Valuation Requirement
Application of the statutory cap theoretically requires two valuations to arrive at the Diminution Valuation as the quantification of loss. These valuations are:
A
The value of the landlord’s interest on the assumption the Property is in its covenanted state (condition) on that date (Valuation A – Assuming Compliance);
B
The value of the landlord’s interest in its actual state (condition) on the Valuation Date (Valuation B – In Actual Condition).
Determining commercial property values for Valuation A is simple. We rely on evidence from similar properties under full repairing and insuring (FRi) leases.
However, determining the dilapidated value at lease expiry is nearly impossible. It demands transaction evidence from identical properties with exact breaches.
When valuers can't directly compare conditions, they subtract the cost of Remedial Works and any related losses from Valuation A to determine Valuation B.
Valuation B can vary if the landlord’s valuer deducts all building surveyor costs, disregarding their impact on lettability or value.
Moreover, each valuer will rely on their chartered building surveyor's costs, which can differ significantly.
Credible Valuations
To gauge how breaches might impact property value, we must first identify the potential buyer at lease end and determine if disrepair would influence their offer.
A chartered building surveyor must identify and price repairs for any property disrepair. However, when valuing commercial properties, the valuer uses their expertise to disregard items unlikely to impact the property's freehold value.
In second-hand commercial properties, there's a spending limit where further investment won't boost value.
The valuer leverages local transaction data and agency expertise to deliver accurate commercial property valuations.
Summary
For the best deals in renting or leasing, trust Dilapsolutions. We provide expert advice from both a Chartered Building Surveyor and a Chartered Valuation Surveyor - all for the price of one!
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