Valuers are edging towards removing uncertainty clauses from their reports ahead of the end of the month and the next quarter valuation date.
The clauses were widely applied after the result of the EU referendum owing to the unusual market conditions
and lack of deals just after the vote.
As transactional evidence mounted over the summer, valuers have been gaining confidence in their valuations.
The removal of the clauses is of particular importance to open-ended retail fund managers, some of which have been pressing for the removal of the clauses to provide clarity to their trustees and investors.
The funds themselves experienced a run of redemptions following the vote but sentiment has been improving in recent weeks. Today most funds have reduced penalties for redemptions and some that were
gated have since reopened.
Since exception clauses were applied the day after the referendum, the major valuation firms have been working with RICS and the Association of Real Estate Funds to ensure that a unified uncertainty clause is applied to all open-ended funds so that no one fund is seen to have more of an advantage than another and to agree best practice.
Last week the valuers of the open-ended funds removed a more extreme sentence from within the clause which stated that the likelihood of them coming to an accurate valuation had reduced (see box).
Valuers are personally responsible for their own valuation and for applying the clause if needed. RICS does provide guidance to its members and on 26 July Fiona Haggett, RICS’ UK valuation director, encouraged members to revisit the use of the clause based upon transactional evidence that had become available.
“There is the intention to move away from the clause gradually, depending on the market. This will happen earlier in some markets than others,” she said.
Open-ended retail funds generally own a wide variety of assets rather than one particular asset type or geography, which makes them difficult to value.
Andrew Renshaw, lead director of UK valuation and professional advisory at JLL, said there had been a dearth of transactions at the asset size that open-ended funds typically own.
“What we need is a deeper pool of transactions, particularly in the mid-range in London of around £10m-£40m. There have been a lot of small deals and we are comfortable at that end but it is that area that has not traded this summer and we need more clarity,” he said.
The uncertainty clause
“Since the EU referendum on 23 June that went in favour of exit, we have monitored market transactions and market sentiment in arriving at our opinion of market value/fair value.
“There is still a shortage of comparable evidence of arm’s length transactions since the vote. Therefore, we have had to exercise a greater degree of judgment than would be applied under more liquid market conditions.
“The probability of our opinion of value coinciding exactly with the price achieved, were there to be a sale, has reduced [sentence removed 30 August].
We would, therefore, recommend that the valuation is kept under review and that market advice is obtained should you wish to effect a disposal.”
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