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Valuation: Cross-roads or Cul de Sac?

Date post: 12-Jul-2015
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Valuation: Crossroads or cul de sac? Charles Cowap RICS Wales Rural Conference Llandrindod Wells December 2014
  • Valuation:Crossroads or cul de sac?

    Charles CowapRICS Wales Rural Conference Llandrindod Wells

    December 2014

  • Valuation is becoming .Broader

    More Complex

    More Challenging


  • Down in the woods today

  • Inheritance tax

  • Is Woodland:A Business Asset?

    Agricultural Property?

    None of the above?

  • Woodland as a Business AssetBusiness Property ReliefNot investment business (Balfour)

    How to demonstrate Business Nature?

  • Woodland as agricultural propertyAgricultural Property ReliefNature of agricultural propertywith and ancillary

    Agricultural Value

  • None of the AboveWoodlands ReliefPrairie Value the custom and practice

    What the IHTA 1984 (s125) says

  • An example10 acre woodland, broadleaf, vacant possession, location accessible, upmarket and popular

    Various scenarios

  • ValuesFreehold market value 70,000Agricultural value 40,000Prairie value 15,000Value of trees and underwood 20,000

  • BPRClaim at 100% of MV

    Nil IHT

  • APRClaim at 100% of Agricultural Value (40,000)BPR on balance (30,000)Nil IHT

    BPR not available? IHT on 30,000, ie 12,000

  • Woodlands Relief (1)Value to Prairie ValueIHT due on 15,000 @ 40% = 6,000

    Further IHT on subsequent sale of timber (if ever)

  • Woodlands Relief (2)Literal interpretationMarket Value Timber and underwood value70,000 - 20,000 = 50,000IHT on 50,000 @ 40% = 20,000

  • No claim for reliefMarket Value at 40% IHT


  • One woodFive different IHT scenariosNo relief: 28,000Literal Woodland Relief: 20,000Prairie Value Woodland Relief: 6,000APR but no BPR: 12,000Full BPR and/or APR: Nil

  • The striking impact of Amenity ValuePrairie ValueTimber and UnderwoodThe rest: Amenity Value?Where does this go?

  • The moral of this storyMAKE IT AND KEEP IT COMMERCIALAND be able to prove it!

  • Other valuation challenges

  • Market Value

    Fair Value


  • 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 arms length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. (IFRS 13)The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. (IVS 2013).The value of an asset to the owner or a prospective owner for individual investment or operational objectives.Fair ValueInvestment ValueWorthMarket ValueBequest ValueExistence Value

  • Renewable Investment Example10 ha site for 7 wind turbines on 28 year lease, 3 years expired

    Turbines: 7 x 2.3 MW x 27% capacity. Output (Elec + ROC) = 83/MWh

    Basic Rent: 7,000 + RPI for 14 years; 12,000 + RPI thereafter

    Turnover Rent: 5% of gross income for 14 years; 9% thereafter

    Lease is taken from a larger site , rough grazing, of 100 ha in total

    Let to a large well established generator

  • DCF MethodsIn practice widely undertaken for larger developments

    Market Value??

    Appraisal of worth to investor

    Would the market make same assumptions?

  • DCF: Discounting Future Cash FlowsTotal NPV + WorthwhileTotal NPV Not worthwhile

  • DCF AppraisalRemaining 25 yearsBoth rents adjusted for 3.5% inflation paOpening Valuation from Investment valuationPV of 1 at 15% gives NPV of -172,000IRR is 14% including Inflation, ie 10.5% net of inflation

  • In view of the DCF Valuation we have just looked at, does the previous investment valuation of 1.6 million for the freehold interest look:

    QuestionToo high

    About right

    Too low

  • BACK TO BASICSPurpose of ValuationScope of investigations to be undertakenAssumptions and Special AssumptionsPreliminary InformationCapacity and assumed durationAfter uses, continuation, redevelopmentReporting Requirements

  • ReportingRationale for chosen method(s)Detailed consideration of instructions, assumptions, sources and reliability, extent of independent verificationSensitivityCommentary on Risk?

  • RiskOperator/Covenant RiskMarket RiskTechnology RiskShropshire Star and Daily Mail

  • Some Common IssuesOperator Risk

    Complex lease or agreement terms

    Performance data

    Development Proposals for new Sites

    Hope Value

  • Hope Value??Time

  • Some Common IssuesReporting Requirements

    Detailed instructions

    Market evidence

  • Cases

  • Ham v Ham [2013] EWCA Civ 1301Farming partnershipYoung John leaves family partnershipMum and dad elect to buy out shareCalculation of net value?John had introduced no capitalLand shown at book valueBook value or market value?Market valueNeed for clarity in partnership agreements

  • Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch)A former asylumA valuation for secured lendingWas Knight Frank liable when P relied on it to judge an offer on the property?NO Exclusively for secured lending purposes

  • Valuation is becoming .Broader

    More Complex

    More Challenging


  • Contact DetailsTranslating new knowledge for rural professional practice

    [email protected] 07947 706505Twitter: @charlescowapBlog: http://charlescowap.wordpress.com/Slideshare: http://www.slideshare.net/cdcowap