Why you need a valuation - “Forewarned is forearmed”.
Valuation is a core function that underpins all property transactions and ownership. Many businesses see having a valuation carried out as an unwanted and unnecessary expense. This is not always the case and if timed correctly and used effectively they can prove to be a fantastic addition to a small businesses’ arsenal of information.
Valuations can be carried out for number of different reasons, including:
1. Valuation for company account purposes
Unlike other company assets, which are often written down over a number of years in the balance sheet, land and buildings are required to be valued to current market value.
If an up-to-date valuation is at hand then it can save time and money when other professionals require one from you as a small business owner.
If there is a change in Directors or Shareholding within your company you may require an updated valuation of the company's assets to include a market value of the property holdings. Again, it is something that can delay a negotiation or agreement and can lead to frustration when not readily available. If an up to date valuation is required then a good relationship with an external valuer who knows your business premises but remains impartial can be a very useful contact to have.
Similarly where a director or shareholder retires, the assets may need to be divided between the remaining directors or shareholders, someone who knows your business and your property assets will have this information to hand.
|Find your local RICS Registered Valuer – by law all property valuations must be carried out using the international valuation standards. All RICS Registered Valuers comply with these standards.|
2. Secured Loans
If your business requires bank funding then it is almost certainly going to be secured against your business premises first and foremost. To do this the bank will instruct an RICS Registered Valuer to undertake a secured lending valuation. More often than not the bank manager will ask if you are aware of the current market value of your property. If you are unaware of the value or have an unrealistic opinion of this then it can lead to major issues later on down the line, when timescales for the borrowed funds being cleared can be imperative.
More and more we are seeing business owners approaching us in advance of speaking to their bank managers in order to obtain a valuation report so they can go into their meeting with a clear idea of how much their premises are worth in order to show the manager that they have done their research.
3. End of lease repairs – occupiers beware
If you do not own your premises on a freehold basis then you will have a landlord. When your lease comes to an end your landlord may try to make a claim for dilapidations, depending on the repairing liabilities of your lease.
The amount that they can claim is limited by Section 18 (1) of the Landlord and Tenant's Act 1927. This ensures that the cost of repairs can’t be more than how much the property value has been reduced by. So if the cost of repairs is £15,000 but the property value has only gone down by £10,000 you will only be able to claim up to £10,000 and not £15,000 you have spent. We provide this service to both landlords and occupiers in order to confirm that such a loss exists or reduce any claim being made.
4. Stamp Duty
When ownership of a share of a property or the entire property is to be transferred, a value has to be given in order to assess the amount of Stamp Duty to be paid to the Inland Revenue.
5. Capital Gains Tax
If you sell your business premises, which is not a principal private residence, the Inland Revenue will often require a formal written valuation to be provided in order to calculate any Capital Gains Tax due. To save any dispute or delay it is worth having this to hand when the time comes.
Download the RICS Small Business Property Guide for comprehensive advice on common property decisions and actions you may need to take - from acquiring a lease to challenging a dilapidations claim – along with vital property-related issues such as valuations, planning permission and the business rates system.
Dylan Jones AssocRICS, Surveyor at Lillicrap Chillcott has been working in property for around 10 years. Prior to this he worked in licensed trade management with a number of years as a small business owner. Valuation of trading related property in the licensed and leisure trade sector is a particular area of interest but his work covers all types of commercial property as well as residential development.