In October 2019 I (Eleni) wrote an article on “Tricky Valuations – Ransom Strips”. This gave an example of a ransom strip valuation I had undertaken in Shropshire (Tricky Valuations – Ransom Strips – Eldnar Consultancy). It has evidently come up in a few people’s searches online so, in the last few weeks, I have again had several discussions and enquiries from people regarding valuing ransom strips.
I thought I would, therefore, re-post and tweak this article for those looking for some guidance. As someone who is a Chartered Surveyor, RICS Registered Valuer and a Chartered Town Planner (and a bit of a nerd who loves case law and detail) – this type of work is perfect!
So, ransom strips. These are generally, and most commonly, strips of land that can either unlock or prevent access to neighbouring land or property which could have development potential. There are always two sides to the story on these bits of land. Valuing such strips can be complex calling upon a combination of residual and comparable style valuations to work out the value of the site as well as understanding the costs in achieving this. There is also a planning element in understand what consent could, or has, been granted as well as a consideration as to whether that consent could be changed or altered (thus changing site value) in the future. The latter can vary very significantly.
Such strips of land are often referred to as “ransom” strips and case law such as Stokes v Cambridge Corp (1961) is widely quoted as having established the principle that a ransom strip was worth a third of the increase in value of the benefitting land. This was due to the opinion of the Lands Tribunal that regard should be had to the common ownership of both the ransom strip and other land in the area. In light of the above there is a misconception that the appropriate portion to be paid for access in “ransom” cases is automatically one-third when it does, to a large extent, depend on the facts but it also depends on the position of the parties. There is other case law where the Lands Tribunal awarded 50% of the increase on the basis of there being one practicable access.
Despite this such an approach is still only a guide and in many cases the value is whatever can be agreed. Whilst they do differ in size their potential, and purpose, is the same. Each one needs to be considered upon facts of the case that on one side the owner of the strip is a willing seller and the potential purchaser willing buyer, and prepared to pay a proper price, but not a large ransom. A balance would usually be found but only on the basis that the value cannot be unlocked without the agreement of the parties so any benefit should be shared in some way, shape or form. Ultimately the deal has to “feel right” to both parties – negotiation, science and rationality gets one only so far.
There will of course be a lower limit. Such a strip will always have a value as it is providing access to a site but it has to be considered that if the ransom was so high that it ate into profit, and thus was in danger of making the scheme unviable, it simply would not be implemented by a developer. So, by demanding too high a ransom, the scheme would not go ahead and neither party will benefit. It falls to the parties to be accepting in that there is a price to be paid, but to obtain anything the strip owner must be realistic in their valuation.
These types of valuations are normally a formal “Red Book” valuation. The “Red Book” is the more commonly utilised name for a Valuation and Report that have been prepared in accordance with the standards set out within the RICS Valuation – Global Standards (The Red Book/Red Book Global Standards). These were published on 30th November and are due to take effect from 31st January 2022.
These are valuations that can only be carried out by a Chartered Surveyor who is also an RICS (Royal Institution of Chartered Surveyors) Registered Valuer. As part of this your valuation, and the valuer, is regulated. Terms of engagement outlining exactly what the valuation is for, who it is for and what is to be valued must be issued in accordance with the minimum requirements set out in the RICS Valuation – Global Standards. The report itself must also meet the minimum standards and your valuer must be appropriately qualified and positioned to undertake the work and also carry sufficient professional indemnity insurance. All this is in place to protect you, the client.
Similarly some work can end up being expert witness work which requires reports to be prepared to be compliant with Part 35 of the Civil Procedure Rules (CPR), practice direction 35 (PD35) and the Guidance for the Instructions of Experts in Civil Claims 2014. I also did an article on this type of work “Expert Witness Valuations” in February 2020 (Expert Witness Valuations – Eldnar Consultancy).
The above is a brief summary, as an example, as to some of the more complicated valuations my profession become involved in as valuers. This one, however, is one which I firmly believe can benefit from my dual qualification as a Chartered Surveyor and a Chartered Town Planner due to the extensive overlap between the disciplines and the level of understanding required….