Applying Red Book in a Jamaican context

The regulatory framework governing valuations in Jamaica is fragmented and siloed across various government agencies, two pieces of legislation and the RICS Valuation – Global Standards (Red Book Global Standards).

The primary legislation regulating valuations in Jamaica is the Land Valuation Act 1957 (LVA), which gives the commissioner of valuations the authority to conduct land valuations for property tax purposes. Accordingly, the LVA regulates statutory land valuations, but makes little mention of the technical requirements of private valuation practice.

The second piece of legislation, the Real Estate Dealers and Developers Act 1988 (REDDA), establishes that the Real Estate Board of Jamaica regulates the practice of real estate business, real estate salespeople, and real estate dealers and developers.

In the REDDA, valuations are described as a type of real estate business and valuers are classified as real estate dealers. The board governs the licensing, continuing professional development, professional conduct and disciplinary oversight requirements of valuers, but like the LVA, the REDDA is largely silent on the technical requirements of private valuation practice.

Locally, this gap has been addressed by partial adoption of Red Book Global Standards. This partial adoption arises because only 28% of licensed valuers in Jamaica are chartered surveyors, meaning that only those valuers must adhere to the technical requirements of Red Book Global Standards.

Despite the complexities of informal interests and unregistered lands, the valuation ecosystem needs the full adoption of Red Book Global Standards to increase investor confidence in the market and achieve uniformity in the quality assurance standards applied by local valuers.

Market readiness is not in question, as the implications of partial adoption are evident. In this article, a local case is used to shed light on the interplay between law and professional practice when there is a partial adoption of Red Book Global Standards.

In Persichilli v Taddeo and New Era Homes 2000 Limited 2023, the Supreme Court of Jamaica was asked to examine whether a binding settlement agreement between shareholders and directors of a real estate development company could be set aside if a valuer departed materially from the instructions provided. 

The court proceedings revealed that although written instructions to determine the subject property's market value were provided, the valuer did not provide written terms of engagement to the client.

After this admittance, the judge maintained that 'this was a court-ordered valuation and therefore, whether one was prepared prior to the valuation, is largely irrelevant'. 

It can be counterargued that written terms of engagement are needed for court-appointed valuations to ensure that all valuers adhere to international valuation standards. However, valuers in Jamaica often state that clients resist full disclosure and standardised reporting due to cultural practice.

The case highlights the importance of written terms of engagement as, despite receiving instructions to determine market value, the basis of value cited in the valuer's report was 'market value as a basis of negotiation', which is not an internationally accepted basis of value.

However, upon seeing the term 'market value as basis of negotiation', one of the first defendant's expert witnesses reasoned that market value is the starting point of a negotiation and, accordingly, other bases of value, such as investment value, may also apply.

Throughout the written judgment, there was clear evidence of displeasure with the valuation methodology that had been employed.

The court noted that 'despite being instructed that each is multi-family you [the valuer] valued as single family residential lots' (para. 19). 

The valuer's justification was centred on his opinion that multi-family use was not the highest and best use for the property since it produced a negative value, which suggests that the cash flow of the development scheme revealed that projected costs exceeded projected income.

All expert witnesses maintained that the property's legally permitted use was multi-family and acknowledged that it was subdivided into seven unimproved strata lots and one unimproved common area, all of which had beach access.

However, due to the uniqueness of the subject, only a limited number of comparables could be identified, suggesting that notable reliance had been placed on the valuer's professional judgement, which can be biased.

Like other developing states, Jamaica experiences challenges with market transparency as it is without a coordinated national property database, including transaction prices and all physical and legal characteristics of properties sold in the country.

Therefore, the data underpinning the market valuation of specialist properties may not be fully robust or verifiable, as required by Red Book Global Standards.

Although the market valuation of the subject was based on single-family use, which does not satisfy the legally permissible criteria of the highest-and-best-use principle, the trial judge argued that the law on this matter is restrictive.

'It is simply the law of contract. If two persons agree that the price of a property should be fixed by a valuer on whom they agree and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it.'

The above quote sheds light on the governance and enforcement mechanism that exists in a Jamaican valuation context, which allow for an incorrect valuation to be binding because it was completed in good faith.

The adoption and implementation of Red Book Global Standards in Jamaica would specify what constitutes a competent valuation and make it mandatory for all valuers to apply this international benchmark.

As a result, if Red Book Global Standards are adopted and a valuer breaches the legal duty of care owed to a client, and this results in financial loss, it is easier to prove negligence even if a valuer acted honestly.

In granting permission to appeal, the Court of Appeal concluded as follows.

'It is also arguable that the use of a valuation that ignores the approved use of the property is a material departure from the valuers' instructions. The fact that [the valuer] would have arrived at a negative figure, using the approved zoning use, would not… have resulted in prejudice to… the parties. He could have sought further instructions from them.'

This vacuum, along with limited instances of academia–industry cooperation, creates and sustains informational siloes, resulting in both stakeholders operating at cross-purposes rather than in partnership.

In Jamaica, academic–industry partnerships are consistently seen in the professional internship opportunities provided to valuation students pursuing undergraduate qualifications and licensure.

Although commendable, the absence of legally-enforceable practice standards raises questions about the uniformity, accuracy, and relevance of students' learning experiences.

It ultimately calls into question the sustainability of the local valuation industry, which requires valuers to navigate dichotomies, such as registered and unregistered lands, formal and informal interests, and the conditions of uncertainties that emanate from their coexistence.

This article is the second in a series to mark the 50th anniversary of Red Book Global Standards. The series will look at how RICS' valuation framework is applied in a selection of non-UK jurisdictions and reflect on five decades of Red Book Global Standards more broadly.