and written advice to be absolutely clear

about non-disclosure to third parties, and about the exclusion of liability, becomes even more
crucial.

Q. What is covered by the litigation exception?


A. The litigation exception recognises that:

there is a formal dispute in existence, however it arises, and the proceedings will therefore
be subject to any relevant legislation, regulation, rules or court directions that may be in
place or issued, which will always take precedence over the Red Book
advice given to a client may extend to various matters going beyond the provision of advice
on value, for example advice on tactics and/or the probable outcome of litigation and/or
options regarding settlement options or mitigation of costs.

Accordingly, VPS 14 are advisory rather than mandatory in such circumstances

Q. What is covered by the negotiations exception?


A. Although something of an over-simplification, the negotiations exception is probably best seen
as a counterpart to the litigation exception. Although there may not yet be an unresolved dispute,
the advice is being provided expressly in preparation for, or during the course of, negotiations that
may lead either to agreement or to the creation of an unresolved dispute, triggering (where the
context allows it) a formal process of resolution (e.g. reference to the courts, to arbitration, etc.).
Again it may, and often will, extend to advice on such matters as tactics and/or probable outcomes
and/or options to achieve resolution without recourse either to litigation or to other formal
procedures.
For the avoidance of doubt:
The fact that a written valuation provided to a client may subsequently be subject to
negotiation is not sufficient to bring the first of those activities within the exception thus
provision of a purchase report that includes a valuation is not excepted (see PS 1 paragraph
6.2 bullet point 4) nor would provision of a written opinion of value in connection with a
forthcoming rent review, whether that be an opinion of market rent or of the rental value
subject to the specific terms of the particular lease.
In contrast, advice on tactics regarding a rent review, e.g. in response to a formal proposal
from or made on behalf of a landlord, or from or made on behalf of a tenant, would be
regarded as covered by the exception.
In short, expressly in preparation for is to be narrowly interpreted. If in doubt, a member should
assume that VPS 14 applies. There is no position of partial exception unless the entirety of a
valuation assignment falls within the relevant exception, the mandatory requirements of VPS 14
apply.

Red Book exceptions to VPS 14 in practice some


illustrations
These illustrations are initially largely drawn from a UK jurisdictional context examples from other
jurisdictional contexts will be added over time. However, the general principles underlying the
application of the exceptions will not change therefore non-UK members may find that they can
draw some parallels, even if their local circumstances differ in terms of the finer detail.

Advising a client on the purchase of a property

The precise circumstances in which a surveyor (not necessarily solely a valuer) may be
asked to advise a client on the purchase of a property will vary widely. It may be a passive
assignment, in which the surveyor simply proffers professional advice, or an active
assignment, in which the surveyor both proffers initial advice and also acts for the client in
the purchase itself. If a purchase report containing a valuation (e.g. an opinion of the current
market value) is provided to the client, then VPS 14 apply the fact that a valuer may be
asked (or there is a high degree of probability that he or she will be asked), at the time or
subsequently, to negotiate the acquisition of the property does not take it into the exception
under PS 1 paragraph 6.2 bullet point 2. The key point here is that a firm view on the
property's market value (or other defined base of value) is being provided in writing. It is
different in character from advice on tactics or possible outcome, e.g. This is what I think
you will be able to buy the property for.

Advising a client or a lender on the replacement cost of a property for insurance


purposes

Although frequently referred to as insurance value, the provision of a replacement cost


figure for assets other than personal property that is provided, either within a valuation report
or separately, for the purpose of insurance is not a written opinion of value for the purpose
of undertaking valuation services as defined in PS 1 paragraph 1.2 of the Red Book.
Accordingly, the provisions of the Red Book are not applicable regarding that replacement
cost figure.
The reason for personal property being treated differently is that the replacement cost may
be closely related to, or actually accord with, market value specific guidance is available in
VPGA 7.

Making an internal presentation to a client advising on property value for future tax
liabilities on a what if scenario

The key point here is to be explicit about the terms of engagement, and to ensure they are
properly set out and agreed, before any advice is given. If the advice is to be provided
confidentially, without liability, and without disclosure to any third party then it may properly
fall within the exception at PS 1 paragraph 6.2 bullet point 3. This can be so even if it is
provided in writing and even if it is provided by an external valuer.

Providing a HomeBuyer Report

A HomeBuyer Report contains a written opinion of market value to which VPS 14 will apply,
whether or not the figure is used for the purpose of negotiation subsequently.

Providing a valuation for probate purposes

A valuation provided for probate (or more correctly, inheritance tax) purposes is a written
opinion of value as at the date of death in accordance with the relevant statutory definition, to
which VPS 14 will apply. In the UK specific reference should also be made to the guidance
in UKGN 3.

Providing advice to portfolio clients in respect of what if scenarios

Providing an opinion of value to a client for whom regular valuations are undertaken in
relation to the prospective value of an individual asset, or group of assets, after an asset
management initiative that is in contemplation a what if scenario would fall within the
relevant exception provided the advice is for internal purposes only (as it clearly usually
would be), is not to be communicated to any third party, and is without liability.

Providing advice to portfolio clients in advance of the acquisition of a new property

Providing an opinion of value to a client for whom regular valuations are undertaken in
advance of the acquisition of a new property would fall within the relevant exception
provided the advice is for internal purposes only (as it is likely to be), is not to be
communicated to any third party, and is without liability.

Providing valuation advice in relation to compulsory purchase work

Compulsory purchase work is a complex area of activity for which it is essential that a valuer
acting either for an acquiring authority or for a claimant is suitably qualified and skilled. Such
work does not automatically come under one of the Red Book exceptions, though there may
be aspects which do, such as appearing as an expert witness. In particular, it is not
automatically covered by the negotiations/litigation exception, since in most, if not all,
instances it is necessary for the assets being acquired to be individually valued as part of the
overall claim for compensation and for that claim to be formally submitted or for an offer of
compensation to be formally made before detailed discussions and negotiations
commence or are concluded. Naturally the code of compensation applicable in the individual
case takes precedence over the matters set out in VPS 14 and any other specific
requirements of the Red Book. Such codes must always be strictly followed doing so does
not involve a departure from the Red Book.

Providing valuations in accordance with the Charities Acts

VPS 14 apply to valuations in accordance with the Charities Acts. Such valuations do not
fall within the statutory function exception.

Providing valuations in relation to the Landlord and Tenant Acts

VPS 14 apply to valuations provided in relation to the Landlord and Tenant Acts, including
for lease extension or renewal. Such valuations do not fall within the statutory function
exception, save for certain determination functions that expressly fall to be performed by a
valuation officer.

Providing valuations in leasehold reform cases

VPS 14 apply to valuations for leasehold reform cases. Such valuations do not fall within
the statutory function exception.

Providing valuations for local taxation work

Valuations undertaken by a valuer acting in a statutory capacity (e.g. as valuation officer or


listing officer) fall within the exception at PS 1 paragraph 6.2 bullet point 1. However, both
statute and case law impose specific and extensive duties and obligations on those
performing statutory functions, and they must also act in compliance with PS 1 and PS 2.
Valuations for local taxation work provided by any valuer not acting in a statutory capacity
(i.e. acting for a ratepayer or other client) are subject to VPS 14 but note that PS 1
paragraph 7.4 applies, so that the fact that they have to comply with prescribed statutory and
legal procedures (e.g. the basis of value is that defined in the relevant legislation) is
expressly recognised and such compliance does not involve a departure. In addition, valuers
must comply with the RICS/IRRV UK Rating consultancy code of practice (3rd edition, 2010).
When a rating assessment is being challenged, an agent acting on behalf of a ratepayer may
sometimes make a proposal for a reduction in the assessment specifying 1 as the amount
to be entered in the relevant rating list. This is a widely recognised, although not actively
encouraged, convention, and is not a valuation but a signal that:
a) the value already entered in the list is considered to be incorrect and
b) an entry in the list is nevertheless properly to be made (as opposed to removal of the entry
from the list).
Where (whether before or after lodging the proposal) a valuation in accordance with the
rating legislation is made, it is subject to RICS and IRRV standards and guidance referred to
above.

Providing valuations for national taxation purposes

VPS 14 apply to valuations for the purposes of national taxation and do not fall within the
statutory function exception. Valuers practising in the UK will wish to have regard to UKGN 3
Valuations for capital gains tax, inheritance tax and stamp duty land tax, where applicable.

Providing valuations for right to buy cases

Valuations for the purposes of right to buy cases are subject to VPS 14 and do not fall
within the statutory function exception. However, the exception does apply to, for example, a
District Valuer in England and Wales undertaking a determination, which is a statutory
function of a quasi-judicial nature.

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