MT FINANCE LTDVALUER GUIDANCE NOTES

For Valuation Instructions Issued ThroughMethod Valuation UK Limited

(Excludes Residential Shortform Valuations)

June 2020v.1.2

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CONTENTS1 INTRODUCTION..............................................................................................................................5

1.1 Purpose of these Valuer Guidance Notes...............................................................................5

1.2 Conduct Risk (including Treating Customers Fairly)...............................................................5

2 MT FINANCE LTD VALUATION KEY GUIDELINES.............................................................................6

2.1. Method Valuation UK Limited and Method xi Software System...........................................6

2.2 Valuation Software..............................................................................................................6

2.3 Valuation Date and Validity.................................................................................................6

2.4 Re-valuation Reports............................................................................................................7

2.5 Re-addressed/Retyped Valuations (Transcriptions).............................................................7

2.6 Sector Specific Valuations....................................................................................................7

2.7 Rationale and Calculations..................................................................................................7

2.8 Dual Signature.....................................................................................................................7

3 STANDARD LIMITATIONS AND ASSUMPTIONS...............................................................................8

3.1 General................................................................................................................................8

3.2 Standard Limitations and Assumptions with Regard to Secured Lending Valuations Excluding Regulated Residential Shortform Valuations for: MT FINANCE LTD.....................................8

3.2.1 Inspection:...............................................................................................................8

3.2.2 Environmental Considerations................................................................................8

3.2.3 Tenants....................................................................................................................9

3.2.4 Measurements......................................................................................................10

3.2.5 Town Planning and other Statutory Regulations...................................................10

3.2.6 Legal Advice...........................................................................................................11

3.2.7 Insurance Recommendations................................................................................11

3.2.8 Confidentiality.......................................................................................................11

3.2.9 General Assumptions.............................................................................................12

4 MT FINANCE LTD REPORTING REQUIREMENTS FOR STANDARD COMMERCIAL AND RESIDENTIAL RED BOOK VALUATIONS..............................................................................................................13

4.1 Introduction.......................................................................................................................13

4.2 Valuation Format...............................................................................................................13

4.2.1. FIRST SECTION – PRELIMINARIES...........................................................................13

4.2.2. SECOND SECTION – BACKGROUND.......................................................................14

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4.2.3 THIRD SECTION – THE PROPERTY..........................................................................18

4.2.4 FOURTH SECTION – LEGAL MATTERS....................................................................23

4.2.5 FIFTH SECTION - STATUTORY MATTERS.................................................................25

4.2.6 SIXTH SECTION – GROUND CONDITIONS AND ENVIRONMENTAL RISKS................27

4.2.7 SEVETH SECTION – CONSIDERATION OF SUITABILITY AS LOAN SECURITY.............29

4.2.8 EIGHTH SECTION – MORTGAGE REGULATION.......................................................29

4.2.9 NINTH SECTION – GENERAL UK ECONOMIC BACKGROUND..................................30

4.2.10 TENTH SECTION – VALUATION CONSIDERATIONS.................................................30

4.2.11. ELEVENTH SECTION – MARKETABILITY..................................................................34

4.2.12. TWELFTH SECTION – VALUATIONS........................................................................35

4.2.13. THIRTEENTH SECTION – OTHER REQUIREMENTS..................................................37

4.2.14. FOURTEENTH SECTION – SIGNATURES..................................................................38

5. GENERAL GUIDANCE....................................................................................................................39

5.1. Portfolio Valuation (Aggregate of sale of individual assets or as a single transaction)......39

5.2. Discounted Cash Flow Valuations......................................................................................39

APPENDIX 1: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR TRADE RELATED PROPERTIES 40

Trade Related Property - Business Assessment Section.............................................................40

General...............................................................................................................................40

Historic/Current Trading Performance...............................................................................41

Current Trading Performance............................................................................................41

Fair Maintainable Trading Assessment...............................................................................41

Commentary......................................................................................................................42

Projected Trading Assessment...........................................................................................42

Alternative Uses.................................................................................................................42

Trade Related Properties – Valuations Section..........................................................................42

Valuation of Specific Asset Classes............................................................................................43

Care Homes........................................................................................................................44

Children’s Day Nurseries/ Crèches.....................................................................................44

Hotels/ Guest Houses/ B&Bs..............................................................................................45

Hotels - Medium and Large Hotels (in excess of 25 rooms)...............................................46

Hot Food Takeaways..........................................................................................................47

Petrol Filling Stations (“PFSs”)............................................................................................48

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Pharmacies.........................................................................................................................48

Post Offices/ C-Stores/ Trading Retail Businesses..............................................................49

Professional Practices (Private Medical/Dentists/Veterinary Practices)............................50

Public Houses, Licenced Social Clubs & Restaurants..........................................................51

APPENDIX 2: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR DEVELOPMENT PROPERTIES. 53

Development Properties - Development Assessment Section....................................................53

Development Properties - Valuation Considerations Section.....................................................55

Development Properties - Valuations Section............................................................................56

Development Properties - Sensitivity Analysis Section...............................................................57

APPENDIX 3: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR AGRICULTURAL PROPERTIES. 58

Agricultural Land and Farms...............................................................................................59

Equestrian Properties.........................................................................................................60

Fisheries and Fish Farms....................................................................................................60

Forestry..............................................................................................................................61

Fire.....................................................................................................................................61

APPENDIX 4: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR HMO AND MUFB PROPERTY VALUATIONS........................................................................................................................................62

General Background..................................................................................................................62

HMOs.................................................................................................................................62

MUFBs................................................................................................................................62

Changes Required to Suggested Report Format........................................................................63

Accommodation.................................................................................................................63

Statutory Matters...............................................................................................................63

Houses in Multiple Occupation (HMOs) and Multi Unit Freehold Blocks (MUFBs)............63

Immigration Status Check..................................................................................................64

HMOs & MUFBs - Valuation Considerations Section.................................................................64

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1. INTRODUCTION1.1 Purpose of these Valuer Guidance Notes

These guidance notes are for the use of Valuers undertaking property valuations for MT FINANCE LTD which are issued through Method Valuation UK Limited.

Every effort has been made within these Guidance Notes to identify areas of MT FINANCE LTD policy requirements and to accord with industry best practice. All Valuers acting for MT FINANCE LTD should adhere to the provisions of the current RICS Valuation – Global Standards (Red Book); although, where these reporting requirements exceed the requirements of the Red Book, then these reporting requirements must be followed.

It is anticipated that the majority of matters referred to in these Guidance Notes already form part of a Valuer’s normal working practice. MT FINANCE LTD relies upon the Valuer’s skill and judgement for the appropriate professional advice in each case. MT FINANCE LTD requires a concise and consistent reporting style from all Valuers appointed to their panel.

Where MT FINANCE LTD requests a valuation it is seeking clarification as to whether a property:

Is readily marketable and will remain so. Is readily saleable at market value. Is readily lettable at market rent. Will maintain or increase its value in relation to similar properties in the

region. Will not require abnormal expenditure or maintenance. Represents suitable security for a Bank mortgage advance. Complies with all national and regional requirements with respect to

space standards.

It is emphasised that these Notes are for guidance only and are not intended to set out a complete Code of Practice for Valuers and in no way relieve the Valuer from his/ her obligations to MT FINANCE LTD and/ or the applicant(s).

1.2 Conduct Risk (including Treating Customers Fairly)

MT FINANCE LTD strongly supports the principles of managing conduct risk and treating customers fairly (TCF) to ensure that customers receive the right outcome. It is imperative that all Valuers working on MT FINANCE LTD’s

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behalf adopt the same approach when undertaking valuations, from scheduling the valuation, conducting the valuation, completing the valuation report through to dealing with any valuation challenges or queries.

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2. MT FINANCE LTD VALUATION KEY GUIDELINES

2.1. Method Valuation UK Limited and Method xi Software System

Method Valuation UK Limited (“Method”) administers a panel of approved Valuers on behalf of MT Finance Ltd using the Method xi software system.

Quotes will be requested directly by Method and instructions and post valuation queries (“PVQs”) issued through this system.

Valuation reports are to be submitted electronically to MT Finance Ltd on the date they are due. Reports should be in full colour PDF format and are to be uploaded through Method xi system’s valuer portal. Scanned copies of PDFs will not be accepted.

2.2 Valuation Software and Valuation Calculations

Where valuation software is appropriate for the type of asset being valued or the type of valuation being undertaken valuers are requested to use it to prevent manual errors and for cross checking with the commentary in reports.

All calculations where a valuer is valuing by investment, comparative rate, residual, DCF or profits method, must be provided in the report or its appendices.

2.3 Valuation Date and Validity

The Valuation Date will not necessarily be the date of inspection.

The Valuation Date should be the date on which the opinion of valuation was formed, agreed and signed off by the authorising/ secondary signature which may be any date from the inspections up to and including the date on which the report was issued.

The Valuation Date should be no more than one calendar month from the inspection date, unless a time extension has been specifically confirmed by Method on behalf of MT Finance Ltd.

In the case of readdressed/ transcribed valuation reports MT Finance Ltd should be informed through Method if this one-month period cannot be met. If it cannot be met the valuer should advise on i) what the length of time will be between the two dates, and ii) whether or not it is aware of any material

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changes in circumstance which may have affected their original valuation figures.

MT Finance Ltd will then decide on whether re-inspection is required.

MT Finance Ltd will rely on the report for a 3-month period after the date of the report; however, if an extended period of reliance is required (up to a further period of 3 months), MT Finance Ltd will request that a confirmation be provided.

2.4 Re-valuation Reports

Valuations of properties that have been re-instructed to the same individual valuer subsequent to an initial valuation by that valuer are referred to as “Re-valuations”. If the inspecting valuer has left the firm or is not able to report independently, a new full valuation report will be required.

The reports must be PII backed with full reliance and liability.

2.5 Re-addressed/ Retyped Valuations (Transcriptions)

MT Finance Ltd does not generally accept transcribed reports which have been commissioned by an applicant or its finance broker or any other party acting directly on the applicant’s behalf where the applicant is identified as the client. Valuations commissioned by other lenders may be acceptable at MT Finance Ltd.

2.6 Sector Specific Valuations

Appended to this document is additional guidance for sector specific valuations.

2.7 Rationale and Calculations

All values must have rationale relating to supporting comparable evidence and rates applied. No values should be provided without calculations.

2.8 Dual Signature

All reports must have been Quality Assured and signed by an approved second valuer responsible for peer reviewing the valuation prior to its submission to MT Finance Ltd. The second signatory must be experienced and qualified as set out in the Panel Agreement between Method and the Valuer.

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3. STANDARD LIMITATIONS AND ASSUMPTIONS

3.1 General

To avoid individual Panel Valuers seeking to impose their own Standard Terms and Conditions on each valuation and to ensure a consistent approach the following Standard Limitations and Assumptions are acceptable to MT FINANCE LTD and will supersede all other Standard Limitations and Assumptions which may be included in a Valuation report.

3.2 Standard Limitations and Assumptions with Regard to Secured Lending Valuations Excluding Regulated Residential Shortform Valuations for MT FINANCE LTD:

3.2.1 Inspection

The Valuer has undertaken a visual inspection of the exterior and interior of the property to the extent which is accessible with safety and without undue difficulty as can be seen whilst standing at ground level and within the boundaries of the site, and adjacent public/ communal areas, and whilst standing at the various floor levels which the Valuer considers reasonable in order to provide the service having regard to its purpose. The Valuer has not carried out a condition survey or inspected those parts of the property which are covered, unexposed or inaccessible nor has raised floorboards, moved any fixed apparatus or arranged for a test of the electrical, heating or other services.

In preparing the report, unless otherwise stated by the Valuer, the following assumptions have been made which the Valuer is under no duty to verify:

a. That no deleterious or hazardous materials or techniques were used in the construction of the property or have since been incorporated.

b. That inspections of those parts which have not been inspected would neither reveal material defects nor cause the Valuer to alter the valuation materially.

3.2.2 Environmental Considerations

The Valuer does not undertake any environmental testing as part of a normal valuation inspection and will therefore usually report that enquiries have not revealed any contamination affecting the property or neighbouring

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property, which would affect the valuation. However, should it be established subsequently that contamination exists at the property or on any neighbouring land or that the premises have been or are being put to any contaminative use, this might reduce the values reported.

The Valuer will be expected to possess adequate local knowledge to advise on any local environmental or geotechnical issues which may occur more frequently in the specific locality of the property being valued which could influence value or marketability of the property being valued.

When valuing property where the Valuer suspects contamination may exist, this will be reported to the Client.

The Client, when it considers appropriate, will commission a report from an approved Environmental Consultant and will refer the report obtained to the Valuer for confirmation of/ or adjustment to the original valuation. The Valuer will then refer to the consultant's report in the valuation identifying the nature of the contamination and adjust the valuation to have regard to the estimated cost and likely liability for treatment. However, should it be established subsequently that other contaminants exist at the property or on any neighbouring land, or that the premises have been or are being put to any other contaminative uses this might reduce the value reported.

Contamination, or pollution, of land or buildings, can be caused by a wide variety of activities, both current and historic, and is not confined to areas that have been used for heavy industrial processes.

Few Valuers will have the knowledge or expertise to advise on the extent and nature of any contamination present, or any appropriate remedial works. If contamination is suspected, Valuers are to alert the Client if they believe that it could have a significant impact on the valuation and agree the assumptions that should be made in completing the Valuation and included in the report.

Unless otherwise stated by the Valuer based on reports available from the borrower, the following assumptions will be made by the Valuer which he is under no duty to verify:

(a) Unless otherwise stated investigations have not been undertaken on the site in the form of any geotechnics report to determine the suitability of ground conditions or services for any new developments.

(b) In the case of agricultural land, the Valuer is not able to accept any responsibility as to the possible latent infestations in the soil or any disease which might affect crops or stock at any time in the future.

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3.2.3 Tenants

Although the Valuer will reflect general understanding of a tenant's status in valuations, the Valuer will make limited enquiries about the financial status of tenants and rely upon the Client to advise the Client if tenants are in default of rental payments, or where there appear grounds for concern. In the context of investment property where a covenant is significant, such assumptions that affect the valuation approach will be commented upon in the valuation section of the report.

The Valuer will assume that appropriate enquiries were made when leases were originally exchanged or when consent was granted to tenants to assign or underlet, and that tenants are therefore not in breach of covenant.

The valuations do not take account of any rights, obligations or liabilities whether prospective or accrued under the Defective Premises Act 1972.

3.2.4 Measurements

All measurements are carried out in accordance with the RICS Property Measurement Standards including IPMS which must be referenced also reflecting RICS Valuation Information Papers or Guidance Notes issued by the Royal Institution of Chartered Surveyors. In the event of dimensions or areas being calculated from plans or other sources, the Valuer will clearly state the source and reason in the report.

It is acknowledged for the purposes of analysing comparable evidence forms of measurement other than IPMS may be appropriate, for example Net Internal for an office building or Gross Internal for a still factory or Warehouse.

3.2.5 Town Planning and other Statutory Regulations

The Valuer will carry out such inspections and investigations as are, in the Valuer's professional judgement, appropriate and possible in the circumstances. These will include verbal or on-line town planning enquiries. It is an assumption that the property and its value are unaffected by any matters which would be revealed by a local search and replies to the usual enquiries or statutory notice and that neither the property nor its condition, nor its use, nor its intended use is or will be unlawful. It is recommended that verification is obtained from the Borrower's solicitors that:

(a) The position is correctly stated in the report.(b) The property is not adversely affected by any other decisions made or

conditions prescribed by Local Authorities.(c) That there are no outstanding Statutory Notices.

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The valuation is prepared on the basis that the premises comply with statutory regulations including fire regulations. The Valuer must comment as to whether a fire risk assessment is required to be carried out.

Where the operation of a business is dependent upon some form of Statutory Licence, the Valuer will have inspected same and will report any material conditions thereto. If documentation is not available this will be clearly reported, and any assumption made.

3.2.6 Legal Advice

The Valuer shall, unless otherwise expressly agreed, rely upon information provided by the Client and/ or the Client’s legal or other professional advisers relating to tenure, leases and all other relevant matters. The Valuer will assume (unless instructed to make verbal enquiries of the purchaser’s solicitors) that good Title can be shown, and that the property is not subject to any unusual or especially onerous restrictions, encumbrances or outgoings. It is understood, where relevant, that the Client will be obtaining a Report on Title which, if it conflicts with this report, should be referred to the Valuer for further consideration.

No responsibility or liability is accepted for the true interpretation of the legal position of the lender and other parties. Any interpretation of legal documents and legal assumptions should be checked by the Client or suitably qualified person, if relied upon.

3.2.7 Insurance Recommendations

An indication is provided for insurance purposes unless otherwise advised (which is given solely as a guide as a formal estimate for insurance purposes can only be given by a Building Surveyor, a Quantity Surveyor or another other person with sufficient current experience of replacement costs) of the current replacement cost of:

(a) The buildings in their present form (unless otherwise stated).(b) Buildings being constructed as proposed to be completed.(c) The business fixtures and fittings and any plant and equipment

included in the valuation must be separately stated.

Each including the cost of clearance and professional fees but excluding:

i) VAT (except on fees).ii) Loss of rent or turnover.iii) Cost of alternative accommodation for the reinstatement period.iv) Any other consequential loss.

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3.2.8 Confidentiality

The report will be provided for the stated purpose and for the sole use of the Client. The Valuer accepts responsibility to the Client alone that the report will be prepared with the skill, care and due diligence to be expected of a competent Valuer and accepts no responsibility whatsoever to any parties other than the client lender. Any third parties rely upon the report at their own risk. Neither the whole nor any part of the report nor any reference to it may be included in any published document, circular or statement nor published in any way without the Valuer's written approval of the form and context in which it may appear.

3.2.9 General Assumptions

Unless otherwise stated, all items normally associated with the valuation of land, business and buildings are included in the valuation and reinstatement costs to the extent that they existed at the date of inspection, including:

Fixed space heating, domestic hot water system, lighting, mains services supplying these, sprinkler systems and associated equipment, water, electricity, gas and steam circuits not serving industrial or commercial processes, sub- station buildings, lifts and permanent structures including crane rails where forming an integral part of the building structure, suspended ceilings, drains, sewers and sewerage plants not primarily concerned with treating trade effluent, air conditioning except where part of a computer installation or primarily serving plant and machinery, carpets and fixed demountable partitions except where these are tenant's fixtures.

Unless otherwise specified the following items are excluded, except in the case of Trading Related valuations where they are specifically included, unless stated to the contrary:

All items of process plant and machinery tooling and other equipment not primarily serving the building cranes, hoists, conveyors, elevators, structures which were ancillary to or form part of an item of process plant and machinery, sewerage plant primarily concerned with treating trade effluents, air conditioning where part of a computer installation or primarily serving plant and machinery and water, electricity, gas, steam and compressed air suppliers and circuits serving industrial and commercial processes.

Unless otherwise specified, no allowance is made for the cost of repairing any damage caused by the removal from the premises of items of plant, machinery, fixtures and fittings.

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All valuation figures, the building cost replacement recommendation, and rentals quoted are exclusive of VAT which may be applicable and should be confirmed following legal advice. No deductions are made for taxation or cost of realisation.

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4. MT FINANCE LTD REPORTING REQUIREMENTS FOR STANDARD COMMERCIAL AND RESIDENTIAL RED BOOK VALUATIONS

4.1 Introduction

The overriding premise is that valuers must be transparent and articulate the methodology adopted and provide accurate supporting evidence for all valuations. The aim of these requirements is to provide a framework for a consistent approach to valuation reporting ensuring the key risks are highlighted to MT FINANCE LTD. Please ensure these are read in full and contact MT FINANCE LTD for clarification if required.

All valuations are to be carried out in accordance with the relevant sections contained within the current edition of the RICS Red Book, as amended from time to time and these Valuation Reporting Requirements. Where these Reporting Requirements exceed the requirements of the Red Book, then these Reporting Requirements will apply.

4.2 Valuation Format

Where possible the format should follow a logical order such as that set out below.Please note that should the valuer not follow the suggested format that their report must contain as a minimum commentary on the items detailed in the suggested format.

This format will be subject to change if the property valued is of:

1) Trading Related Property;2) Development Property;3) Agricultural Property; and,4) Houses in multiple occupancy (HMO) and multi-unit freehold blocks

(MUFB).

The additional valuation requirements with respect to these property types are detailed at Appendices 1-4 to this VGN.

4.2.1. FIRST SECTION – PRELIMINARIES

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Front Page

The subject property address must be accurately stated.

All valuation reports MUST be addressed to MT FINANCE LTD unless an alternate specific addressee is detailed within the on-line instruction.The date of valuation must be clearly stated.

Table of Contents

A contents page should be provided.

List of Appendices

A full list of appendices attached to the report should be provided.

Executive Summary

Reports are to be prefaced with an Executive Summary.

The Executive Summary is to include the salient details of the property including; Address, Location and Situation, Brief Description, General Condition, Floor Areas, Interest to be valued, Tenancies, Use and Planning Classification, Valuations and confirmation the Special Assumption Valuations provided.

The valuer should comment on the reasonableness, or otherwise of the estimated value or proposed purchase price and comment on the anticipated demand. A brief summary of any additional actions or reports required should be included. (Lenders Action Points). The valuer should also comment on the asset’s suitability for loan security. A SWOT analysis should also be provided in the Executive Summary to summarise the any Strengths, Weaknesses, Opportunities or Threats which may affect the assets suitability as loan security.

Any special assumptions (other than those herein) that have been instructed and confirmation that they have been discussed and agreed by all parties.

4.2.2. SECOND SECTION – BACKGROUND

Introduction

Must include:

Reference to instructions. Confirmation of the valuer and their status.

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The purpose of the valuation. Confirmation that the report is compiled in accordance with; (1) the

current RICS Valuation Global Standards (2) these Valuation Reporting Requirements; and (3) the General Conditions of Appointment to the MT FINANCE LTD Panel of Surveyors.

Confirmation that the report has been “re-addressed” (if applicable).

Client

To be identified in the letter of instruction.

Other Intended Users

Detail any other intended users, if applicable. Normally applicants/ borrowers will not be Intended Users. They should only be named as Intended Users if this is specifically confirmed to the valuer in the instruction issued by MT FINANCE LTD.

Valuation Date

Please see section 2.3 of these Valuer Guidance Notes.

Inspection, Inspection Date, Weather Conditions and Limitations

Who was present at the time of inspection: Please insert the name of all person’s present (if any) and the reason for their presence at the time of the inspection. The valuer should also confirm whether the property was occupied and whether any such occupation in turn limited the inspection due to the occupier’s possessions, etc.

Please confirm the Date of inspection (Please confirm in the format DD/MM/YYYY).

Please insert the actual time of the inspection. Please use 24hour clock.

A summary of the weather conditions at the time of the inspection should be detailed along with details of any limitations in respect of both the internal and external inspection of the property, for example if snow is obstructing roof surfaces.

Please confirm what areas were included in the inspection and what specific areas were not accessible. Please confirm whether the inspection was impeded furniture, possessions, stock or other chattels, and whether the roof void, if any, was accessed and inspected.

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What parts (if any) of the security property that you were unable to access might adversely affect the valuation by a margin of 5% or more.

Please confirm if the property was occupied at the date of inspection and if so by whom.

Bases of Valuation

The bases of valuation applicable for secured lending valuations are set out in VPS4 – (Basis of Value, assumptions and special assumptions) of The Red Book as follows:

Market Value (MV) “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

“Market Rent (MR) The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate terms in an arm's length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion.“

The bases of valuation required by us are Market Value (MV), Market Value (MV) Subject to Special Assumptions and Market Rent (MR).

Special Assumptions

Any special assumptions outside the standard Special Assumptions required by MT FINANCE LTD must be pre-agreed in writing with MT FINANCE LTD.

Any valuations provided based upon a special assumption (outside the standard bases stated in this document) must be provided in addition to the minimum valuations required.

Where a valuation is subject to the special assumption of a restricted marketing period the valuer should assume the following:

The lender is mortgagee in possession. An LPA receiver is appointed. Disposal may include disposal through a local property auction house.

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Interest to be Valued

Confirm whether freehold/ heritable interest or leasehold.

Use and Planning Classification

State the property/ies formal use and classification under the relevant legislation e.g. Town and Country Planning (Use Classes) Order 1987 (as amended).

Purpose of Valuation

A brief summary of the purpose of the valuation should be provided e.g. commercial mortgage application.

Terms of Business

A copy of the Valuer’s Standard Terms of Business is not to be attached as an appendix to the valuation report as the instruction issued by Method, this document, the Panel Services Agreement and the Panel Agreement between the parties take precedence. The Valuer’s Terms of Engagement/ Instruction Acceptance letter should be attached to the report.

Confidentiality and Limitation of Liability

Confirmation should be provided that the valuation has been provided on the basis that it is for the stated purpose and for no other purpose whatsoever and the Practice has prepared the report for the Client only, although it is agreed the Client may release a copy of this report to its customer for information. Third parties therefore may not rely upon the contents of the report without the express written consent of The Practice.

Restrictions on Publication

The report must not be reproduced in full, or in part, for any purpose without the express written consent of The Practice.

Conflicts of Interest & Disclosure of Previous Involvement

If there is any recent fee earning relationship with the borrower, this should be declared as a potential conflict of interest. Further information will be required, and confirmation must be sought from MT FINANCE LTD before instructions can progress. Instructions for third parties’ lenders for finance purposes are not considered a conflict and therefore do not need to be declared for re-addressing reports.

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Valuers should specifically confirm they have considered the implications of RICS “conflicts of interest: 2018 Mandatory Requirements”.

Professional Indemnity Insurance

Provide confirmation that the Practice holds Professional Indemnity Insurance and the level of cover on a per claim basis.

Nature and Source of Information Relied on

Detail the sources of the information relied upon and if further investigations should be made or further information is required these should also be detailed if not already detailed within the body of the report. If information is not provided and assumptions have to be made, which do not constitute “Special Assumptions”, these assumptions should be clearly detailed in the body of the report.

4.2.3 THIRD SECTION – THE PROPERTY

This section of the report mainly deals with the property as it is at the date of inspection. Future proposals should be identified separately under the heading “Future Proposals” and not in the description sections.

Location

Macro scale commentary to include factors relevant to valuation, e.g. distance to regional centres, access to location.

A location map must be included with the location of the property clearly marked.

Situation

Micro scale commentary to detail prominence, transport links, and adjacent occupiers.

A situation plan must be included with the location of the property clearly marked.

Character of Area/ Locality

To include a description of the surrounding properties within the near vicinity of the subject, compatibility of neighbourhood to land use and demographic influences.

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Comment should be made in relation to the existing/ proposed use of the property providing opinion as to whether the location is suitable and strategically advantageous both now and in the future. If there are any locational issues which will materially affect the value these should be fully explained.

Description of the Property (Type & Age)

To include type of property, the number of floors, whether the property is part of a larger property, the age of the main property and any extensions, whether the property was purpose built or was originally used for an alternative use and suitability for the current and any proposed use.

If extensions have been constructed or alterations have been undertaken the estimated date of these should be provided in addition to the estimated date of the main property.

If the property is “New Build” property please refer to valuation Appendix 3.

Photographs

Colour photographs of the front and rear elevations of the property should be provided together with photographs of important features of the property. Additional photographs such as – street scenes and internal photos must be included to provide an overall impression of the property and the area in which it is located. If it is not possible to provide some of these an explanation is to be provided.

Photos should be clearly labelled.

Construction

To include a description of the materials and method of construction of the subject including details of the finishes.

N.B. specific commentary is required in respect of non-traditional residential property, if the property is of non-traditional construction please note the following:

Non-Traditional Property

Prefabricated Reinforced Concrete Construction under Housing Act 1985 Part XVI (Housing Defects Act 1984).

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These Acts designated certain types of Prefabricated Reinforced Concrete (PRC) dwellings as defective and the legislation provided grant assistance towards the cost of repair where the owner-occupier had purchased prior to the cut-off date.

PRC Homes Ltd – a subsidiary of the NHBC – was formed to approve and licence repair schemes. Any PRC dwelling which has not been repaired under the PRC (Homes) Ltd licenced repair scheme may be unacceptable.

If a repaired PRC property is next to an unrepaired property, each case is to be treated on its individual merits taking into account marketability and mortgageability.

Other Types of Non-Traditional Housing

The following is a brief list of system-built dwellings that are acceptable:

Wimpey No-fines are acceptable (decline if unsure or if constructed of another No-fines system).

Laing Easiform built after 1945 are acceptable. Steel framed dwellings are acceptable if readily marketable and

mortgageable. There are many more types not listed. If the valuer comes across a

system-built dwelling not listed, then the name of the construction type should be established and referred back to Method for instructions.

Timber Framed Dwellings built after 1970 and with brick/ rendered block external facings.

The following may not be acceptable:

Large Panel Systems (LPS) systems. Timber Framed Dwellings built prior to 1970.

The following may be acceptable:

Timber Framed Dwellings built after 1970 but with brick/ rendered block external facings are considered on their individual merits.

Properties built using Modern Methods of Construction (MMC’s).

These are each to be treated on their individual merits subject to marketability and mortgageability. Establish the name of the type and its principal construction details, together with any information regarding Warranties and/ or Agreement certificates.

Services

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The Valuer should state which main services are connected, describe heating systems and report the existence of facilities such as lifts, fire alarms, security systems and other important fixed plant.

As appropriate, the valuer should comment on the age/ condition of the services/ installations, their technical specification and appropriateness for the property and proposed use. Any assumptions in respect of services should be clearly stated.

Accommodation and Floor Areas

A schedule of accommodation should be provided on a floor by floor basis with the use of each area and any tenancies clearly defined.

All properties must be measured by the valuing surveyor unless it has been pre-agreed with MT FINANCE LTD in writing that the property will not be measured (special exceptions only), or if it is widely accepted market practice that the property type is not measured for valuation purposes.

Measurements should be in accordance with the current RICS Property Measurement document (which includes IPMS), with the basis of measurement used clearly stated.

Where measurements from another source are relied on (for example measurements undertaken by professional measuring service providers for large shopping centres), confirmation that check measurements have been undertaken must be provided. The source of measurements must be preapproved by MT FINANCE LTD. If the property has not been measured, the reason should be clearly stated (e.g. because it is a trading entity and value is based on trading performance).

The valuer should also report the existence and impact of any occupiers/ tenant’s improvements and any apparently recent significant alterations and extensions. Detail how these have been treated in the assessment of rental value and if Planning Permission was provided.

Site Area

This section should include comment and detail on the dimensions, shape, area, ground conditions, boundary structures, parking facilities, suitability of site for its current/ proposed use, site access, service roads, site coverage, scope for expansion, road frontage, and turning space.

A street map/ location plan must be included. In addition, a Land Registry plan at Scale 1:1250, OS extract at Scale 1:1250 or a Promap site plan at Scale 1:500 or 1:1250 as appropriate must be provided. On exception, for

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larger properties/ site plans at a greater scale will be acceptable. This plan must clearly depict the location of the property within the site and the access arrangements. The valuer must outline the boundaries of the site clearly in red.

If the valuation only relates to a part of a larger property holding this should be discussed having regard to any impact on future marketability and any difficulties likely to arise if realisation by the Bank is necessary.

State of Repair

Comment should be made on the internal and external condition of the property to the extent that it affects the valuation. The report should list any repairs the valuer considers essential to preserve the suitability of the property for loan security, the liquidity of the asset, its marketability and value of the property including improving buildings to minimum EPC standards. If there is anything to suggest that there may be hidden defects, comment should be made.

If material disrepair is noted which affects any of the value, marketability or safety, the valuer must confirm:

If the likely costs of the repairs are reflected in the valuation. Whether any specialist reports are required prior to lending. Whether any financial retention should be made subject to the

outcome of such reports.

Photographs highlighting any specific disrepairs are to be provided.

All assumptions made about repairs and likely costs, whether required immediately or in the future must be stated. The valuer should highlight any concerns about repair and condition by outlining them in the LAPs.

The valuer must confirm whether or not the costs of such repairs have been taken into account or should be confirmed.

If works are to be completed please provide a Market Value for the property assuming all works are complete.

The valuer must confirm whether the subject property is likely to significantly deteriorate over the next 6 months without specific maintenance.

Hazardous and Deleterious Materials

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MT FINANCE LTD considers that hazardous materials are those hazardous to human health by their very nature whereas deleterious materials are those likely to fail or cause damage to the property and may result in hazards to health by this secondary failure.

The valuer should comment on the likelihood of the existence of any hazardous materials such as lead based paint, lead water supply pipework or asbestos containing materials (ACMs).

The Control of Asbestos Regulations 2012 sets a framework for a duty to manage asbestos in non-domestic premises. An asbestos inspection should have been undertaken on all commercial buildings by 21 May 2004. Following the discovery of asbestos there is a requirement for an Asbestos Management Plan to be drawn up and implemented.

The valuer must ask the owner, occupier or agent to provide details of the asbestos inspection report and confirm whether an asbestos management plan has been drawn up and implemented. Where there is no information provided in this regard, valuers must recommend further investigation under Lenders Action Points for properties built prior to 1999.

In addition, valuers are to comment on the potential for deleterious materials, such as but without limitation to:

HAC Concrete. Calcium Silicate Bricks. Woodwool Slabs. Hollow Clay Pot Floors. Brick Slips. Clinker Concrete. Mundic Block. Some Machine-Made Mineral Fibres. Aluminium Composite Cladding (ACC).

Where such materials are suspected or identified the valuer should recommend any appropriate tests and whether, should such a material be present, it is likely to have a material impact on value.

Future Proposals

Any proposals for the physical property of which the valuer is aware and which would have a material impact on the security should be discussed along with a comment as to whether the proposal is likely to reduce or improved the values reported.

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This would include reconfiguring the accommodation to alter the number of bedrooms in a property.

4.2.4 FOURTH SECTION – LEGAL MATTERS

Interest Being Valued

The valuer must undertake appropriate due diligence in establishing the tenure – freehold/ heritable interest or leasehold.

Please confirm any assumptions you have made regarding the tenure being valued.

In particular if the property is long leasehold please confirm: 1) the assumed term; 2) the assumed lease expiry; 3) the assumed rent/ ground rent; 4) the assumed basis on which this rent is reviewed; and 5) any the basis of any other assumed covenants which may have an impact on value including any service charges or estate charges.

If the property is long leasehold and is in a block, or is on an estate where another party controls the maintenance of the common areas or estate, please confirm how well the block/ estate is managed.

Occupational Tenancies/ Leases

If any occupational leasehold interest exists at the property being valued, other than an Assured Shorthold Tenancy (AST) the valuer should examine the lease and report on:

The length of full lease term & outstanding term. Break clauses. Rent passing. Rent review frequency & rent review basis. Repair and insuring obligations. Permitted uses. Rights of alienation, sureties and previous assignments.

The valuer should comment on any unusual lease terms and any other clauses likely to have an effect on the valuation.

Similar information should be provided for all sub tenancies and should include a description of which part of the property is subject to a sub tenancy (if part let or multi let) and an evaluation of the covenant strength of the tenant.

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The valuer should obtain appropriate supporting documents (title/ lease reports etc.) from the Broker/ Borrower or the solicitors acting for the Borrower in this transaction. If documents have not been provided despite request to the Broker, Borrower and/ or Solicitor, the report must explicitly state that the valuer has formally requested the document but that this has not been provided. Only where these are not made available to the valuer despite request, should any assumptions be clearly made on these points.

Other tenure issues that should be identified and commented on are:

Any occupational residential tenancies not drawn on standard AST basis.

Any service charge provisions (a comparison to market norms should be made).

Any third-party rights or other issues that affect the ability to market the property.

Any sinking fund provisions for maintenance works. If there is a shortfall in relation to any works due or outstanding this

should be identified.

The valuer should ‘sense check’ any lease and confirm that it is reasonable given the nature of the property/ies location, its formal Use Classification, the size, layout and suitability for mode of operation. The valuer should comment on the sustainability of the property’s rental income over the term of the proposed loan given known lease expiries / breaks and anticipated market trends. Where possible, make reference to past letting performance of the property and length of any existing and historic vacancies. The valuer should provide their opinion on the likely void periods and any incentives that may be necessary to offer in order to let/ re-let the property, or parts thereof. Consideration should be had for the likely quality of tenant and rents achievable under the new leases.

Other Legal Issues

The valuer should state any other aspect, other than the usual legal investigations, which they consider warrant further consideration or investigation by or on MT FINANCE LTD’s behalf.If appropriate the valuer should draw attention to any other matter revealed during normal valuation enquiries which could have a material effect on value and/ or marketability. All market comment should be appropriate for the type, size and location of the property.

The valuer must provide appropriate recommendations for insurance against subsidence, heave, flooding or any other special risk that they have identified.

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4.2.5 FIFTH SECTION - STATUTORY MATTERS

All the statutory matters outlined in this section must be investigated/ considered by the valuer. Where sight of documents/ certificates is required these must be obtained and commented on.

If documents have not been provided despite request to either the Broker, the Borrower or the Borrower’s Solicitor, the report must explicitly state that the valuer has formally requested the document but that this has not been provided. It is not acceptable to simply state the appropriate document has not been provided to the valuer. The issue should then be highlighted in the Lenders Action Points.

The valuer should comment upon any additional legislation affecting the property and occupation including that not discussed below.

Business Rates & Council Tax

The valuer should make enquiries of the Local Authority to ascertain the Business Rates and/ or Council Tax banding as appropriate. The current rate in the £ should be stated.

Planning

The valuer should make all necessary market and Local Authority enquiries and comment upon the following:

Whether the current or intended use of the property conforms to the permitted use designated under the relevant Use Classes Order. The valuer should advise if there is a significant potential or demand for, change of use or other development of the subject property, or other properties/ sites in the vicinity including any existing/ pending planning permissions which would materially affect the value of the subject property.

Whether the property is affected by any town planning including land allocation/ schemes, zoning, listed building status, location within a development or conservation area etc.

Whether there are any proposed road/ highway changes in the locality which would adversely affect the property.

Whether any alterations to the property have been undertaken, or commenced, that may have required planning consent or building control approval. All concerns, detailing the nature and extent of any deficiency/ non-conformity must be described in the report.

Where the valuation reported has been affected by the existence of an unimplemented planning consent, either on the subject property or in

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the vicinity of that property, the valuer should advise the amount of the increase/ decrease reported in consequence.

Highways & Access

The valuer should comment upon the condition and suitability of the access route to the property and state whether the highway is adopted or privately owned. The valuer should comment on any potential cost implications.

If the valuer believes access rights exist over unadopted roads or private land this should be stated and flagged as a Lender Action Point requiring confirmation.

Equalities Act 2010 (Disability Discrimination)

The Equality Act 2010 replaces and enhances part 3 of the Disability Act 2005. The valuer should comment on whether the property appears to comply with the requirements of the Equality Act 2010. If the building does not currently comply, the valuer should comment as to whether the works required are likely to prove onerous and/ or costly. Valuers are expected to provide opinion of the likely effect on value that undertaking any required works will have.

Fire Safety

The valuer should confirm whether or not a Fire Risk Assessment has recently taken place. The valuer should also note what fire safety equipment is affixed to the property i.e. smoke alarms, fire alarm panel, extinguishers etc. If composite cladding is present on the building the valuer should also confirm whether they have had sight of confirmation the cladding meets current Building Regulations where the property is taller than 18m.

The valuer should have consideration for any RICS guidance regarding valuation of buildings with composite cladding or which are over 6 floors of 18m.

Energy Performance Certificates (EPCs)

The valuer should review and comment on the Energy Performance Certificate rating provided by the vendor or borrower or by reference to the public EPC register. The EPC must be sought, and the risks below commented upon and as per the statement under Repair and Condition. Valuers must confirm if no EPC has been prepared on the property and recommend, as a Lender Action Point, that this should be undertaken.

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If properties are listed on the exception register this should also be noted in the report.

4.2.6 SIXTH SECTION – GROUND CONDITIONS AND ENVIRONMENTAL RISKS

Contaminated Land

The valuer is to make enquiries of the Local Authority and utilise their local knowledge (to include consideration of the property’s or surrounding properties’ historic use) together with observations made during inspection and provide guidance to us regarding the possibility of the existence of any past or present contamination/ contaminative uses on the Property or surrounding sites.

The likely presence of hazardous materials, contamination and environmental problems should take into account the property’s age and construction, surrounding/ nearby land uses and former uses of the site. Comments should be based on inspection, local knowledge and any appropriate international and local statutory acts/ associated environmental legislation. Comment should be made on the implications of the Environmental Protection Act or Devolved Legislation in relation to whether the property may have been built of deleterious materials or built on contaminated land.

If there is anything to suggest that there may be contamination or hidden defects, appropriate comment must be made in the report providing comment on whether this effects marketability or effects reported value. If appropriate the valuer should recommend a desktop screening report and, or appointment of an environmental specialist.

Invasive Plants

In all instances where Japanese Knotweed or any other invasive plant is noted the valuer must fully describe its extent and its proximity to the subject premises, providing photos as appropriate and explaining the likely impact that this may have on the value and marketability of the property along with associated risks. Where no Japanese Knotweed/ invasive plant is noted upon inspection, then the valuer must provide a statement confirming that no Japanese knotweed/ invasive plant was noted within the demise or within close proximity.

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Flooding and Flood Risk Management

Valuers are expected to undertake appropriate checks to determine whether subject premises are within an area which has previously been subject of a flood or has potential to flood. Checks should be made with the Environment Agency/ SEPA / DARDNI and other local sources, if available.

High-voltage Electrical Supply Apparatus & Overhead Transmission Lines

The valuer must state whether or not the property is located close to any high-voltage electrical supply apparatus or high-voltage transmission lines.

Telecommunications Base Stations and Telephone Masts

The valuer must state whether or not the property is located close to telecommunications base stations and/ or telephone masts.

Mineral Workings (Coal Mining & Brine Extraction)

The valuer must state whether or not the property is located in an area identified as requiring a Mining Search (Coal and Brine). If it is this search should be noted as a Lender Action Point.

Other Mineral Workings & Quarrying Activities

The valuer must state whether or not the property is located in an area of non-coal mineral workings or quarries.

Ground Movement Risk

The valuer must state whether there is any evidence of the property being affected by structural movement caused by subsidence, settlement landslip or heave.

Radon Gas

The valuer must state whether or not the property is in an area where radon Gas may be present.

Archaeological Remains

The valuer should detail any assumptions made in respect of archaeological remains.

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Other Adverse Ground Conditions or Environmental Risks

The valuer should state any other aspect, other than the usual legal investigations, which they consider warrant further consideration or investigation by or on behalf of MT FINANCE LTD.

If appropriate the valuer should draw attention to any other matter revealed during normal valuation enquiries which could have a material effect on value and/ or marketability. All market comment should be appropriate for the type, size and location of the property.

General

The valuer should have due regard to guidance contained in current RICS Valuation Global Standards and apply the guiding principles to the valuation.

A Property Observation Checklist, RICS template, should be completed by the valuer on inspection in every instance and retained on file.

4.2.7 SEVETH SECTION – CONSIDERATION OF SUITABILITY AS LOAN SECURITY

Suitability as Security

The valuer should provide opinion of the property/ business as loan security in terms of present saleability and whether this is likely to be sustainable over the life of the loan.

The valuer should confirm suitability for the current use, along with expected obsolescence and any potential upside, with reasons. The valuer should have regard to any difficulties likely to arise if realisation by MT FINANCE LTD is necessary and state any concerns clearly.

Comment should be made by the valuer as to whether there are likely to be any changes in circumstances that may affect the value of the property, either beneficially or detrimentally, during the term of the loan, for example; deterioration of area, construction of out of town retail park, changes to road layout.

If there are any factors which adversely affect the marketability of the property the valuer should describe in concise terms the nature of these adverse factors i.e. proximity to obnoxious use or busy roads, high maintenance liabilities, poor standard of construction or any other reason the valuer may envisage.

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The valuer should assume that the tenant(s)/ borrower will maintain the property in a reasonable state of repair. However, if in the Valuer’s opinion this is an unrealistic assumption then this concern should be clearly highlighted.

If applicable, the valuer should comment on the potential/ requirement for redevelopment or refurbishment at the end of the occupational lease(s) and discuss what, if any, substantial redevelopment/ refurbishment will be required to maintain/ improve the value of the security.

4.2.8 EIGHTH SECTION – MORTGAGE REGULATION

Mortgage Regulation

The valuer must confirm whether 40% or more of the total of the land, to be given as security, is used as with a residential dwelling which is to be occupied by the applicant or a close relative of the applicant. Properties where this is so are subject to regulated mortgage contracts and therefore it is imperative the valuer accurately assesses the % of the property which is so occupied.

4.2.9 NINTH SECTION – GENERAL UK ECONOMIC BACKGROUND

The valuer should provide appropriate national and regional economic overviews and a local area profile.

The valuer should discuss the general letting and sales market having regard to the property/ business type, location, age, obsolescence, planning use(s) and impending developments. As appropriate, discussion should be provided on the general trend in the sector(s) both on a macro and micro level considering the effects on both capital and rental values.

The valuer should also consider how the property/ business will perform in relation to other assets within its market sector. In particular, competition should be identified with consideration had for local, national, political or economic influences that could have an impact on the property/ business ability to maintain/ enhance its value, income and marketability.

An overview of the relevant investment market should be provided along with comment on the volatility of that investment sector relative to the market as a whole. The valuer should provide opinion on the attractiveness of the subject property/ business relative to alternative forms of investment at the present time and consider any likely future changes.Any relevant sector specific data (e.g. tourism/ visitation statistics) should be provided and any trends of importance to the subject property market should be discussed.

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UK Property Market

General market data for the whole of the UK property market.

Market Sector Conditions (Including threats to price stability)

The valuer is to provide sector specific data and commentary.

Local Market Commentary

How the local market is performing in particular.

4.2.10 TENTH SECTION – VALUATION CONSIDERATIONS

The Property

A brief summary of the property asset should be provided.

Legal Matters/ Statutory Matters/ Ground Conditions & Environmental Risks

The valuer should provide details of any legal and statutory matters and any ground condition and environmental risks and comment on any assumptions made.

Void/ Running Costs

The valuer should comment on the approximate cost of holding the property, or any relevant part thereof vacant. Consideration should be made, but not limited to business rates, council tax, insurance, security and maintenance.

Alternative Use/ Development Opportunities

Any significant alternative use or development opportunities which the property/ site may have must be discussed with appropriate valuations provided, in addition to those specified in Section 13 below.

Hope Value

Only in exceptional circumstances should ‘hope value’ be included. If the valuer believes that there may be significant ‘hope value’ then this should be made explicit, fully justified and key risk factors affecting such ‘hope value’ fully discussed.

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If any ‘hope value’ is included in the market value provided a statement detailing whether planning permission approval is in place or not must be provided and a separate figure detailing the value attributable to such ‘hope value’ provided separately.

Economic Life

The valuer must provide an opinion as to the projected useful life of the subject building assuming normal maintenance and repairs.

The valuer is also to estimate the useful life of the property if kept in repair. As properties which have limited economic life will be more difficult to dispose of in a recoveries situation the lender must be told if the useful life is likely to be less than 35 years.

Property Management

The valuer should discuss the extent to which the maximisation of income and inherent value will depend on the skills of the property owner and/ or its manager(s). The valuer should provide an opinion of the relevant skills of the property owner/ manager(s) to maintain and enhance the property’s value and/ or income stream. In addition, the valuer should also provide detail on the likely future management costs and the intensity of management required making any required recommendations for improvement.

SWOT Analysis

The valuer should consider the strengths, weaknesses, opportunities and threats of the subject property and discuss relevant factors within the body of the report to support the valuations provided.

Methodology

Valuers should include details of the valuation methodology adopted and its relevance to the valuation and subject property/ business.

Reference to market practice of the valuation of the subject property type must be made.

When valuing the property consideration should be given to, and where appropriate reference should be made to, relevant RICS Guidance Notes and Valuation Information Papers.

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Valuation calculations and any cash flow models should be provided either in the main body of the report or as an appendix to the valuation report.

All reports must have been Quality Assured and signed by an approved second valuer responsible for vetting prior to submission to MT FINANCE LTD.

Valuers should comment on:

Whether or not the property asset should be valued by the capital comparative, investment method or any other method.

Why this is the case. Why other methods are inappropriate.

Comparable Evidence

All comparable evidence to be presented and analysed in accordance with RICS professional standard global comparable evidence in real estate valuation 1st edition, October 2019.

The valuer must provide details of significant comparable transactions relied upon and their relevance to the valuation. Comprehensive detail of any recent comparable sales & lettings should be provided as well as other comparable evidence such as auction sales, rent reviews or ‘under offer’ transactions which support the level of values reported.

The valuer should set out this comparable evidence in tabular format and in a hierarchical manner including all relevant factors for comparison and include colour photographs where available for each.

A minimum of four comparable(s) must be clearly identified for each of rental, capital and yields values used in the valuation.

Please provide as many comparables as you can.

If the property is on a new build development please provide at least 4 comparables outside the scheme that support your valuation. We must be certain that valuations on the scheme are sustainable and are not over inflated. If the property is not a new build property MT Finance requires at least 2 comparables to be provided for sales on the same scheme or in the same block of flats.

When detailing comparables please ensure you provide the following information with respect to each comparable: 1) Full address (including postcode) 2) date of transaction (with sales comparables verified by reference to HMLR) 3) confirmation of original asking price asking rent; 4)

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confirmation of how long the property was on the market; 5) location of the comparable, distance to the subject and whether the comparable is in a better, similar or worse location 6) description of the comparable including confirmation of its conditions 7) Floor Area of the comparable; and, 8) use of the comparable.

Analysis of Comparable Evidence

Where comparable evidence is limited the valuer must detail the extent to which it has been possible to have regard to comparable market transactions. Any assumptions made in the course of the valuation should be fully explained, justified and supported by market evidence.

Providing a range of values only is not acceptable.

Appropriate yield and rent analysis must be provided with comparables not only supporting the rent/ capital value per sq. m but also any yield adopted. A clear breakdown of the calculations made in arriving at the valuation/s, including reference to comparable evidence, should be provided.

If there is a lack of comparable evidence this must be clearly stated in the report. It is not acceptable for this to be a general statement and will be challenged. A full and transparent thought process as to the rates applied must be provided.

Comparable evidence must be provided to support the annual Market Rent (MR) valuation. Regard must be had for the ‘appropriate lease terms’ to which MR reflects and the ‘passing lease terms’. Where these significantly differ commentary and explanation must be given.

The valuer must make all reasonable enquiries to ascertain whether any incentives were granted, or are being offered, by a developer, landlord or vendor which may have skewed comparable evidence used in the report. Where the valuer is aware of such incentives being granted, these should be made explicit.

With regard to new build residential properties, the valuer should obtain a copy of the CML form and provide this as appendix to the report. Reference should also be made to comparable second hand and older housing stock so that MT FINANCE LTD can be made aware of any premium being attached to the new build units.

Covenant Information

Provide details relating to the covenant of the tenants(s) and sources of the information provided.

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Adopted Values, Yields and Multipliers

Provide a brief summary of market evidence relating to properties of the nature and location of subject(s).

If using the investment method please confirm what adjustments if any are made to the gross rent for repairs, insurance, management, utilities, voids, etc.

4.2.11.ELEVENTH SECTION – MARKETABILITY

Saleability

The valuer must detail the likely timescales for selling the property.

The valuer should provide their opinion of the saleability using the following time frames: 0 - 3 months, 4 - 6 months, 7 - 9 months, 10 - 12 months and >12 months.

The valuer should identify the potential pool of purchasers for the subject property; e.g. institutional investors, property companies, high-net-worth individuals, national, regional or local occupiers etc.

The valuer should also detail the most appropriate method of disposing of the asset in the case of default where the lender may be mortgagee in possession.

Lettability

The valuer must detail the likely timescales for reletting the property as a whole and in parts.

The valuer should provide their opinion of the lettability using the following time frames: 0 - 3 months, 4 - 6 months, 7 - 9 months, 10 - 12 months and >12 months.

The valuer should identify the potential pool of tenants such as young professionals, students, those on welfare.

The valuer should justify the advice provided and identify any likely incentives that would need to be offered.

4.2.12.TWELFTH SECTION – VALUATIONS

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THE FOLLOWING VALUATIONS MUST BE PROVIDED IN ALL ‘COMMERCIAL, AGRICULTURAL & RESIDENTIAL RED BOOK VALUATION’ REPORTS

THESE ARE AMMENDED FOR TRADE RELATED PROPERTY & DEVELOPMENT PROPERTY AS PER APPENDICES 1, & 2:

Valuation 1 - Market Value (MV).

Please confirm if with Vacant Possession or subject to Existing Tenancy/ies.

“The estimated amount for which an asset or liability (property) should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

Valuation 2 – Market Value (MV) assuming a restricted 180-day marketing period is available to exchange contracts.

Valuation 3 – Market Value (MV) assuming a restricted 90-day marketing period is available to exchange contracts.

Valuation 4 – Market Value (MV) assuming vacant possession.

(This may be the same as valuation 1).

Valuation 5 – Market Value (MV) assuming a restricted 180-day marketing period is available to exchange contracts and assuming vacant possession.

(This may be the same as Valuation 2)

Valuation 6 – Market Value (MV) assuming a restricted 90-day marketing period is available to exchange contracts and assuming vacant possession.

(This may be the same as Valuation 3)

Comparable evidence should not just be provided for the market values but also the vacant possession value for which a minimum of three comparables transactions should be provided. If less than three vacant possession comparables exist, this should be clearly stated in the report with the reason why.

Valuation 7 - Market Rent (MR).

“The estimated amount for which a property, or space within a property, would be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction after

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property marketing wherein the parties had acted knowledgeably, prudently and without compulsion. This must be presented as an annual figure; pounds (£) per annum.”

Market Rent will vary significantly according to the terms of the assumed lease contract. The appropriate lease terms will normally reflect current practice in the market in which the property is situated, although for certain purposes unusual terms may need to be stipulated. Valuers must take care to set out clearly the principal lease terms that are assumed when providing an opinion of Market Rent. The nature of the incentive assumed must be stated by the valuer, along with the assumed lease terms. If the Market Rent is based on an aggregate of market rentals of various parts of the property each assured lease should be detailed.

Where this is considered to be significantly different to the passing lease terms then this should also be reported separately, and commentary provided. Comparable evidence must be provided to support the valuation.

Market rent will vary significantly according to the terms of the assumed lease contract. The appropriate lease terms will normally reflect current practice in the market in which the property is situated, although for certain purposes unusual terms may need to be stipulated. Valuers must take care to set out clearly the principal lease terms that are assumed when providing an opinion of Market Rent. The nature of the incentive assumed must be stated by the valuer, along with the assumed lease terms.

Where this is considered to be significantly different to the passing lease terms then this should also be reported separately, and commentary provided. Comparable evidence must be provided to support the valuation. If it is Market Rent is not considered relevant to the trading/ business property this valuation basis may be excluded provided this has been pre-agreed in instructions with the MT FINANCE LTD. If Market Rent is excluded, the report must expressly state the reason for its lack of relevance to the subject property and market in which the property sits.

As noted above, where a valuation is subject to the special assumption of a restricted marketing period the valuer should assume the following:

The lender has mortgage in possession. An LPA receiver is appointed. Disposal may include disposal through a local property auction house.

NB: Where the valuation is of a semi-commercial property i.e. a mixed residential and commercial property where the residential element is occupied by the applicant or a member of its immediate family the valuations of the residential and commercial elements must be provided separately as well as together.

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4.2.13.THIRTEENTH SECTION – OTHER REQUIREMENTS

Insurance Reinstatement Estimate

The valuer should always provide an estimate of the reinstatement cost of each property/ title being valued as a whole or by reference to separate parts of the property if those parts are likely to be separately rated for fire insurance purposes. This should include professional fees and clearance. A reinstatement figure should be included for any proposed building works.

Exceptions are made for development sites where no buildings that could be occupied exist on the site, and where full planning permissions for development have been granted (reinstatement costs are required for the post development scenario). Reinstatement costs should include professional fees and clearance. A reinstatement figure should be included for any proposed building works.

Where the building is of a historic or specialist nature, i.e. listed, the valuer may not have the expertise to provide an accurate reinstatement figure and in these instances the valuer should provide guidance to MT FINANCE LTD on where to obtain a reinstatement figure.

Additional Comments

Include any additional pertinent information not otherwise included.

Lender Action Points or Specialist Reports Required.

The valuer must re-iterate any issues, assumptions or recommendations that the valuer considers may be a risk to the value of the property.

The purpose of this section is to highlight any items which require further verification and investigation prior to lending, due to the fact that they may influence value and security.The expectation is that this section is not for the utilisation of caveats per-se, but simply to provide explicit and relevant action points required to be undertaken by MT FINANCE LTD, its legal advisors or 3rd party specialists, to underpin the valuation and suitability as security.If there are no further actions required prior to lending a simple statement to this effect must be provided.

It is likely that points requiring verification will be referred back to the valuer to confirm whether the valuation is affected. The valuer must provide a timely response. 

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Statement of Competence

A statement to be provided to confirm that the valuer has the necessary knowledge, skills and understanding to undertake the valuation competently.

Statement of MT Finance’s Ability to Rely on the Valuation Report.

The valuer is to include the following statement in the report: “We confirm that any company within the MT Finance Limited Group of Companies and/or its successors in title or assignees and their bankers and/or funders may rely upon this Report and Valuation as if the same had been expressly addressed to each and any of them”.Internal Quality Assurance

The valuer should confirm internal QA processes exist including peer review and counter signature.

4.2.14.FOURTEENTH SECTION – SIGNATURES

Signature & Countersignature

The report must be signed by two (2) Method approved RICS qualified Chartered Surveyors; one being the inspecting individual approved valuer and the other approved director/ partner of the appointed firm.

Chartered Surveyors must detail their accreditation details (MRICS/ FRICS) and their RICS number and direct contact details on the report.

MT Finance require both the valuer and the counter-signatory to each have a minimum of 5 years PQE.

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5. GENERAL GUIDANCE5.1. Portfolio Valuation (Aggregate of sale of individual assets or as a

single transaction)

If there is a difference between the aggregate total value and the sale as a single transaction, this should be stated separately. This is likely to have different marketing periods and therefore could be reflected in the sum for Restricted Market Value.

Separate valuations for the individual properties must be provided within the valuation report.

Scenarios:

If a portfolio consists of numerous units in one development, street or close vicinity, where the impact of individual resale of all units at once may lead to an adverse effect on the individual values and marketability, then in this instance the valuer is expected to provide a market value taking into consideration a discount for quantum – that is the discount that an investor would seek to achieve. The valuer is expected to comment on bulk re-saleability, timescales for likely disposal as a whole or in parts and any likely impact on values should the portfolio be split. However, if a portfolio consists of numerous units, all in different locations or streets, and the units have the potential to be sold individually and their bulk placement on the market would not adversely impact on their resale values and ability to sell within a reasonable timeframe, then in these circumstances a valuation of the sum parts of the portfolio with an aggregate total is appropriate. The valuer is still expected to also provide an additional valuation detailing the likely value should the portfolio be disposed of as a whole (effectively applying a discount for quantum).

5.2. Discounted Cash Flow Valuations

Where the DCF method of valuation is used, rationale and appropriate supporting evidence must be provided to support the selected capitalisation rate, discount rate and other assumptions applied.

 

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APPENDIX 1: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR DEVELOPMENT PROPERTIES

Development Properties - Development Assessment Section

The Report should contain a development assessment section when it relates to a development property.

A development property is defined in IVS 410 as:

‘interests where redevelopment is required to achieve the highest and best use, or where improvements are either being contemplated or are in progress at the valuation date and include:

a) the construction of buildings, b) previously undeveloped land, which is being provided with

infrastructure,c) the redevelopment of previously developed land, d) the improvement or alteration of existing buildings or structures, e) land allocated for development in a statutory plan; and,f) Land allocated for a higher value use or higher density in a statutory

plan.’

The Development Assessment section of the report is an analysis of the background to the development and the various factors that will impact on the development.

The Development Assessment should detail what is proposed rather than the property as it currently stands. The main body of the report should not detail future proposals as the main body should detail the property as it currently stands.

The Development Assessment should consider the following issues:

Description of the proposed or potential development. Site details including:

Ease of development. Suitability of site access. Details of boundaries. Details of any Party walls. Current infrastructure and services. Any known adverse ground conditions. Any limitations to development.

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Existing Consents and Approvals:

Planning Permissions. Reserved Matters. Building Control.

Where a particular scheme/ proposal exists, the report should also provide:

Details of the Design & Project team, including:

the identity and experience of the Developer. the identity and experience of the Main Contractor. the identity and experience of the Design Team. The identity and experience of the Principal Designer.

Details of the proposed Procurement Strategy. Contract documentation:

Form of contract. Contract Details:

Details of Employer. Detail of Contractor. Contract Sum. Completion Date. Liquidated damages.

Drawings. Specification for required development.

Required infrastructure, services, etc. Costs. Programme/ Timetable. Insurances & Warrantees. Lease Documentation. CDM Regulations. Details of any outstanding matters.

Where a particular scheme/ proposal does not exist:

Required infrastructure, services, etc to enable development. Costs and assumed specification. Programme/ Timetable. Assumptions with regard to Warrantees. Details of any outstanding matters.

All Development Assessment Sections to Valuation Reports should contain a Summary and flag up in particular any Significant Development Risks.

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Development Properties - Valuation Considerations Section

When completing the Valuation Considerations section of the report the valuer should consider the most appropriate method of valuation and is expected to fully articulate how comparable evidence is analysed and how inputs and costs for a residual valuation are arrived at.

The RICS identify 3 main approaches to development valuation. These are:

a) The market approach; b) The income approach; and,c) The cost approach.

Each of these approaches includes different, detailed methods. The approaches and methods used in any valuation will depend on the required basis of value and the purpose of the valuation, as well as asset-specific facts and circumstances.

RICS further notes that in the case of the valuation of development property, valuations are normally undertaken in two ways:

The market comparison approach; and, The residual method.

The valuer will be aware that RICS considers best practice avoids reliance on a single approach or method of assessing the value of development property. Normally, any valuation undertaken by the market comparison approach should be cross-checked by reference to the residual method.

Where a residual method is used, it is similarly important to cross-check the outcome with comparable market bids and transactions where they exist, including the subject property. The advice to apply both methods when possible has been endorsed by 2019 amendments to IVS 410 (effective from 31 January 2020), which state:

‘… The valuer should apply a minimum of two appropriate and recognised methods to valuing development property for each valuation project …’ (IVS 410 paragraph 120.2).

This recommendation applies to valuations for secured lending.

While there is a relationship between what can be built on the land in question and the resulting land value, they are separate, and the valuer should bear in mind any other available options concerning the development property.

The weighting attached to the different methods depends on the quality and quantity of the information underpinning each method.

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This weighting is qualitative in line with the IVS Glossary, paragraph 20.19, which states: ‘The word “weighting” refers to the process of analysing and reconciling differing indications of values, typically from different methods and/ or approaches. This process does not include the averaging of valuations, which is not acceptable.’ Given this iteration process between methods, data and other aspects within the development property valuation process, it is important to sense-check the outcome before final reporting of the valuation.

MT FINANCE LTD is not prescriptive on how a valuer approaches a development valuation beyond requiring the valuer to follow RICS guidance for such valuations. Where the valuer adopts a residual valuation method MT FINANCE LTD will expect the appraisal to be included in the valuation report and to include the following inflows, which are to be explicitly detailed with confirmation as to how and why the rates arrived art have been assessed:

The value of the completed property: this is the appropriate basis of value of the completed development without adjustment for any sale costs. IVS 410 employs this term, but it also uses gross development value (GDV). Both terms represent the estimated contract price of the developed property. It assumes, therefore, that any prospective acquisition costs of the purchaser that may have reduced the price have been accounted for:

net development value (NDV): this is the appropriate basis of value of the completed development net of any sale costs.

site clearance, remediation or preparation costs. costs of construction, including any contingencies. professional fees related to construction. costs and professional fees relating to planning. any planning obligations or levies linked to the development

finance for the development, including the site developer’s profit. any other costs or inflows related to the development. Site costs where land value is not the residual.

NB: If the valuer does not consider it is appropriate to undertake a residual valuation calculation then the valuer must explain why this is the case in the valuation report.

Development Properties - Valuations Section

Valuation 1 - Market Value (MV) of the Subject Property.

This is commonly referred to as the “As Is” valuation.

Valuation 2 – Market Value (MV) of the Subject Property Assuming Vacant Possession.

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Valuation 3 – Market Value (MV) of the Subject Property Assuming Vacant Possession and assuming a restricted 180-day Restricted Marketing Period.

Valuation 4 – Market Value (MV) of the Subject Property Assuming Vacant Possession and assuming a restricted 90-day Restricted Marketing Period.

Valuation 5 – Net Development Value.This is the “Gross Development Value” less the costs of marketing.Valuation 6 – Net Development Value assuming a restricted 180-day Restricted Marketing. Period.

Valuation 7 – Net Development Value assuming a restricted 90-day Restricted Marketing Period.

Valuation 8 – Market Rent (MR) of the completed development.

Development Properties - Sensitivity Analysis Section

Sensitivity Analysis is a technique used to assess the impact of different variables within a development appraisal. Sensitivity analysis involves modelling different scenarios, to determine the project’s viability.

The valuer is expected to undertake Sensitivity Analyses of the major inputs and costs when providing a Residual Valuation to show how changes in yields, rents, sale process, build costs, finance costs and developer’s profits may affect the viability of the scheme.

A summary table should be provided with a comment on the potential that these inputs may vary. If Sensitivity Analysis indicates the scheme has a realistic or foreseeable possibility that it will become unprofitable this must be communicated to the lender.

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APPENDIX 3: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR NEW BUILD PROPERTIESMT Finance Limited considers any property that has been constructed within the last 24 months to be a "New Build" property.

Valuers must ensure that the valuation they provide is the figure which will be immediately achievable in the event of an early resale and reflects the property's second hand value ignoring any sales incentives which are currently being offered, along with any element of "New Build" premium which may be achievable now but would not be achievable on resale.

Similar criteria as appropriate should apply when valuing properties which have been either newly converted or newly refurbished.

The valuer is to confirm whether the security property a stand-alone New Build or does it form part of a larger New Build development.

The valuer must advise how many units are in the same scheme as the subject property.

If the security property is in a block of flats, the valuer must advise how many storeys are there in the specific block and which floor is the security property located on.

The valuer should advise the general ratio of houses to flats and residential to commercial within the whole development on which the subject is located.

The valuer should also confirm, where the subject is in a development scheme there is a flat development how many individual blocks of flats form the development.

If construction is incomplete, the valuer is to specify the stage reached.

The valuer should also advise where they are aware of any other developments within the local area that are currently being built or have been completed within the last 12 months.

The valuer is to advise if the builder registered with NHBC, whether the appropriate NHBC Certificate been issued, and whether a re-inspection is necessary.

The valuer is to advise if the security property is a conversion or refurbishment project.

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APPENDIX 4: ADDITIONAL SPECIFIC REPORTING REQUIREMENTS FOR HMO AND MUFB PROPERTY VALUATIONSWhen Valuing Houses in Multiple Occupation (HMOs) or Multi-Unit Freehold Blocks (MUFBs) the valuer is expected to have regard to the following:

General Background

HMOs

Houses in Multiple Occupation (HMOs) are usually valued by the capital comparative or investment method of valuation.

MT FINANCE LTD is aware that a variety of different factors will affect the suitability of either of the primary methods of valuation in terms of valuing HMOs.

One of the most influential factors is whether a local authority has imposed article 4 direction on a particular locality to prevent conversions of dwelling houses to HMOs (up to 6 occupants). HMOs (with larger properties for 6+ occupants) require specific planning permission.

As an article 4 direction is a direction under article 4 of the General Permitted Development Order which enables the Secretary of State or the LPA to withdraw specified permitted development rights across a defined area Valuers will be aware that LPAs frequently use this power to remove the General Permitted Development Order rights.

MT FINANCE LTD will not accept HMOs with more than (20) bedrooms as suitable security.

MUFBs

In England and Wales, a multiple unit on a single title, also known as a multi-unit freehold block (MUFBs), is typically (but not always) one building with multiple tenants. They are normally small blocks of flats or a large converted house, but you will sometimes see a cluster or terrace of houses on a single title. Flats must be fully self-contained so as not to constitute an HMO.

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MT FINANCE LTD is aware that a number of properties which were HMOs have been converted to MUFBs to avoid the requirements of the statutory licence scheme extended in 2018 by Her Majesties’ Government.

In some cases, this has resulted in very small studio or one-bedroom flats which would be of limited interest to the market. Valuers are expected to consider whether a MUFB presents a readily marketable property which would be able to be sold without undue delay in a recovery’s situation.

Units in MUFBs should be a minimum of 25sqm each.

Changes Required to Suggested Report Format

Whilst there are no additional sections required in the Valuation Report there is additional content required when valuing HMOs and MUFBs.

Accommodation

HMOs are subject to national space standards. These can be increased by individual Local Authorities. The valuer should provide a schedule detailing the rooms on a room-by-room basis and confirming how these relate to national space standards and any local amendments to these which may exist.

The valuer should confirm that kitchen and other shared facilities also confirm to the applicable space standards for the location of the property.

Statutory Matters

In addition to the information required in the suggested 5th section of the report which is defined as Statutory Matters in the suggested report format and which includes:

Business Rates & Council Tax; Planning; Highways & Access; Equalities Act 2010 (Disability Discrimination); Fire Safety; and, Energy Performance Certificates (EPCs).

The valuer is also to provide 2 additional sections. These are:

Houses in Multiple Occupation (HMOs) and Multi Unit Freehold Blocks (MUFBs)

From inspection Valuers should advise whether the property would be considered an HMO and whether the property is registered under a mandatory licensing scheme or whether it may need to be licensed under an appropriate

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licensing scheme. Whilst classification as an HMO may depend on the mode of occupation, Valuers should provide advice as to whether it is possible (depending on mode of occupation) that the property could become an HMO and the likelihood of obtaining any required license and what, if any, alterations may be required to achieve this. Also comment on the likely impact upon value).

Immigration Status Check

From 1st February 2016 all landlords are required to undertake immigration status checks, referred to as ‘Right to Rent’. Where possible Valuers should seek confirmation that status checks have been carried out. Valuers are expected to comment on any risk to value due to potential fines and/ or the rental income due to the policy.

The valuer should confirm whether or not they have seen these checks.

HMOs & MUFBs - Valuation Considerations Section

MT FINANCE LTD do not have a fixed policy requirement on how a valuer should value a property asset; instead MT FINANCE LTD rely on the valuer to use its professional judgement to advise on what is the appropriate method of valuation.

When valuing an HMO, the valuer is expected to articulate on what is the most appropriate method of valuation and why alternative methods are discounted.

As with HMOs, valuers are expected to advise on what is the most appropriate method of valuation for MUFBs.

 

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