Flooding: issues of concern to RICS surveyors and valuers (Residential property)

Transcription

1 RICS information paper RICS professional guidance, UK Flooding: issues of concern to RICS surveyors and valuers (Residential property) 1st edition rics.org/guidance

2 rics.org Flooding: issues of concern to RICS surveyors and valuers (Residential property) RICS information paper, UK 1st edition Published by the Royal Institution of Chartered Surveyors (RICS) Parliament Square London SW1P 3AD responsibility for loss or damage caused to any person acting or refraining from action as a result of the material included in this publication can be accepted by the authors or RICS. Produced by the Residential Professional Group of the Royal Institution of Chartered Surveyors. ISBN Royal Institution of Chartered Surveyors (RICS) March Copyright in all or part of this publication rests with RICS. part of this work may be reproduced or used in any form or by any means including graphic, electronic, or mechanical, including photocopying, recording, taping or Web distribution, without the written permission of the Royal Institution of Chartered Surveyors or in line with the rules of an existing licence.

3 Flooding: issues of concern to RICS surveyors and valuers (Residential property) Acknowledgments RICS would like to thank for the following for their contributions to this information paper: Technical author James Ginley FRICS, Legal and General Surveying Services Working group Ian Cook FRICS Alan Cripps FRICS Graham Ellis MRICS Hugh Fell FRICS (George F. White) Sue Highmore (Practical Law Property) David House MRICS (Santander) Jessica Lamond (University of the West of England) Malcolm Webb FRICS (evaluate surveyors) Glyn Woodward FRICS (Woodward Associates Chartered Surveyors) Further contributors Philip Wilbourn (Wilbourn & Company) RICS would also like to remember the late Simon Chandler and his valuable contribution to this information paper. ii RICS information paper, UK

4 rics.org Contents Acknowledgments...ii RICS professional guidance... 2 Executive summary Introduction Types of flooding Insurability the changing position Statement of Principles The Water Act 2010 and Flood Re Is the property covered by the Flood Re scheme? Role of the valuer and/or surveyor Existing valuation standards Valuations and the RICS Red Book Existing survey standards Parameters of flood risk assessment Flood risk in the geographical area Sources of flood risk information Likelihood or probability of flooding Historic flooding profile Role of the conveyancer Flooding and the occupation of property Impact of risk material to Market Value/Fair Value and Market Rent. 16 Appendix Practitioner checklist...17 Endnotes RICS information paper, UK 1

5 Flooding: issues of concern to RICS surveyors and valuers (Residential property) RICS professional guidance International standards RICS is at the forefront of developing international standards, working in coalitions with organisations around the world, acting in the public interest to raise standards and increase transparency within markets. International Property Measurement Standards (IPMS - ipmsc.org), International Construction Measurement Standards (ICMS), International Ethics Standards (IES) and others will be published and will be mandatory for RICS members. This information paper links directly to these standards and underpins them. RICS members are advised to make themselves aware of the international standards (see and the overarching principles with which this information paper complies. Members of RICS are uniquely placed in the market by being trained, qualified and regulated by working to international standards and complying with this information paper. RICS information papers This is an information paper. Information papers are intended to provide information and explanation to RICS members on specific topics of relevance to the profession. The function of this paper is not to recommend or advise on professional procedure to be followed by members. It is, however, relevant to professional competence to the extent that members should be up-to-date and have knowledge of information papers within a reasonable time of their coming into effect. Members should note that, when an allegation of professional negligence is made against a surveyor, a court or tribunal may take account of any relevant information papers published by RICS in deciding whether or not the member has acted with reasonable competence. In some cases there may be existing national standards which may take precedent over this information paper. National standards can be defined as professional standards that are either prescribed in law or federal/local legislation, or developed in collaboration with other relevant bodies. This information paper is believed to reflect case law and legislation applicable at its date of publication. It is the member s responsibility to establish if any changes in case law or legislation after the publication date have an impact on the guidance or information in this document. Document status defined RICS produce a range of professional guidance and standards documents. These have been defined in the table below. This document is an information paper. 2 RICS information paper, UK

6 rics.org Type of document Definition Status Standard International standard Professional statement RICS professional statement An international high-level principle-based standard developed in collaboration with other relevant bodies. A document that provides members with mandatory requirements or a rule that a member or firm is expected to adhere to. Mandatory Mandatory Guidance RICS code of practice RICS guidance note (GN) RICS information paper (IP) This term encompasses practice statements, Red Book professional standards, global valuation practice Statements, regulatory rules, RICS Rules of Conduct and government codes of practice. Document approved by RICS, and endorsed by another professional body/stakeholder, that provides users with recommendations for accepted good practice as followed by conscientious practitioners. Document that provides users with recommendations or approach for accepted good practice as followed by competent and conscientious practitioners. Practice-based document that provides users with the latest technical information, knowledge or common findings from regulatory reviews. Mandatory or recommended good practice (will be confirmed in the document itself). Recommended best practice. Usual principles apply in cases of negligence if best practice is not followed. Information and/or recommended good practice. Usual principles apply in cases of negligence if technical information is known in the market. RICS information paper, UK 3

7 Flooding: issues of concern to RICS surveyors and valuers (Residential property) Executive summary This UK information paper (IP) reviews the transitional phases of legislation relevant to flooding and raises awareness for RICS property professionals of market risk in particular that of insurability. This IP is intended to sit with other RICS guidance on flooding to address the need for information more specific to residential practitioners considering the implications and risk of flooding at or near a residential property for which they are undertaking a valuation or survey. It also reviews the types of flooding posing a risk to residential property, and the information sources that may be available to both practitioners and consumers. Surveyors might be acting in the capacity of a valuer or home surveyor and different levels of investigation and inspection are reviewed to highlight the context of each assessment. Fundamentally, the valuer s role is to monitor and reflect market activity when providing an opinion of market value and, while perfect knowledge is not expected, awareness of issues is essential in assessing and analysing market information which may be used as comparable data. The home surveyor s role is more concerned with the construction, condition and occupation of a property and consideration must be given to the effect of past, current or future consequences of flooding on the building and grounds. 4 RICS information paper, UK

8 rics.org 1 Introduction There is greater recognition, both among the public and the insurance industry, of the potentially catastrophic effects which flooding can have on residential property. The increased frequency of flooding and its dramatic coverage in the news have heightened awareness of the problem and the fact that the risk is more widespread than previously assumed. Flooding has become a major issue for some homeowners and tenants looking for buildings and contents insurance. The UK experienced some of its wettest weather in a century in Widespread flooding affected more than 8,000 properties, causing 400 million worth of damage. 1 Since then there have been further extensive impacts and the increased incidence and perceived risk of flooding represents a challenge to the surveying profession. How should surveyors assess the flood risk applicable to a residential property from the snapshot taken at the date of inspection? How should they obtain the information; evaluate it and advise the homeowner/lender? Both actions require consideration of the physical attributes of the particular property, its proximity to potential flood sources, the frequency and depth of that potential flooding and the surface attributes of the surrounding area that may lead to properties being inaccessible during a flood. The 2009 IP set the context of flooding as a factor that has climbed the scale as a result of recent flood incidents and changes in government policy: In order to assess whether there is a risk of flooding, and the weight to be attached to that risk, chartered surveyors will need to understand and keep up to date with all issues and drivers surrounding the flooding of property, both at a local and a national level (page 3). This IP reflects on the important legislative changes since the 2009 paper, and suggests a framework for the changes which surveyors should now consider in their assessment of flood risk and its effects on the value of residential property. It includes references to the main UK legislative and regulatory provisions that relate to the incidence of flood risk in relation to residential property and to the assessment of the consequences for its occupation, for instance changes made by the Flood and Water Management Act 2010 (s. 40), to the Building Act 1984 (in respect of safety and occupancy of buildings during times of flood), and the Water Act Although these legislative and regulatory frameworks differ in detail between England, Wales, Scotland and rthern Ireland, the essential features are similar. This paper considers issues in their current context, but also underlines that this is a rapidly changing policy area. Public perception of flood risk, insurability against flooding and therefore the residential property market implications will continue to evolve, together with uncertain changes to flood frequency and magnitude. This IP describes the nature of the current flood risk problem, the consequences of that risk and how a residential practitioner may take these into consideration when providing residential survey and valuation services. This paper relates to the situation as at January Valuers and surveyors should keep themselves up to date with changes to legislation and other information in this changing topic. It should be read in conjunction with the latest edition of RICS Valuation Professional Standards (the Red Book), the RICS Home Survey Service practice notes, and the Surveys of residential property guidance note. In addition to valuations, residential practitioners are encouraged to take note of this IP when carrying out a range of professional services, for example: RICS Condition Reports, RICS Homebuyer Reports, Building Surveys level 1, 2, and 3 reports (see Section 5 Existing survey standards); and single surveys in Scotland. This IP is specifically intended to support practitioners undertaking a valuation or a survey on residential property. However, they should be aware that useful but relevant generic background and guidance relating to all property types is still available in Contamination, the environment and sustainability - implications for chartered surveyors and their clients (2010) RICS guidance note 3rd edition. 2 Section 5 relates to environmental factors that may affect valuation including 5.4 Flooding. Section 7 relates to building surveying. RICS information paper, UK 5

9 Flooding: issues of concern to RICS surveyors and valuers (Residential property) 2 Types of flooding There is no single type of flooding. The risk presented by the different types, and the measures to protect against them will vary, so it is important for the surveyor to identify which type of flooding may be relevant. The Royal Institute of British Architects produced a study outlining the six recognised mechanisms of flooding: Tidal both sea and river defences may be overtopped or breached by a combination of low pressure weather systems and peak high tides. Fluvial flooding occurs in the floodplains of rivers when the capacity of water courses is exceeded as a result of rainfall or snow and ice melts within catchment areas further upstream. Ground water low lying areas sitting over aquifers may periodically flood as ground water levels rise. Pluvial surface water flooding is caused by rainwater run-off from urban and rural land with low absorbency. This causes over half the flooding in an average year in the UK, and is a matter of increasing focus and concern. Until relatively recently, it was impossible to access data that would predict where surface water might collect, how often and to what depth. Flooding from sewers flooding from sewers can occur where there are combined storm and foul sewers and their capacity is exceeded due to large amounts of surface water run-off in a short time. Flooding from man-made infrastructure canals, reservoirs, dams and other man-made structures can fail causing flooding to areas downstream. Until recently, tidal and fluvial flooding have been the primary focus of public and professional attention but it is increasingly realised that the whole spectrum of risks and their potential interaction merits more detailed analysis. The DEFRA consultation on the Flood Re scheme 3 (July 2014) suggests a definition of flood as follows: (1) Flood as currently defined in the draft regulations, means water from any source external to the property which enters the property at or below ground level: and (b) does so with a volume, weight or force which is substantial and abnormal. Flood includes water which enters the property above ground level as outlined in (b), where part of the body of such water is at ground level, including as a wave rising from ground level or via a main, drain, sewer or pipe which is wholly or partly connected or adjacent to the property and is wholly or partly at or below ground level at the point nearest to the property. (2) The following descriptions of water do not constitute a flood (a) rain water which enters the building before falling to ground level; and (b) water escaping from a main, drain, sewer, pipe or other thing inside the building, unless such escape was solely the consequence of a flood as defined in (1) (3) In cases where the ground level of the domestic property concerned is below sea level, references in this regulation (except in paragraph (2)(a) above) to ground level are to be taken as references to sea level. It is important to note that the Environment Agency, 4 Scottish Environmental Protection Agency, 5 Department of Agriculture and Rural Development rthern Ireland 6 and National Resources Wales 7 produce flood maps but they have limitations in their precision, scope and accuracy. Defining a specific residential property interest is not always possible with the open source mapping produced online; data accuracy cannot be guaranteed, and there are copyright restrictions about data usage. While flooding data searches are now available from commercial suppliers; surveyors and consumers are advised to be cautious as to the representation of information and its complexity. Whether these will be available in individual cases will depend on whether the client is prepared to commission and pay for the search. Surveyors have been encouraged to reflect the facts. They should apply the same approach to the opinions of others (in flooding data searches) on the issue of flooding. 6 RICS information paper, UK

10 rics.org 3 Insurability the changing position It has always been important to the government to ensure that insurance against flood risk is available to most residential properties (both to provide funds for repairs and to protect their mortgageability). 3.1 Statement of Principles The agreement known as the Statement of Principles has been in place between the ABI and the government since 2000 (with separate agreements for England, Scotland, Wales and rthern Ireland). Basically, it guaranteed the availability, from ABI members, of renewed flood insurance for most homes, so long as the government managed flood risk effectively (in its widest sense). In practice, insurance companies build premiums for properties affected by flood risk into their risk/reward modelling. The Statement of Principles did not cover properties built in 2009 or later, did not restrict the premium or excess charged for any flood insurance policy, and did not apply to properties at significant risk of flooding unless relatively imminent plans existed to put in place protection measures for that geographical area. The Statement of Principles was always expected to expire on 30 June 2013 at which point flood insurance would be determined by the true risk-based market and underwriting decision making. This might well have resulted in significant price increases or withdrawal in insurance for properties at risk of flooding. According to the Impact Assessment issued with the government consultation on Flood Re: 8 around 600,000 households in the UK might experience at least some increase in their insurance at the point of next renewal around 200,000 households most at risk might see price rises impact their household income by two per cent or more; and taking into account household income and potential abilities and willingness to pay, across the spectrum around 40,000 high risk households may be forced or priced out of the market in a worst case scenario. 3.2 The Water Act 2014 and Flood Re There was an understandable fear that some properties might become uninsurable altogether (or uninsurable at normal terms), with adverse effects on their mortgageability, and consequences for the market and existing owners. To mitigate this risk, a replacement scheme has become enshrined in the Water Act 2014 and what is likely to become Flood Re. Flood Re is likely to be, in effect, a pooled reinsurance scheme to which high risk flood properties can be ceded at a predetermined (lower) cost (probably both premium and excess). This permits risk to be equitably shared. The purpose outlined in the legislation is to provide reinsurance to relevant insurers in respect of risks arising from a flood, in such a way as to promote the availability and affordability of flood insurance for household premises while minimising the costs of doing so, and to manage over the period of operation of the scheme, the transition to riskreflective pricing of flood insurance for household premises. It is important to note that section 83 of the Water Act states that the scheme is transitional, with a life of 25 years. After this date, open market pricing of flood insurance will replace Flood Re. The keys areas that are addressed in the Water Act 2014 are: enabling all business, charity and public sector customers in England to switch their water and sewerage supplier establishing a cross-border arrangement with Scotland enabling businesses to provide new sources of water or sewerage treatment services developing a national water supply network by making it easier for water companies to buy and sell water from each other enabling owners of small-scale water storage to sell excess water into the public supply enabling ministers to set the level to which a water company needs to plan to cope with droughts enabling developers and new water or sewage companies to connect new building developments to the water mains and sewerage system improving the regulations relating to merger of water sewage undertakers providing Ofwat with a new over-arching duty to take greater account of long-term resilience and changes to improve Ofwat s regulation of the water industry; and a new flood insurance scheme for domestic properties effective from For residential surveyors, the salient issue is the provision of flood insurance from 2015 through a mechanism expected to be called Flood Re whereby insurance companies will have access to a pooled fund to enable risk to be equitably shared. The purpose outlined in the legislation is to provide reinsurance to relevant insurers in respect of risks arising from a flood, in such a way as to promote the availability and affordability of flood insurance for household premises RICS information paper, UK 7

11 Flooding: issues of concern to RICS surveyors and valuers (Residential property) while minimising the costs of doing so, and to manage over the period of operation of the scheme, the transition to risk-reflective pricing of flood insurance for household premises. 3.3 Is the property covered by the Flood Re scheme? While subject to change, criteria of dwellings have been set out within The Flood Reinsurance Scheme Regulations July While it is not expected that the surveyor has a detailed understanding of the suitability of a property to meeting these requirements, there are important definitions that surveyors should have an awareness of: Dwelling means any land and building in the United Kingdom that is held by the occupier for private, domestic and residential use (whether or not with others), including a house or other single dwelling and any property which forms part of, or is enjoyed with, the dwelling. In order for consideration for the Flood Re home insurance it is currently expected that there is: Either: 1. An insurance policy covering the contents of a dwelling which is purchased individually in the name of an individual or in trust for an individual. And/or: 2. An insurance policy covering the structure of a dwelling including fixtures and fittings, swimming pools, permanently fixed hot tubs, tennis courts, patios, terraces, service tanks, drains, septic tanks, pipes and cables, central heating fuel storage tanks, driveways, footpaths, garden walls, hedges, gates and fences; provided the following additional conditions are all met: a. The property is used for residential purposes, b. The property is insured on an individual basis, c. The property must be owned on a freehold or commonhold basis. If the property is owned on a leasehold basis, either the terms of the lease must specify that each dwelling purchases its own buildings insurance; or the property must: i. include no more than three separate residential units, ii. be insured by the freeholder, or by an owner of a share of the freehold, and iii. the freeholder or owner of a share of freehold must live in one of the residential units of the building. d. The holder of the policy, or their immediate family, must live in the property, or the property must be unoccupied (properties that are rented out are not in scope). A large number of properties will therefore lie outside Flood Re and owners/occupiers of these properties will have to buy their flood insurance in the open market, at whatever price and excess the insurers set for the flood risk profile of that particular property. The Scheme document will ultimately set out how it works, taking into account the Flood Re regulations. Flood Re is not expected to cover any of the following properties: 9 Residential household premises built since 1 January Any business premises (regardless of the size of the premises, or the business which owns or occupies them, or its turnover). Despite heavy lobbying, the government and ABI take the view that businesses have no difficulty obtaining flood insurance at normal prices, so do not need the protection of Flood Re. The British Property Federation and others are trying to establish whether this view is justified, and, if not, whether the problem affects only smaller businesses. Buy-to-let dwellings. The government and ABI believe that the owners of such properties will be arranging commercial flood risk cover and that, as there is no evidence that this is either unavailable or unaffordable, they do not need Flood Re protection. Representatives of the private rented sector lobbied hard in the House of Lords for this to be reconsidered, on grounds that there was anecdotal evidence of insurance for high risk properties becoming unaffordable and it is the tenant or licensee who ends up having to pay this cost, not the buy-to-let absentee landlord. Most blocks of flats. The government and ABI believe that the flood insurance policy for a block of flats will be a commercial policy, so should not suffer from unavailability or unaffordability. It therefore does not need the protection of Flood Re. They initially applied this analysis to all blocks of flats, whether purpose-built or conversions, small or large, and with the freehold owned by a residents company, by one of the resident flat owners, or by a third party. This attracted considerable opposition, on grounds that the owners of flats were likely to be paying for the cost of the insurance through their service charge, so should be treated in the same way as if they were a freehold owner of household premises, and thus within Flood Re. This objection was partly successful. Flood Re is likely to cover a block of three or less flats, where the freeholder lives in one of those flats. This concession does not appear in the Water Act 2014 and Flood Re regulations but is subject to further guidance. Homes which are genuinely uninsurable (no guidance has yet been given as to what this means). Properties owned or occupied by charities (because they are not dwellings). Mixed use properties (e.g. Bed and Breakfast accommodation). Holiday homes that are rented out. In December 2014 it was announced that Band H properties were to be taken out of this exclusion list and the government produced further details on eligibility for the scheme clarifying with Eligibility for reinsurance and contribution to scheme funding by policy type RICS information paper, UK

12 rics.org The table below from this document provides an overview of insurance policy types that are eligible to make contributions towards Flood Re s funding and have benefit of insurance backing by Flood Re. This list is not intended to be exhaustive. Where reference has been made to the owner living in the property, this should be taken to include the owner s immediate family. Key issues for the market and for consideration by the surveyor are the exclusions of Flood Re which do not cover certain properties deemed at high risk, nor those in higher council tax bands and/or built after This may have specific implications for these properties which may become material to the cost and enjoyment of their occupation and to their value. At the time of writing, various implementation issues are being resolved before the scheme is launched. Royal Assent was achieved in May 2014, DEFRA consultation in July 2014 and the ABI is working hard to try and get Flood Re up and running in the summer of At that time it will be clearer as to the implications of the scheme. Surveyors are advised to keep up to date with the changes and be responsive to market impact from the implementation. 3.4 Role of the valuer and/or surveyor The role of the surveyor, whether acting as a valuer or home surveyor, is to assess the impact of flooding risk in accordance with existing standards, ensuring that client requirements are set out clearly in the Terms of Engagement. Table 1: Insurance policy eligibility Description of insurance policy category Contents insurance policy Contents insurance, regardless of tenancy type or property type, provided the property was built before 1 January 2009 Contents insurance, regardless of tenancy type or property type, if the property was built from 1 January 2009 onwards Buildings insurance policy Owner-occupied freehold house, bungalow, or static caravan, provided it was built before 1 January 2009 Property built from 1 January 2009 onwards, whether owned on a freehold, leasehold, commonhold or Scottish tenement basis. te that if the property is rented out it would not contribute towards scheme funding. Owner of a leasehold property provided the insurance can be taken out on a single unit or dwelling and the owner lives in the unit Commonhold unit owner, if insurance is purchased for a single unit by the owner (or their immediate family) and the owner lives in the unit Pay into the levy fund? Owner-occupier of tenement property, if they take out insurance on their single unit Freeholder of a block of 2 or 3 units that lives in one of the flats provided the building is all residential use Block of 2 or 3 units, where one or more of the people that own a share of the freehold live in the building, provided the building is all residential use Commonhold association buildings insurance (taken out on behalf of, or by, the residents within a block) Freeholder insurance covering a block of 4 or more units, whether or not the freehold is being managed by a commercial company Insurance taken out collectively on more than 1 unit of a tenement property (this applies whether it is a management company or the owners as a group) Social rented, housing association, corporately owned property, retirement homes, publicly owned buildings (whether or not they are used for residential purposes) Buildings insurance covering a block with mixed residential and commercial use e.g. a block of residential flats with shops or businesses on the ground floor, or with some individual flats being used as a business address Flood Re eligible? RICS information paper, UK 9

13 Flooding: issues of concern to RICS surveyors and valuers (Residential property) Table 1 continued Home used by the occupant for work, provided the property is not the registered business address. Factors such as the duration of time working from home would not affect eligibility. It is the type of insurance policy that determines eligibility. Home registered as a business Landlord insurance (insurance covering rented property, whether owned freehold, leasehold, commonhold or as a tenement) Premises of microbusinesses, small businesses, charities or co-operatives (e.g. pubs and Post Offices). This includes residential accommodation above the premises (unless the terms of the lease allow the buildings insurance to cover the individual residential unit). Bed and Breakfast, paying business rates Bed and Breakfast, with a Council Tax band Static caravans that are rented out. Insurance for the holiday or caravan park itself would also be out of scope Sheds, garages and summerhouses, provided that the home insurance policy includes cover for these as standard. te that large outbuildings that are covered under a separate nonresidential policy, such as farm barns, would be ineligible. Farm outbuildings, including if occupied by paying tenants 10 RICS information paper, UK

14 rics.org 4 Existing valuation standards Property professionals who are members of RICS and registered valuers must carry out their valuations in accordance with the Red Book. 4.1 Valuations and the RICS Red Book The RICS Valuation Professional Standards 2014 incorporate the following requirements: VPS recognises that certain assumptions may be made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification. Such assumptions may cover a wide range of issues, but particularly relevant in the current context are the following: VPS 4.2.5(f) Environmental matters Some property will be affected by environmental factors that are an inherent feature of either the property itself, or the surrounding area, and could have an impact on the value of the property interest. Examples include ground instability issues (such as swelling and shrinking clay, historic and current mineral extraction) and the risk of flooding from any mechanism. Although detailed commentary on their effects will normally be outside the realm of the valuer s expertise, their presence, or potential presence, is something that can often be established in the course of a valuation inspection through normal enquiries or by local knowledge. The valuer should state the limits that will apply to the extent of the investigations and the assumptions that will be made in relation to environmental matters. Equally relevant in this context are the following standards: VPS 2 states that inspections and investigations must always be carried out to the extent necessary to produce a valuation that is professionally adequate for its purpose. VPS 2.7 states that: many matters which become apparent during the inspection of real property may have an impact on the market s perception of the value of the relevant interest in the property. When valuing real property these can include: VPS 2.7 (k) natural hazards such as ground instability, mining or mineral extraction, radon gas, risk of flooding from all mechanisms, including pluvial and fluvial sources For residential mortgage valuation, reference should also be made to UK appendix 10 RICS residential mortgage valuation specification, which includes two relevant paragraphs: 3.6 Where there are locational factors that may impact value they should be recorded and reported. Certain problems, such as flooding, mining settlement, subsidence, woodworm, invasive vegetation, radon gas, mundic and other issues are particularly prevalent in certain districts. If appropriate, the valuer should make some reference to these defects, even if the subject property does not appear to be affected at the time of the inspection. Where appropriate, the valuer should advise that an environmental assessment or a mining report should be obtained. 5.1 The inspection, and enquiries made, may reveal various factors that could have a material impact on the value. These include: the apparent general state of, and liability for, repair, form of construction and apparent major defects, liability to subsidence, flooding and/or other risks Regard should also be had to UK GN4 Inspections and material considerations, which states: 2.1 Depending on the scope and purpose of the valuation the valuer will agree, in the terms of engagement, the extent to which contamination and environmental matters are to be investigated or commented on in the report (See VPS 1 paragraph 2(g), Extent of investigation, and VPS 2, Inspections and investigations). So, in short, for the valuer, flood risk is important as one of a number of locational factors, to be recorded and reported appropriately. The valuer must consider both the inherent risk to the property and the possible implications if that risk is realised. RICS information paper, UK 11

15 Flooding: issues of concern to RICS surveyors and valuers (Residential property) 5 Existing survey standards RICS members undertaking surveys of residential property should do so in accordance with the Surveys of residential property guidance note; those undertaking RICS Home surveys services are required to undertake them in accordance with the relevant practice note. The surveyor needs to be familiar with the nature and complexity of the property type and the location in which it is situated. This is likely to include general environmental issues where information is freely available to the public, including information on flooding. Pre-inspection research can be undertaken relevant to the survey advice and reference should be made to the specific product practice notes, in particular: RICS Surveys of residential property guidance note (Providing guidance for inclusion in surveys outside of the RICS suite of products) Pre-inspection research All RICS members should be familiar with the type of property to be inspected and the area in which it is situated. Additionally, pre-inspection research should be carried out for every instruction (preferably before the inspection) to ensure the surveyor has all the necessary information to make professional judgments about the dwelling. The depth and breadth of the research will depend on a range of factors including the surveyor s knowledge and experience, the locality and the client s specific requirements. At levels1 and 2 of RICS Home surveys, the amount of research is likely to be similar. Research for level 3 services is likely to be more extensive, especially if the client has requested additional services. The research will depend on circumstances and may vary over time as additional property-based information becomes publicly available. Currently, typical desktop research might include: information from the selling agents the energy performance certificate information about flooding risk, radon levels, and the nature of the subsoil (this does not constitute an environmental assessment but uses freely available information in the public domain) conservation areas (and whether there is an Article 4 direction) listed building status other general information about the site including exposure to wind and rain, frost attack, etc. In addition, the owner and/or seller or their agent should be asked to provide appropriate information including details of previous alteration, repair and improvement work, planning permissions, building regulations and/or information provided by a competent persons scheme, any relevant guarantees and warranties, evidence of service agreements and lease details. It will also be appropriate to ask if any building insurance claims have been made, whether the property has been flooded, and if Japanese Knotweed has affected the property or any of its neighbours. Other matters could also include ownership of boundaries, existence of any neighbour disputes, rights of way and so on. RICS Condition Report practice note Section J Risks (page 51) Risks to the grounds. Typical issues include: Flooding RICS HomeBuyer Report practice note Section D About the property (page 40) Comments are based on the surveyor s inspection and local knowledge. Local environment. Physical factors such as flood risk. Section J Risks (page 62) Risks to the grounds. Typical issues include: Flooding (te: valuation protocols will also apply to a HomeBuyer Report, where valuation advice is given) RICS Building Survey practice note Section D About the property (page 46) Comments are based on the surveyor s desk top research along with the inspection and the surveyor s local knowledge. Local environment. Physical factors such as flood risk. Section J Risks (p71) Risks to the grounds. Typical issues include: Flooding 12 RICS information paper, UK

16 rics.org 6 Parameters of flood risk assessment The context of the surveyor s instruction defines the parameters and factors for consideration, which in turn shape decisions on what and how to advise. The use of well structured site notes provides some of the framework within which relevant matters may be recorded together with, where necessary, evidence or rationale of how such factors are reflected in the valuation or survey produced. The property observation checklist referred to in the Red Book at UKGN4 and set out in Appendix C of Contamination, the environment and sustainability the implications for chartered surveyors and their clients (2010) can be used as follows: Is the site near a river, stream or ditch? Is the property in a hollow or at the bottom of a hill where flood water could collect? Are you aware of any flood events affecting the property or immediate area? Is the property protected by river or coastal defences? Have you obtained a flood risk report from a chartered surveyor? For this purpose, this IP does not suggest that the surveyor should change the decision making process, but the IP seeks to reiterate and refine what those questions and factors might be for flooding and to review the considerations that should be evaluated. There are four main parameters of flood risk for residential property: Is there an inherent risk in the geographical area to flooding? What types of flooding; how often does it occur and how deep will it be? Is this particular property at a lower risk than the geographical area in which it sits, perhaps because of its elevation; structural features that make it less susceptible, or property level protection measures against flooding that are already in place? Are the surface characteristics conducive to surface run off? What has been the historic flooding profile of the property or the area what is the information source, e.g. local knowledge, vendor enquiry? What effect would flood have on the occupation of the property (current or future)? What design considerations are there to mitigate flooding? Does the risk materially impact value? Would it be considered critical to lending? Or, are there some offsetting or mitigating factors such as the amenity aspects of the property due to its situation, or the availability of insurance under normal terms within the Flood Re scheme? If there are concerns as to the flood risk it may be that a specific property has been designed with flood mitigation measures, and knowing the context and extent of these will be useful. For the purposes of a mortgage valuation it may not be possible to assess the viability of these measures, but specialist advice may be recommended where appropriate. In providing more detailed survey advice, the context of the questions may be more detailed both in investigation and in terms of what advice can be provided. 6.1 Flood risk in the geographical area Are there specific features of the property or its site that mean additional risk factors need to be considered? If a property is in an upland location, the temptation will be to assume it is a low flood risk but the site itself may make it vulnerable; for example, if it is built into an embankment where there is known run off from adjacent agricultural use. A property located in a dry valley in chalk land may similarly be at risk. When inspecting properties, the surveyor should be conscious of the need to assess the site and the property s location. If there are obvious signs of previous water damage water ingress to cellars, mud on pathways, gardens sloping toward the property, diverted water courses, channels, gulleys, etc., then the principle of follow the trail can be adopted to the extent appropriate to the inspection and further investigations recommended if necessary. Expertise, experience and local knowledge will be paramount in this regard and surveyors are advised to be aware of their limitations. 6.2 Sources of flood risk information The flood risk for a particular area is assessed as the likelihood of a particular flood event happening. This is expressed as an annual chance or probability. For example, In this location, there is a 1 in 100 chance of flooding in any given year. In England, the Environment Agency website carries a Flood Warning Map defined under Flood Risk Regulations 2009 and EU Directive 2007/60/EC on the assessment and management of flood risks So, how can a surveyor obtain the relevant information to make this assessment? There are several sources of flood risk information. t all of these will be available to the surveyor depending on the need or level of investigation required for example, specialist sources going into a level of detail beyond that appropriate to the survey undertaken. It is advisable to treat single sources of information with caution, but professionals can use their judgment in assessing the weight of evidence in the context of the advice they are providing. Further caution is recommended RICS information paper, UK 13

17 Flooding: issues of concern to RICS surveyors and valuers (Residential property) when using mapped information as it is indicative only and subject to different analysis depending upon scale. Flood maps are produced by: the Environment Agency Flood Warning maps for England and Wales which have begun to cover surface water flood risk, but do not predict the depth of flooding Scottish Environment Protection Agency s flood map for Scotland Department of Agriculture and Rural Development s flood map for rthern Ireland local planning authorities coarse scale SFRA (Strategic Flood Risk Assessments) for perils of varied nature; many maps are digitised and are available online on an interface, e.g. Durham County Council (these even report on historic flood extents, a dataset held by the Environment Agency) private sector/commercially available sources in-house modelling by insurance companies local authority flood information; and records of insurance claims, though these are not publicly available and the information on them may not be easy to sift for pure flood risk data. While we acknowledge that one of the problems of flood risk is the changing availability of mapped information and the application of the risk categories (e.g. definition of high risk), a surveyor would be expected to understand that valuation and survey must comply with the standards expected in RICS Valuation professional standards and survey practice statements, particularly with the requirement to have adequate local knowledge. It is then a matter of degree as to how the surveyor does this and how this knowledge is developed and combined with historic knowledge of events in the locality, site investigations and insurability criteria that inform the judgment included in a report to a client. The Red Book at UKGN4 and set out in Appendix C of Contamination, the environment and sustainability implications for chartered surveyors and their clients (2010), help to establish the basis of these parameters. 6.3 Likelihood or probability of flooding The probability or likelihood of flooding is described as the chance that a location will flood in any one year. It is a point in time assessment that is subject to change by other types of risk assessment. As an example, if a location is said to have a 1.3% chance of flooding each year, this can also be expressed as having: a 1 in 75 chance of flooding in that location in any year; or odds of 74 to 1 against a location being flooded in any year However, this does not mean that if a location floods one year, it will definitely not flood for the next 74 years. r, if it has not flooded for 74 years, will it necessarily flood this year. Flood risk has been categorised by the Environment Agency as: high greater than or equal to 1 in 30 (3.3%) chance in any given year medium less than 1 in 30 (3.3%) but greater than or equal to 1 in 100 (1%) chance in any given year low less than 1 in 100 (1%) but greater than or equal to 1 in 1,000 (0.1%) chance in any given year; or very low less than 1 in 1,000 (0.1%) chance in any given year. Similar themes of risk categories are also provided by Scottish Environmental Protection Agency, 11 Department of Agriculture and Rural Development rthern Ireland 12 and National Resources Wales. So, even if the probability of a flood event in a locality is high, there are other important considerations for the home owner and prospective owner in understanding the risk of an event to a particular property, the consequences, and the value impact (and insurance impact) of that risk. It is entirely possible that these grades and categories will be subject to change but the role of the surveyor will not be to interpret the chance of the event, but rather the impact of that likelihood on the market, and the consequences for the habitability of a property. 14 RICS information paper, UK

18 rics.org 7 Historic flooding profile The surveyor has a role to play in imparting their local knowledge but also in the interpretation of information presented. This may be thinking about notable events such as a river flood in an area and/or a failure of flood defence measures. 7.1 Role of the conveyancer The Law Society publishes guidance for conveyancers on the issue of flooding for residential property within section 6.1 of their Flood risk practice note, issued in May Clearly this is more relevant to transacting property due to the procedures involved but worthy of consideration as to what the valuer/surveyor can expect others to undertake. The practice note was updated in December 2014 as a means to provide solicitors and conveyancers with information that will aid their clients in comprehending the flood risk that is associated with having an interest in a property. They play a crucial role in helping clients understand flood risk and what steps can be taken to marginalise this risk and as such the practice note is a useful read for surveyors and valuers too. 13 The Law Society Property Information Form (TA6) 14 asks for details of any flooding that may have affected property. The relevant parts of TA6 are as follows: Flooding may take a variety of forms; it may be seasonal or irregular or simply a one-off occurrence. The property does not need to be near a sea or river for flooding to occur. Further information can be found at: Has any part of the property (whether buildings or surrounding garden or land) ever been flooded? If, please state when the flooding occurred and identify the parts that flooded: 7.2 What type of flooding occurred? a) Ground water b) Sewer flooding c) Surface water d) Coastal flooding e) River flooding f) Other (please state) 7.3 Has a Flood Risk Report been prepared? If, please supply a copy. The Law Society practice note advises conveyancers that their client may wish to commission a specialist survey of the land to be acquired to provide further information in relation to flood risk. Provided that a suitably qualified and independent professional surveyor has completed the report, conveyancers are advised this may be useful for the insurers to assess. Professionals deemed suitably qualified in this regard can be members of the following organisations: Royal Institution of Chartered Surveyors Association of Building Engineers Chartered Institution of Civil Engineers; or Chartered Institution of Water and Environmental Management. The protocol for passing this information to the surveyor seems unclear, particularly when the valuer has provided advice to a lender for mortgage valuation purposes. The solicitor is likely to refer some specialist reports to the valuer and the lender may need the valuation consideration of a specialist report but it is not clear what role each of the different professions play in advising clients in this respect. 7.2 Flooding and the occupation of property For residential property, the scale of flood events will vary. A cellar may occasionally fill with water to a few centimetres and have no impact on occupation of the property as long as occupants store items at high levels. In more extreme circumstances, mitigation measures may be designed or applied to properties or the wider area to protect homes and their occupants. There are increasingly sophisticated and potentially costly measures being developed and this is an area where specialist advice may be required. Where appropriate, the surveyor should also consider the effect that flooding might have on outbuildings and grounds and beyond. Is access to the property likely to be affected for instance? RICS information paper, UK 15

19 Flooding: issues of concern to RICS surveyors and valuers (Residential property) 8 Impact of risk material to Market Value/ Fair Value and Market Rent It is advisable to consider whether there is an impact on value when there is a risk or a perceived risk of flooding to the property or the vicinity. Key features which help the valuer determine the context of the environment and market assessment of value would be: the impact of flood on property price can be very different between different flood locations depending on local factors and frequency of flood events the impact of flood events on property value declines as time elapses from the flood positive impacts of flood plain location such as river and coastal views can offset the negative impacts of flood risk; and the cost and availability of insurance and flood mitigation measures are both important considerations in valuing property at risk of flooding. Practically, the valuer needs to have a broad understanding of these issues and build this into advice to clients. This then helps form judgment as to how this knowledge then determines value within the context of willing buyer/willing seller acting knowledgeably about flood risk, albeit not necessarily with perfect knowledge of all risk and future risks. Where there is a risk of flooding and/or a perceived risk to an individual property, there is likely to be an impact on desirability. This may not be translated into the market in a proportionate way, e.g. if a property is deemed to have a high flood risk, insurance may be obtained from the market at a premium cost but other locational factors may mean that its value is not significantly affected by the risk, e.g. because it has the amenity of a view of a river and/or has direct boat access to the river. In certain circumstances the risk will have some impact though and in extreme cases, e.g. currently flood damaged property which is unlikely to benefit from Flood Re (high council tax band, for example), the impact on value may be material and may even mean it is assessed as not being readily saleable. In the majority of cases, the valuer will be faced with the challenge of absorbing and analysing market information to assess the amount of any market effect of flood risk. The valuation of a property that suffers from flood risk is best informed by a review of sales information of comparable residential properties that are similarly affected, or the making of appropriate adjustments to reflect differences in flood risk profile. It is also advisable to act with caution if the agreed sale price of a given property does not fully reflect the flood risk profile of the property. This may be due to special purchaser situations or buyers acting without professional advice. 16 RICS information paper, UK

20 rics.org Appendix Practitioner checklist 1 Identify which type of flooding may be relevant. 2 Check out sources of flood risk information. 3 Treat information and complexity of flood risk information with caution. 4 Reflect the facts. 5 Is the property excluded from Flood Re? If so, consider the implications. 6 Assess the impact of flooding in accordance with existing standards (Red Book, RICS Home Surveys practice notes, RICS Surveys of residential property guidance note, etc.). 7 Ensure client requirements are set out clearly in the Terms of Engagement. 8 Use well-structured site notes recording relevant matters with, where necessary, evidence or rationale of how such factors are reflected in a report. 9 Be aware of the Residential Property Observation Checklist for Identifying Apparent Potential for Contamination and Environmental Issues in Appendix C of the RICS guidance note Contamination, the environment and sustainability implications for chartered surveyors and their clients (2010). 10 Be familiar with the four main parameters of flood risk for residential property. 11 Does the property include flood mitigation measures? If so, know the context and extent of these. 12 Are there specific features of the property or its site that mean additional risk factors need to be considered? 13 Understand the Environmental Agency flood risk categories. 14 Use your local knowledge. 15 Consider the effect of flooding on the occupation of the property including the grounds and accessibility. 16 Does an agreed sale price fully reflect the flood risk profile of the property? RICS information paper, UK 17

21 Flooding: issues of concern to RICS surveyors and valuers (Residential property) Endnotes 1 Association of British Insurers Insurance-and-savings/Topics-and-issues/Flooding July sustainability_3rd_edition_pgguidance_2010.pdf 3 floodreinsurancescheme/supporting_documents/ Consultation%20on%20Flood%20Re%20Regulations. pdf 4 wiybycontroller?x= &y= &scale=1&layergroups=default&ep=map&textonly=off&lang=_e&topic=floodmap&utm_source=poster&utm_medium=floodrisk&utm_campaign=flood- Month Securing the future availability and affordability of home insurance in areas of flood risk, June 2013, https%3a%2f%2fconsult.defra.gov.uk%2fflooding%2ffloodinsurance%2fsupporting_documents%2f %2520final%2520future%2520of%2520flood%2520insurance%2520%2 520consultation%2520document.pdf&ei=YoeRU5H- gaszb7aaex4hobq&usg=afqjcnh5xqha6nhka- C35lloIW60SpggwSA&bvm=bv ,d.ZGU uploads/attachment_data/file/388915/flood-re-govresponse pdf practice-notes/flood-risk/ 14 http%3a%2f%2fwww.lawsociety.org. uk%2fadvice%2fdocuments%2fta6-formspecimen%2f&ei=drjvu4jxjcaeo-ujgda&usg=afqjc NFkkWsh9FF3bCGGs1WRcbAOUADoog&bvm=bv ,d.ZWU 18 RICS information paper, UK

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