Continued use of Brexit clause ‘creating confusion’, says property expert

Speaking at the Aldermore Commercial Mortgage Senate earlier this month, Professor Barry Gilbertson, property consultant, raised the issue of uncertainty clauses. Many valuers included these in their reports in the run-up to the referendum in June, following best practice guidance issued in May by their professional body, RICS (Royal Institution of Chartered Surveyors).

In the immediate wake of the referendum outcome to leave the EU, valuers were given further guidance by the RICS, concerning the uncertainty apparent in the markets and reminding valuers of what to say in their reports when markets are ‘susceptible to change’. This was followed up, on 26 July, when the RICS said the principles of earlier guidance still apply and that uncertainty clauses may still be used when, in the valuer’s judgement, they are appropriate.

However, some criticised the use of the clauses, saying their insertion was holding back the market.

Gilbertson said that lenders, brokers and borrowers reading, and relying on, a valuation which contains a Brexit-related uncertainty clause now, could rightly be confused.

“Some valuers may be leaving the clause in deliberately, in which case they should say so, and explain why,” he said. “Others may be leaving it in because they haven’t seen the latest guidance, or have not been efficient in removing the uncertainty clause from their standard valuation caveats, in a timely fashion. It is potentially misleading for the recipient, thereby increasing the uncertainty.”

He agreed that brokers and others who see an uncertainty clause should challenge the valuer, as the presence, or not, of the uncertainty could have a material impact on the valuation. “Whether or not the reader [of the valuation] thinks the market is now more stable, or less uncertain, is not relevant to the clause’s inclusion, which is why the recipient needs to understand the reason for the valuer retaining the uncertainty clause in their valuation report,” he said.

Becky Thomson, UK valuation associate director at RICS, said the body has advised members to use their expert knowledge of their own property market sector along with professional judgement in advising clients.

“Any clauses regarding uncertainty in the wake of Brexit may still be appropriate for asset classes with limited transactional evidence, where the valuer cannot come to a fully informed conclusion on market impact (for example, shopping centres which transact infrequently). The principles of VPGA9 in the RICS Valuation – Professional Standards still apply, but as more market evidence emerges post-Brexit, valuers will be reviewing whether or not the use of clause highlighting uncertainty is still appropriate.”

She added: “Where a clause is still used, the strength of the wording should be reviewed and must reflect the current market situation, and valuers should not only take into account their market knowledge, but the requirements and needs of their clients.”