The short lease, cladding and remortgage pressure
You are asked to provide a market valuation for remortgage of a two-bedroom purpose-built flat. The lease has 78 years unexpired. The building is 18 m high and has high-pressure laminate cladding; no EWS1 form is available. The service charge is £4,200 per year, including an interim fire patrol costing £1,100. The lender's instruction requires an EWS1 form or an acceptable alternative. Improved flats in the block with 999-year leases and an EWS1 have sold at £240,000. Similar short-lease flats without an EWS1 have sold at £150,000, but those sales were cash. The client says the cladding is 'not the same type as Grenfell' and asks you to value at £235,000 so the remortgage completes.
1. Identify the valuation issues and explain how you would approach the valuation.
Read the worked answer
The valuation is not a simple comparison with £240,000, because the subject flat differs from the improved comparables in at least two material respects: a 78-year lease and no EWS1. The £240,000 evidence reflects a 999-year lease, an EWS1 and lender-acceptable status. The £150,000 cash evidence reflects the short lease and the absence of an EWS1, but cash sales may include a distressed or specialist buyer discount. I would analyse both sets of evidence and make separate adjustments rather than averaging them.
I would inspect the lease, ground rent, service charge history, cladding information and any fire risk assessments. I would check whether the £1,100 fire patrol is temporary or likely to continue, and whether remediation costs are known or capped. I would consider whether the flat is currently mortgageable at all: if the lender requires an EWS1 or acceptable alternative and none exists, the pool of buyers is restricted. I would report market value as at the valuation date, with a clear statement of the assumptions and any material uncertainty clause. I would not value at £235,000 simply because the client wants the remortgage to complete.
2. What valuation figure or figures would you report, and what caveats would you attach?
Read the worked answer
I would not report a single figure of £235,000. On the evidence described, the as-is value is more likely to sit nearer the cash evidence than the improved evidence, because the flat has both a short lease and a cladding-related lending problem. I would report a reasoned range or a figure subject to stated assumptions, for example a market value 'as is' in the region of £150,000 to £165,000, subject to inspection of the lease and confirmation of the service charge and fire-safety position. I would also state what the value might be on the assumption that an acceptable EWS1 is obtained and the lease is extended, but I would not present that as the current market value.
Caveats would include: the source and date of the comparables; the fact that the cash sales may not be open-market lender transactions; the unknown remediation cost and whether it is recoverable through service charge; the lease length and the cost of extension; the lender's specific requirements; and the possibility that the property is currently unmortgageable. A material uncertainty clause may be appropriate if the fire-safety information is insufficient. I would recommend that the client obtains specialist leasehold and cladding advice before relying on the valuation.
3. How should you handle the client's request to ignore the cladding issue?
Read the worked answer
I would explain that the cladding and EWS1 position is a material factor affecting marketability and lender acceptability, and that I cannot ignore it. The client's comment that the cladding is 'not the same type as Grenfell' may be relevant, but it is not a substitute for evidence: I would need the fire risk assessment, cladding specification, any remediation plan and the lender's acceptance criteria.
I would record the client's request and my response in the file. If the client continued to press for a figure that assumed away the risk, I would decline the instruction rather than produce a misleading report. I would not accept an instruction that makes the valuation conditional on a predetermined outcome. The report should be transparent about the information available and the effect of the uncertainty, so that the lender can make its own decision. This is a professional integrity issue as much as a valuation issue.