A note from the Audit Committee

Dear shareholder,

I would like to summarise the approach adopted by the Audit Committee and report on the work of the Committee over the past year.

During the year under review, membership of the Audit Committee comprised myself, David Rough and Bo Lerenius, together with Chris Bartram, who joined the Committee following his appointment to the Board in July 2009.

The Committee aims to ensure that the Company has appropriate processes in place to identify potential risks and develop mechanisms for avoiding or mitigating those risks. The Committee is assisted in this by the external auditors and by our internal audit and risk management team. The Committee’s written terms of reference are available on the Company’s website, www.landsecurities.com. Our principal oversight responsibilities cover:

• internal control and risk management
• internal audit
• external audit (including auditor independence)
• financial reporting

The Committee met five times during the year. As Audit Committee Chairman, I invited other Group Board Directors to attend from time to time. In addition, the Director of Risk Management and Internal Audit and representatives from the external auditors, PricewaterhouseCoopers LLP (PwC), were also present at each meeting. The Committee also met separately with the external and internal auditors. In addition, as Chairman of the Audit Committee, I met separately with the external valuers. The Committee undertook the following activities at its meetings:

• reviewed the half-yearly and annual results and considered any matters raised by management and the external auditors
• reviewed and approved the audit plans for the external and internal auditors
• monitored the scope, effectiveness, independence and objectivity of the external audit
• discussed the results of internal audit reviews, significant findings, management action plans and the timeliness of resolution
• reviewed the reports and processes which support the Board’s sign-off on the system of internal control
• reviewed reports on the Group’s risk management measures and actions

In conjunction with the Board appraisal detailed in How we govern the Company, the Committee also reviewed its own effectiveness and concluded that it had continued to operate as an effective Audit Committee.

This year we introduced a risk workshop for the whole Board, to allow all Directors to contribute to the process of identifying and rating the Company’s risks. We intend to repeat this process, holding a full risk workshop every two years. Follow-up to the output from this workshop is scheduled for the Audit Committee and Board meetings.

During the year, the Audit Committee appraised the effectiveness of the external auditors, PwC, and the external audit process. The evaluation process included feedback from relevant members of management and the results were reported to the Board and Audit Committee.

Throughout the year, the Company had a policy and procedures in place to monitor and maintain the objectivity and independence of the external auditors. The policy requires prior approval by the Chairman of the Audit Committee of non-audit work above a de minimis threshold level of £25,000. On a six-monthly basis, the Audit Committee reviewed a summary of all non-audit work. In addition to the audit related services, PwC provided the following services during the year:

• taxation advice, including planning and compliance
• advice on IFRS accounting.

Details of the amounts paid to PwC are set out in note 7 to the financial statements. The level of non-audit fees has fallen significantly compared to the previous year, during which PwC carried out extensive work on the disposal of Trillium and the Rights Issue. The external auditors reported to the Committee that they remained independent and had maintained internal safeguards to ensure their objectivity.

During the year, the Committee applied its policy and procedures to monitor the objectivity of the external valuers, Knight Frank. For further information on the processes and methodology adopted by the external valuers, please refer to How we value our property assets. The valuers and external auditors have full access to each other. These advisers have a dialogue and exchange of information that is independent of the Group. The Audit Committee Chairman attends key valuation meetings (as do the external auditors) to be assured of the independence of the process. In addition, Knight Frank presented to the Audit Committee following completion of their 2009/10 valuation process.

In line with the Carsberg Committee report, we have a fixed fee arrangement with our valuers. The proportion of total fees paid by the Company to the total fee income of Knight Frank LLP was less than 5%. The Audit Committee regularly reviews the total fees the Company pays to Knight Frank as a proportion of the total fees paid to all of our property advisers. The Committee is satisfied it represents only a small proportion of the total.

• Kevin O’Byrne
• Chairman, Audit Committee

Although all of the Committee members are considered to be appropriately experienced to fulfil their role, Kevin O’Byrne is considered as having significant, recent and relevant financial experience in line with the Code. Further details of each of the independent Directors are set in the Board of Directors biographies.