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Property valuers drop Brexit clauses from most contracts as markets steady

Five property services companies are removing Brexit uncertainty clauses from their UK asset valuation reports as the market recovers from a sharp post-referendum drop.

The original uncertainty clause stated that there was a reduced likelihood that a UK property’s estimated value would tally exactly with the price it would fetch if sold.

The vote in favour of Brexit hit the British property market especially hard. At one point there was a suspension of commercial property funds worth millions of pounds after high redemption levels by investors who worried that both prices and property demand would plummet.

The general worry has since abated, with four of the seven funds that had been closed now reopening. The largest UK commercial property index has released data showing that property prices experienced a lower reduction in August than in July, immediately after the referendum.

Robert Gray, Knight Frank head of fund valuations, said that enough certainty now exists in most sectors for the Brexit clause to be withdrawn from all of its valuation reporting.

Colliers, CBRE, Jones Lang LaSalle and Savills confirmed that for some sectors where the uncertainty remains high, clauses have been retained, but the wording is less cautious.

Ian Malden, divisional head of valuation at Savills, said that the company regards the uncertainty clause as redundant for the majority of markets. Some sectors, however, have little to no post-Brexit evidence, which will be referenced in Savills reports as necessary. They include central London offices, large shopping centres, retail parks and development land and buildings.

 

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A revised clause from Jones Lang LaSalle stated there were few comparable deals in these sector, so a higher degree of judgement would be reflected in the valuations.

Andrew Renshaw, lead director for JLL’s UK valuations, explained that larger asset sizes were the main source of concern. He predicted that the revised clause would disappear entirely in October, when conditions became more apparent.

Mr Renshaw said that after a recent meeting of leading property firms and valuers, JLL removed clauses entirely from properties that entail less risk.

Russell Francis, Colliers head of valuation and advisory services, said that his firm had started eliminating clauses several weeks ago. He referred to sectors of the housing market that had shown strong performance even after Brexit.

Several builders reported that sales had risen in recent weeks, and there are signs that prices are climbing once more.

Valuers have also dropped clauses for commercial properties with steady incomes and long leases, which are typically seen with care homes and student housing.

Mr Gray said that Knight Frank's valuations for risky properties would average 2-6 % lower than pre-vote levels.

Concern exists that the clauses may reappear once formal negotiations to leave the EU begin. Mr Gray said he did not expect to reintroduce the cause any time soon, although it could return if market conditions change in the future.

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