Tricky Valuations – Ransom Strips

In the last week I have undertaken a formal “Red Book” valuation which was far from straight forward but was, none the less, interesting.

Firstly – what do I mean by a “Red Book” valuation? The “Red Book” is the more commonly utilised name for a Valuation and Report have been prepared in accordance with the standards set out within the RICS Valuation – Global Standards 2017 (The Red Book). 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 Valuation – Global Standards (2017 at the time of writing). 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.

The valuation I have done in the last week or so was for strips of land which were, essentially, ransom strips – strips that can either unlock or prevent access to neighbouring land which could have development potential. These are not uncommon and if buying sites you would be well advised to get your solicitor to triple check none of these exist. They can be costly and could prevent access to a site altogether! If you own one? Take steps to protect and register it with the Land Registry so it doesn’t get lost.

Strips of land, such as those which are the subject of this valuation, 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. 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. Owning a ransom strip is valuable as ownership does not mean an agreement has to be reached.

The valuation was needed to calculate the potential Capital Gains Tax (CGT) liability if sold and this adds another twist into the valuation mix as the date of valuation is not the time of writing the valuation. My valuation date was several years ago. For this valuation I was required to value the land at the valuation date taking into account the potential planning position as at the date of valuation. This required me to look back at the previous (2012) National Planning Policy Framework, which has now been replaced, and the local planning policy at the time. From this I had to ascertain what a plausible, acceptable in principle, development scheme could be for the adjoining land which the ransom strips would provide access to.

Having made my assumptions based on this information I utilised the Housing Price Index (Land Registry Data) to work out the average property prices in the area and used this to estimate a Gross Development Value for a potential scheme and, after a few more calculations, I arrived at a figure which would be an indicative land value for the proposed development. This was then used to calculate a third – the value attributable to the ransom strips for providing access and thus releasing the land in question as per Stokes v Cambridge. This was not quite the end though as I then needed to balance out this series of assumptions against the definition of Market Value which assumes an arm’s length transaction (and, essentially, disregards special purchasers – those who stand to gain something from the combination of the assets).

It certainly made me think for a few days due to varied approaches which could have been used. Indeed with differing assumptions the figures could be very different. The key is outlining your assumptions clearly and evidencing why you have arrived at the figure you have to create a robust valuation.

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 benefitted 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….