Residential property valuations for confiscation

I frequently see, in the course of confiscation proceedings under PoCA 2002 and earlier legislation, figures put on the value of residential properties by prosecution and defence.  Those figures are most often used in connection with determining the ‘available amount‘ of the defendant.  But they can also be relevant to determining the defendant’s ‘benefit’, for example where there are allegations of mortgage fraud or where the property in question is said to have risen in value after being purchased with funds tainted by criminality.

Although I am not a property valuer (and claim no expertise in the valuation of tangible assets) I am aware of the context in which issues of valuation arise.

The legislation

The key valuation legislation under PoCA 2002 in England & Wales is the segment on interpretation and in particular s79 which provides that in relation to property held by a person “its value is the market value of the property at that time”.  If another person has an interest in the property, then the relevant value “is the market value of his interest at that time”.  This means that a reduction will be made to reflect amounts due to lenders secured on the property, the legitimate interests of joint legal owners and the equitable interests (if any) of a spouse / domestic partner or others.

In relation to the value of property obtained from criminal conduct s80 indicates that “the material time is the time the court makes its decision” and for the purpose of determining the defendant’s ‘available amount’ s9(1) indicates that the values “at the time the confiscation order is made” are to be used.

But what do we mean by the “market value”?

the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion

In the case of R v Islam 2009 UKHL 30 Lord Hope of Craighead said at paragraph [6]: “The statute has refrained from defining precisely what is meant by the expression “market value”.  . . . The market value of goods . . .  is the price which a willing seller will accept for them from a willing buyer”.  This remark may well be obiter dicta and not strictly relevant to residential properties (the case was concerned with the value of illegal drugs) but it does not appear to be contentious.

The International Valuation Standards Committee defines “market value”  as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.   The Royal Institution of Chartered Surveyors (the RICS) adopts that same definition of “market value” in the ‘Red Book’ – the RICS Valuation Standards.  Valuations on this basis are sometimes referred to as being at ‘Red Book market value’.

But what is actually done about residential property valuations in confiscation cases?

The likelihood is that the prosecutor will have placed a value of some sort on the residential property in the course of his s16 statement.  He might have done that based on information obtained, probably from the Land Registry, concerning the date of purchase of the property and the price paid then – uplifted by a published index of movements in UK property prices since that time.  Alternatively he may have based his valuation on relatively recent data concerning the sales of local comparable properties.  He will then have deducted from that value a figure obtained from the mortgage lender (or from a credit check) for the current amount outstanding on the mortgage.

A danger is that these types of ‘desktop’ valuations may not reflect the value of the actual property in question

A danger is that these types of ‘desktop’ valuations may not reflect the value of the actual property in question, especially if it was purchased some years ago, may have been modified since it was purchased and may not be truly comparable to other local properties.  There may also be a long delay between the prosecutor undertaking this exercise and the hearing in court which results in the confiscation order.

The defence on the other hand will be informed by the defendant’s own view as to the value of the property.  They may also have obtained an independent valuation.  This may be a figure from a local estate agent based on the asking price he would recommend if he were to be asked to sell the property.  Such a valuation is sometimes referred to as a ‘market appraisal’ to distinguish it from a ‘Red Book market value’ valuation.

a figure from a ‘market appraisal’ may be in excess of the ‘Red Book market value’ because it is based on an estimated asking price rather than an estimated sale price.

The defence may rely upon the prosecution’s s16 statement for the amount of the secured liabilities.

It is immediately apparent that a figure from a ‘market appraisal’ may be in excess of the ‘Red Book market value’ because it is based on an estimated asking price rather than an estimated sale price.

 

What should be done?

In giving an opinion of value the valuer is acting as an expert witness in criminal proceedings.  The valuer ought to be a person who, either by qualifications or experience, or both, is in a position to give an authoritative expert opinion.  His written valuation ought to comply with Part 33 Criminal Procedure Rules.

The valuation should take into account the estimated costs of realisation of the property such as estate agent’s and legal fees, see R v Davies [2004] EWCA Crim 3380 at paragraph [15], and even, where appropriate, the costs of legal proceedings to force the sale by way of an application under s14 Trusts of Land and Appointment of Trustees Act 1996, see R v Modjiri [2010] EWCA Crim 829 at paragraph [23].

Of course the valuation needs to take account of the interests of persons other than the defendant in the property.  So, for example, if the defendant is one of four legitimate joint owners each having an equal interest in the property then the value of the defendant’s interest will be one-quarter of the value of a 100% interest in the property.  There should however be no additional adjustment to reflect the defendant’s minority interest (except by recognition of potential additional costs of realisation).

But subject to these adjustments, the value adopted should be the ‘Red Book market value’, that is to say the ‘market value’ as required by s79.

In practice a defendant subject to a confiscation order has a limited time to realise the monies required to satisfy that order.

In practice, of course, a defendant subject to a confiscation order has a limited time to realise the monies required to satisfy that order.  If he fails to satisfy the order on time the amount outstanding will attract interest  and he is at risk of the default sentence being triggered.  So he may not  be in a position to ensure “proper marketing” of the property and he is, to  a certain extent, “under compulsion”.  He is not a “willing seller”.

Should these factors be taken into account in the valuation of the property?

The law suggests that they should not, since to do so would be to adopt a basis which is not “market value”.  However it may be the case that the defence will request the valuer to produce two valuation figures, one on a  ‘Red Book market value’ basis and another on the basis of a need to obtain the proceeds of sale within 6 or 12 months of the confiscation order – a ‘quick sale’ basis.  In that way the court may be better informed of the likely sales proceeds.

But why is this not done in practice? 

I suggest that there are two reasons for this.  The cost of obtaining a ‘Red Book market value’ will act as a disincentive to both prosecution and defence (who would need to obtain a prior authority from the LSC to cover the valuer’s fees).  The other alternatives are cheaper or even free.

Also prosecutors and lawyers may not be fully acquainted with issues surrounding different bases of property valuations.

Does it matter?

If the value of the property is relevant to the defendant’s ‘benefit’ in confiscation then there is a danger of his ‘benefit’ being overstated in the confiscation order.  In that event it is not normally open to the defence to seek a downward revision to the ‘benefit’ figure if the property is subsequently sold for less than the valuation figure.

If there is no arm’s-length sale, for example if the ownership of the property passes to the defendant’s spouse or domestic partner, then there may be no basis on which to amend the valuation.

If the value of the property is relevant to the defendant’s ‘available amount‘ then this, and the consequent default sentence, may be excessive.  If the property is subsequently sold at arm’s-length and realises less than the valuation figure it may be possible for the defence to have the ‘available amount‘ adjusted downwards under s23.  However this involves the reconsideration of all the assets within the defendant’s ‘available amount‘.  Furthermore the actual sale may take place a long time after the making of the confiscation order – by which time the default sentence may have been triggered.

If there is no arm’s-length sale, for example if the ownership of the property passes to the defendant’s spouse or domestic partner, then there may be no basis on which to amend the valuation.

There is a recorded case, R v Lemmon [1991] EWCA Crim 1, in which a confiscation order was quashed on appeal when a professional residential property valuation obtained after the date of the confiscation hearing showed that the defendant’s ‘available amount‘ had been overstated.  However that decision may be specific to its facts.  In particular it appears that in that case “the figures put as the value of his realisable assets were unknown to the appellant until the day of the hearing”.  Ordinarily a defendant will be made aware of the prosecution’s assertions regarding his ‘available amount‘ in advance of the hearing, as they will be set out in the prosecutor’s s16 statement.

In the case of R v Davies [2004] EWCA Crim 3380 a prosecution valuation (which proved to be an over-valuation) was not challenged at the confiscation hearing.  Subsequently a professional valuation was obtained in a substantially lower figure and an appeal was lodged against the order.  In the Court of Appeal defence counsel indicated that the valuation had not been challenged due to an oversight on his part.  The Court of Appeal considered, at paragraphs [11] to [14], that the Crown Court judge had been misled as to the value of the property and it amended the defendant’s ‘available amount‘ and hence the amount of the confiscation order.

As a result of amendments made to the Criminal Appeal Act 1968 by s140 Coroners and Justice Act 2009 it is now open to the Court of Appeal to remit confiscation cases to the Crown Court for re-hearing.  However it would be unwise, I suggest, to assume that a failure to carefully consider the value of residential property could always be remedied on appeal.

Conclusion

So there is something to be said for getting the most appropriate value recognised by the court at the time the confiscation order is made by appointing a properly qualified and experienced valuer to provide a ‘Red Book market value’ taking into account costs of sale, and supported perhaps by an alternative ‘quick sale’ valuation.  I would suggest that the amounts due to secured lenders (the current redemption figure, including any early repayment or arrears penalties) should also be checked shortly before the confiscation hearing.

David

One Response to Residential property valuations for confiscation
  1. […] the ownership of them by the defendant himself so as to exclude any interest of third parties; the current market value of those assets; and the amount of any liabilities secured on those […]

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