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All You Need to Know About Red Book Valuations

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All You Need to Know About Red Book Valuations

When it comes to assessing property value, RICS (the Royal Institution of Chartered Surveyors) provides a definitive framework for professional valuations known as the ‘Red Book’. This globally recognised standard ensures transparency, accuracy, and reliability in property valuations.

What is a Red Book Valuation?

A Red Book valuation is more than just a property price estimate – it’s a comprehensive assessment conducted by a RICS Registered Valuer following strict professional guidelines. These valuations provide a robust, legally defensible market value assessment.

When Do You Need a Red Book Valuation?

Any time that you need a formal property valuation for tax purposes or legal proceedings, a RICS Registered Valuer will need to conduct a Red Book property valuation.

Red Book valuations are crucial in several scenarios, including:

  • Tax planning and probate calculations
  • Capital Gains Tax assessments
  • SIPP pension fund asset transfers
  • Charity property sales (in line with the Charities Act)
  • Divorce and legal proceedings
  • Mediation and arbitration disputes
  • Rent reviews and property negotiations
  • Capital Gains Tax Valuation

The Red Book Valuation Process

A typical Red Book valuation involves:

  • Detailed property inspection
  • Comparative market analysis
  • Assessment of three comparable recent property sales
  • A formal written report detailing the property’s market value

A Red Book valuation is typically valid for three months, but it can be extended in certain circumstances.

Why Choose a RICS Registered Valuer?

Working with a RICS Registered Valuer ensures:

  • Adherence to international Red Book standards
  • Rigorous, impartial assessment
  • Comprehensive property evaluation
  • Legally recognised valuation documentation

Red Book Valuations from Perry Hill Surveyors

At Perry Hill Chartered Surveyors, our RICS Registered Valuers provide expert Red Book valuations for residential and commercial properties. We combine traditional expertise with contemporary valuation techniques.

Need a Trusted Property Valuation? Contact Perry Hill today.

Disclaimer: Valuations are subject to market conditions and specific property characteristics.

 

Lease Valuation Methods: A Guide for Property Investors

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The market for acquiring short lease properties continues to be a strategic investment opportunity for developers and investors seeking potential value through lease extensions. This guide explores contemporary approaches to valuing short lease flats and properties, and understanding their investment potential.

Understanding Lease Valuation Techniques

Traditionally, the Graphs of Relativity have been the primary method for calculating existing leasehold value for properties with less than 80 years remaining on the lease. However, this approach becomes less reliable when lease terms drop below 30 years, necessitating more nuanced lease valuation strategies.

Investment Calculation Approach

For short leases under 30 years, an investment calculation provides a more accurate assessment of property value. This method focuses on:

  • Evaluating potential rental income
  • Calculating net annual returns
  • Applying an appropriate yield to reflect the property’s diminishing value

Any further allowance for the “no act” world would not be necessary, unlike a situation when using a graph of relativity to calculate the existing lease value. When valuing the existing lease value, assume that the property does not have any rights under the act for a statutory lease extension.

For unexpired leases of 20/30 years (unexpired threshold), the valuation method should consider what a prospective investor would be willing to pay to acquire the lease. It must also take into account that, at the end of the term, the leasehold property would revert back to the freeholder.

Key Leasehold Valuation Considerations

A valuer would have to assess:

  • How much (per annum) the property would be let out for on the open market
  • Relevant deductions associated with properties that are let out on an Assured Shorthold Tenancy
  • Relevant yields that need to be applied reflecting the limited leasehold time frame (representing an appropriate rate of return for the investor)
  • Any anticipated void periods
  • Continued ground rent and management costs

Practical Lease Valuation Example

Consider a two-bedroom, ground-floor flat with the following profile:

  • Monthly rent: £1,350 (£16,200 per annum)
  • Unexpired lease term: 17 years

Calculation breakdown:

  • Annual rent: £16,200
  • Less ground rent: £15
  • Less management costs (10%): £1,620
  • Less void period allowance (5%): £810

Net annual income: £13,755

Capital Value Calculation:

  • £13,755 at 8% yield for 17 years = £125,468

Considering Yields and Returns

While residential investments typically attract 3-5% yields, short leases require higher returns. Investors should expect 7-8% yields to compensate for the asset’s declining value.

Upper Tribunal Guidance

The Upper Tribunal has emphasised using real-world evidence over theoretical models like the graphs of relativity. The investment calculation method provides tangible, transaction-based valuation insights. There may be different attitudes to yield and deductions applied to the calculation depending on the location, lease and type of the property.

Other Considerations

Leasehold valuations can vary significantly based on:

  • Property location
  • Specific lease terms
  • Property type
  • Local market conditions

Valuation figures are illustrative and subject to market fluctuations. Professional consultation is recommended for precise property assessments.

Expert Lease Valuation Advice from Perry Hill

Professional valuation remains crucial in navigating the complexities of short-lease property investments. Nuanced assessments help investors make informed decisions about potential lease extensions and property acquisitions.

For a detailed, personalised lease valuation, contact Perry Hill Chartered Surveyors. Our specialist team provides comprehensive lease extension and property valuation services across Surrey, Sussex, Hampshire, and London.

What is a Home Buyer Report – and is it right for you?

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If you’re buying a house or flat, you might be thinking of getting a Home Buyer Report. This inspection report looks at the property’s structure and overall condition, highlighting whether there are any major problems with the property.

The Home Buyer Report tends to be the preferred inspection report for UK buyers, but it’s not the only option. Here’s what you need to consider.

Remember, it’s not a full building survey

Many buyers think the Home Buyer Report is a formal structural survey, when it’s not. A Home Buyer Report gives an overview of the property’s condition, and is designed to flag urgent, visible issues that may affect its value. But it doesn’t look beyond what’s immediately visible. For example, the surveyor wouldn’t lift carpets or look at wiring.

The Home Buyer Report is therefore a sensible choice for conventional, fairly new properties in reasonable condition. For other properties, the Home Buyer Report may not be detailed enough.

How does a building survey differ?

A building survey (also known as a Full Structural Survey) is the most detailed type of property inspection you can choose. Not only does it cover the visible issues that are included in the Home Buyer Report, it also looks for issues that may not be immediately visible, such as woodworm in structural timbers. It also details the apparent cause of problems, how urgent they are, how they should be fixed, and how much it might cost. This information is incredibly valuable for buyers – particularly when it comes to negotiating a reduced price.

As an example, we recently carried out a building survey that found £80,000 of work was needed – a huge cost, and one that the buyer hadn’t factored into their budget. Armed with this advice, they were able to renegotiate with the seller.

Doesn’t a building survey cost more?

In a word, yes. Building survey costs vary according to the property, so each case is different, but in terms of value for money, we think the building survey wins hands down. As the previous example shows, it can save you a fortune in the long run.

At Perry Hill Chartered Surveyors, we’ll discuss your goals before the inspection, so that we can provide the information you need. Say, for example, you want to extend the property in future, we can tailor the report to include this and highlight potential issues. This way, we make sure you get maximum value for money.

Bottom line: a building survey is a worthwhile investment. Get the advice you need to make an informed purchase decision.

How a commercial rent review can help you negotiate with your landlord

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If you lease a commercial property, you’ll know that some landlords may inflate a property’s rental value and charge more than the property is really worth. But did you know that there’s a formal way to challenge the landlord’s proposed rent and ensure you’re paying a fair market rent? That formal process is known as a ‘rent review’.

How do rent reviews work?

A rent review can be used for any type of land or commercial building, and is recommended anytime you renew a lease or take on a new lease. In a nutshell, you appoint a chartered surveyor to assess the property in line with professional valuation standards and current market conditions to gain an accurate picture of its rental market value. You’ll then receive detailed information about the value of the lease, which you can use in negotiations.

It’s not just tenants that can request a rent review – landlords may also appoint a surveyor to conduct a rent review. Say, for example, a landlord feels their property is undervalued at present, they may want a rent review to justify a higher rental value when the lease is up for renewal.

Typically, commercial rent reviews are carried out every three to five years, but your lease agreement may outline more frequent reviews. Be certain you know what you’re agreeing to before you sign on the dotted line.

Making sure you’re paying a fair rent

When you understand a property’s correct rental value, it puts you in a stronger negotiating position:

  • You can be sure you’re not overpaying, before you agree to a new lease or lease renewal.
  • In the event of a dispute with your landlord, you can use the rent review as proof of the property’s current market value.
  • You can set out any factors that may lower the property’s market value, such as maintenance issues or external influences – and these factors will be supported by the rent review.
  • You can also budget accurately, and keep your operational costs to a minimum.

At Perry Hill Chartered Surveyors, we act as commercial rent review surveyors for tenants or landlords who need a rent valuation they can trust. Our experienced surveyors are certified by RICS, the Royal Institution of Chartered Surveyors, meaning you will always receive an accurate, fair rent review. Discover more about our commercial rent review service.

Landlords, when did you last do a rent review on your commercial properties?

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In our experience, many commercial landlords forget about doing a regular rent review. It’s an easy thing to overlook – particularly when a property is being leased to a stable, long-term tenant – but neglecting the rent review can cost you money in the long term.

What’s involved in a commercial rent review?

In simple terms, a chartered surveyor will assess your property, compare it to other similar commercial properties in the same area, and provide a report on the property’s current rental market value. The rent review can then be used to ensure the rent is set at the proper market rate, and to support lease negotiations.

How often you conduct a rent review will depend on what’s set out in your commercial lease agreement, but every three to five years is a good rule of thumb. Certainly any time a lease is due for renewal, you should carry out a rent review before negotiating the new lease with tenants.

Understanding the benefits of regular rent reviews

A rent review will help you establish the correct market rental value of your property, which means:

  • You’ll be able to increase the rent every three to five years, depending on inflation and market conditions.
  • You’ll have the assurance you need to tackle lease renewal negotiations with confidence.
  • You’ll be enhancing the value of your property and protecting your investment.
  • In the event of a dispute with your tenants, you’ll have proof of the accurate value of the property.

Professional standards for rent reviews

Whenever you’re negotiating a lease with tenants, both you and your tenants will have different objectives in mind; you’ll obviously want to maximise your investment, while the tenant (rightly) wants to make sure they’re not paying over the odds. A professional rent review – one that’s conducted in line with international valuation standards – ensures that the rent is fair and accurate, thus paving the way for smooth, successful negotiations.

At Perry Hill, our team of RICS-qualified chartered surveyors has a wealth of experience helping landlords with all aspects of commercial rent reviews and valuation – including for pension funds, trusts, charities and local authorities. Serving Surrey and the South East, our trusted rent review service can be used for any type of land or commercial building. Ask us about enhancing the value of your asset with a commercial rent review.

How an independent property valuation can reduce your Capital Gains Tax liability

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If you’re selling a property that’s not your main home, you may have to pay Capital Gains Tax (CGT) on the sale. But did you know that getting a professional capital gains tax surveyor could help to reduce your CGT bill, especially if you’ve owned the property for a long time?

What is Capital Gains Tax?

CGT is the tax payable when you sell and make a profit on a property that is not your main residence. Essentially, you pay tax based on the amount you’ve gained from the sale of the property, which means CGT is usually calculated based on how much you paid for the property and how much you sold it for.

Generally speaking, CGT applies to the following:

  • Buy-to-let investment properties
  • Business premises
  • Land sales
  • Holiday homes
  • Properties purchased before April 1982
  • The gift of a property

Why get an independent valuation for CGT?

You’ll need an independent property valuation to get an accurate assessment of the property’s value, so that CGT can be calculated correctly. Because the valuation is being relied upon for tax purposes, it must be carried out by a professional member of RICS, the Royal Institution of Chartered Surveyors, according to RICS Red Book standards. This professional valuation service ensures you get a fair valuation and don’t pay any more CGT than necessary.

The savings can be even more significant if you bought your property before April 1982. In these circumstances, known as ‘1982 valuations’, you can use the market value of the property in 1982 to calculate CGT, rather than the amount you paid for the property – which may have been a lot less than its 1982 market value.

But no matter how long you’ve owned the property, working with a professionally recognised valuer is the safest way to ensure your valuation is accurate, and that your best interests are taken into account.

Reducing your CGT liability

At Perry Hill Chartered Surveyors, our independent, RICS Registered Valuers provide valuations across London and Surrey, helping both residential and commercial clients get the best results with their CGT valuations.

We’ve found that 1982 valuations in particular have saved our clients a considerable amount of money on their CGT bill. Discover whether our expert property valuation services could help reduce your CGT liability, too.

Why extend your residential lease sooner rather than later?

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If you own a leasehold flat, when was the last time you thought about the length of your lease? Many leaseholders don’t think twice about their lease until they come to sell the property – at which point, they may find that a short lease makes it harder to sell or achieve the price they want. The solution is to extend the lease sooner, rather than wait until you’re trying to sell.

Six reasons to be proactive and extend your lease now

  1. When the time comes to sell, if you’ve already extended the lease, you’ll be ready to put the property on the market straight away. No fuss, no waiting.
  2. A flat with a longer lease – the longer the better – is much easier to sell. Buyers don’t want the hassle of having to extend the lease themselves within a few years of buying the place. Most will simply look elsewhere and choose a property with an extended lease.
  3. The majority of high street mortgage lenders won’t lend on a property that has an unexpired lease of 75 years or less. So if you’re thinking of re-mortgaging or looking ahead to a future sale, a short lease may limit your options.
  4. Properties with leases of less than 80 years depreciate faster than longer-lease properties. Extending now is a smart way to protect your investment.
  5. If you’ve owned the leasehold for two years or more, and meet other qualifying criteria, you may be able to extend your lease for an additional 90 years, on top of the remaining lease term. So if your lease has 80 years left, and you extend for an additional 90 years, that’s a new lease of 170 years – making your property more valuable and easier to sell in the future.
  6. Finally, it’s far cheaper to extend a residential lease at 81 years or above. If you wait until the lease drops below that, it’ll cost you more. Is it worth putting it off and paying more in the long run?

When you work with a residential expert, extending your lease isn’t as complicated as you might think. At Perry Hill Chartered Surveyors, we’ve helped many homeowners across Guildford, Surrey and London successfully extend their leases – and have fine-tuned the process to be as quick, painless and affordable as possible. Talk to us today about extending your residential lease.

Selling a Property with a Short Lease – Case Study

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Lease Extension in London

Earlier this year Perry Hill were instructed to carry out a lease extension in Isleworth for the leaseholder. Below we explain how Perry Hill was able to save the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Selling Property with a Short Lease

This was job was a low lease and the property in question had circa 16 years unexpired on the lease. The property was inherited recently and the leaseholder wanted to put to sell the property as quickly as possible, this could only be carried out after a lease extension had been completed.

Low leases require a different approach to be used, this particularly due to the large sums of monies expected for the lease extension and the freeholder would be keen to negotiate hard because they know at the end of the term, they will be acquiring the property at no cost.

The executors of the estate served a section 42 notice; this reserves the leaseholder’s right to a 90 year lease extension at nil ground rent under statute.

This was a particularly interesting case due to the nature of the low lease and calculating the existing lease value. There are a number of methodologies that can be used; these methods are the graphs of relativity, real world evidence of similar comparable properties on similar lease terms and investment value.

Lease Extension Outcome

In this particular case the investment value was deemed the most appropriate, as this incorporates both what an investor would pay on the open market for a property with a low lease, providing a certain level of income via rent and a “no act” world.

The investment method is effecting via an experienced surveyor, is valuing the Market Rent for the property assuming an Assured Shorthold Tenancy, deducting an appropriate percentage to include vacancy rate and 10% for management of the property.

This value would be then capitalised at 7%. The 7% represents the rate of return when compared to the Capital Value of the property assuming a short lease. This is an effective away of calculating the existing lease value, as there would be no further deductions for a “no act” world, which is a contentious issue currently in leasehold valuations with the recent Sloane v Munday case. Between the surveyors it was decided that the investment valuation was an appropriate method for calculating the existing lease value as there was no real world evidence available.

Using this way of thinking, Perry Hill are delighted to state that they saved the client a total of £25,000 for a statutory 90 year lease extension at nil ground rent.

Lease Extension Services from Perry Hill

Perry Hill Chartered Surveyors successfully help homeowners each year in extending their residential Leaseholds. Our industry-recognised surveyors save our Clients time and money by helping with the burden of negotiating complex residential Leasehold negotiations.

Find out more about Lease Extensions and contact a member of our team today to discuss your options.

Lease Extension – How to Extend your Lease

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Two routes are available for homeowners interested in obtaining a lease extension premium. This is an informal lease extension or a statutory lease extension. In this blog I will address the typical process for statutory lease extension.

Under all leases, the lessee will be responsible not only for your own surveying and legal expenses in extending the lease, but also your freeholders costs as well.

Statutory Lease Extensions Explained

This is the right under statute for a statutory lease extension, which a 90 year extension to your original remaining term at nil ground rent provided that you are a qualifying lessee. To be a qualifying Lessee you have to meet the following criteria:

  • Leasehold Ownership. You have to have owned the leasehold interest for at least 2 years
  • Leasehold term. A long lease is, mainly, a lease for a term of years in excess of 21 years from when it was originally granted (this does not apply to the reaming unexpired term, but the original lease length).

Despite fulfilling the criteria, you would not be eligible for a statutory lease extension if:

  • Housing Trusts. If the landlord is a charitable housing trust and the flat is provided as part of the charity’s functions.
  • Commercial Interests. It is a business or commercial lease.

If these criteria are fulfilled, then the route of a statutory lease extension is available for you.

Leasehold Renewal Process

A typical lease extension process would involve the following:

  • Instruct a surveyor to carry out a lease extension valuation on your property, this will normally set out a fair and reasonable premium for a lease extension.
  • It will also set out the level in which a section 42 notice should be served upon the landlord. This is a notice that sets out under statute that you are seeking a lease extension valuation. It also sets the valuation date as the date of the notice. This is very important, as more times elapses, the less the unexpired term thus resulting in a more expensive premium.
  • The notice cannot be served by the surveyor; however it must be served by a competent solicitor.
  • The landlord has a 2 month period to serve a counter notice, section 45 notice, this will either accept the proposed premium or reject the premium in the section 42 notice and state what they believe the premium should be with the lease extension.
  • Lease extension’s have a degree of negotiation, as there are a number of variable factors and the lessee is typically looking to acquire the premium for the lowest figure, while the freeholder is seeking the highest possible figure.
  • Typically once both notices have been served, each of the surveyors on both sides are instructed by their clients to negotiate the lease extension premium, looking to get the best deal for their party using the facts, the negotiation fees are payable by each of the parties. Unlike the valuations fees which are payable by the Lessee.
  • Once the premium is agreed, which typically can be a 4-6 month period, the matter is passed onto the solicitors who will agree the new lease and with the transfer of funds the matter can be completed.
  • If the premium is not agreed, in the allotted time period, the lessee can make an application to tribunal; this typically has an associated fee of £500+Vat through the solicitors.
  • Each party will have to bear their own costs with professional fees and share the tribunal costs equally.
  • The tribunal will consider the case bought forward by each of the surveyors and decided on the premium payable. This can be appealed; however this is a costly exercise.

Residential Lease Extensions in Guildford, Surrey and London

Perry Hill’s residential experts successfully help those looking to extend their residential lease. Our team can provide expert valuation services prior to the lease extension process. We are also happy to assist you in the negotiation stages of the lease extension process. To find out more about our residential lease extension team, get in touch here or call us on 01483 237333.

Commercial property to let guide

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If you’re interested in buying a commercial property, take a look at Perry Hill Chartered Surveyors’ guide and make sure you get the best return on your investment.

Choosing the location of your commercial property 

When buying any property, whether it’s residential or commercial, location is always going to be an important factor to consider. Town centre and prime business district locations are always in high demand but they come at a premium price. However, a lot of smaller businesses now deal remotely with their clients and simply require an out-of-town base for staff to drop in for meetings.

Your property purchase is always going to be an investment, just like when buying a house, it is important to look at the location and any future development area. These will all have an effect on your property’s value whether positive or negative.

Commercial property is a viable investment medium – commercial mortgages 

With attractive financial yields, a commercial property can make for a sound business investment to take advantage of. It’s also worth remembering that when you make an investment, you can deduct the tax from interest payments on commercial mortgages.

Get the right survey – commercial property surveyors 

Don’t just rely on the basic survey that your mortgage-lender insists on. Whether you need a pre-acquisition building report or Homebuyers report, be sure to get the correct commercial property valuation performed by a reliable commercial property surveyor.

Budget for property costs

Budget for all eventualities. As with any property, there will be costs involved, whether that’s long-term upkeep and ongoing maintenance, or unforeseen repairs and emergency fixes.

Don’t forget about parking 

Whatever the business, employees are going to have to arrive at their workplace somehow and at least some of them are going to require parking.

Renting out commercial property 

Letting documents 

When entering into a letting agreement with a client, you’ll need to obtain the correct documents and establish a clear agreement. Failure to do so could make it difficult to remove tenants later if they are in breach. The surest way to manage your property is to use a professional commercial property management company, which can offer knowledge and experience of the local market as well as legal and contractual advice.

Commercial lease 

A lease is a contractual agreement between you and your tenant. With a commercial lease, your tenant gains exclusive possession of the property for a specified period of time. Exclusive possession gives your tenant the right to exclude anyone, including the landlord, from the property for the duration of the lease. The duration of your commercial lease will need to be established before signing. When you do need to extend your lease, our expert valuers will inspect the property and provide you with a formal lease extension valuation.

A licence 

A licence gives permission for someone, i.e. the licensee, to do something on your property. The licensee does maintain access to the property and you can get it back when required.

A tenancy at will 

This is only really used for short-term agreements. A tenancy at will means the tenant can use the property but the arrangement can be interrupted by either the landlord or the tenant at any time.

Repair and maintenance obligations under a commercial lease

Tenants will usually be responsible for the “reasonable” repair and maintenance of a rented commercial property; as the landlord, you will be responsible for structural repairs to the property. Obviously, since these terms are open to interpretation, issues can and do arise, so it is important to define all terms before the tenancy commences.

Repair covers damage to a portion of the property which needs to be fixed. Tenants are responsible for any damage which they cause to your property for the duration of the lease. Maintenance, on the other hand, involves taking steps to avoid deterioration of the building and its systems. Disputes often arise over repairs being required, and whether they are due to poor maintenance on the part of the tenant or through reasonable wear and tear, which would then be the responsibility of the landlord.

Structural repairs are necessary to hold the building together, such as foundations, walls, roofs, and floor structures. Unless expressly identified, you, as the landlord, will generally be responsible for structural repairs.

Make sure your lease is well worded

The surest way to avoid any potential discrepancies is to ensure that your lease is clearly written and outlines the standards to which your property must be maintained. This should include references to industry standards for ventilation and heating systems, that equipment manuals be followed, and that tenants only use qualified technicians for any on-site work. Your lease should also prescribe specific times and frequencies at which maintenance tasks and check-ups should be conducted.

Terminating a commercial lease 

You can hopefully avoid this by conducting regular property checks and enforcing maintenance work before the situation progresses too far. Terminating your lease should be your last resort since in these cases, courts often grant tenants relief from forfeiture, and if you failed to give sufficient notice, you may even be ordered to pay your tenant’s damages.

If you find yourself stepping in to perform your tenant’s obligations and performing maintenance work on their behalf, you cannot be assured of ever recovering your money back.

What to do if your tenants don’t meet their obligations 

Many leases give tenants a period of time in which they must complete any required maintenance work. If the initial deadline is not met, you will need to issue the first notice of default, stipulating a specific time frame in which the work must be completed and that failure to do will result in you potentially terminating the lease, or taking over the tenant’s responsibility.

Commercial property agents – Perry Hill Chartered Surveyors

Whether you’re buying a commercial property to rent out or as an investment for your business, Perry Hill Chartered Surveyors have extensive experience in rental leases and agreements. Give us a call on 01483 237333 or contact us here.

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