Basis and Methods of Valuation for Rating

amount equal to the rent which it is estimated the hereditament might reasonably be expected to let from year to year

amount equal to the value which it is estimated the hereditament might reasonably be worth

The hereditament being valued must be assumed to be vacant and to let.

The hereditament must be valued “rebus sic stantibus” i.e. as it stands.

The assessment will be the rental value of the property subject to “tone of the list” provisions.

The hereditament must not be valued “rebus sic stantibus” i.e. as it stands.

The expression “tone of the list” in a rating context is used to mean, in general terms, the levels of value established in a rating list.

The “Valuation Office” tone is used to indicate the levels of value used by the VO in compiling a new list

“Settled” tone refers to levels of values that have become settled in the list either by agreements, court decisions or acquiescence

“Unsettled” tone refers to levels of values that have become unsettled in the list either by agreements, court decisions or acquiescence

The rental method (using direct or indirect rental evidence).

The contractors basis (or contractors test).

The receipts and expenditure method.

The Statutory Formulae.

Residual method

Used where a hereditament is within a class of property which is generally let in the open market.

Any adjustment of rents is required to convert to “rent in terms of rateable value”. E.g. difference between FRI lease and IRI

Any adjustment of rents is not required to convert to “rent in terms of rateable value”.

Used in the case of hereditaments that are not normally let and by their nature do not lend themselves to valuation by comparison with other classes where reliable market rental evidence exists.

Where it is not possible to value by reference to the accounts.

Relies on the theory that the hypothetical tenant might consider erecting a suitable alternative building elsewhere for his own purpose in the absence of one to rent

Assumption is the tenant would charge himself a rent based upon a % of the cost (including plant & machinery) of providing the property.

The tenant would not charge himself a rent based upon a % of the cost (including plant & machinery) of providing the property.

Stage 1 – Estimated Replacement Cost (ERC) - i.e. what it would cost to construct all the buildings including site works and all rateable plant & machinery and fees.

Stage 2 – Adjusted Replacement Cost (ARC) – adjust to take account of deficiencies in the actual building from an occupational point of view, mainly age and obsolescence.

Stage 3 – Value of Land – assuming a site cleared of all buildings with planning permission and services available for connection.

Stage 4 – Decapitalisation – a rate required for conversion of the capital (cost) to annual value.

Prior to the 1990 List the level of decapitalisation was open to negotiation and led to considerable debate and litigation

For the 1990 List the Secretary of State was empowered by the Local Government Finance Act 1988 to make regulations prescribing decapitalisation rates to be adopted in any contractors basis valuation

In England this is 3.33% for 2005 & 2010 Lists.

In England this is 5% for 2005 & 2010 Lists.

In England this is 3.33% for 2005 & 2010 Lists.

In England this is 5% for 2005 & 2010 Lists.

Likely to be the preferred method of valuation where rental evidence is sparse or non existent.

Rent dictated by the actions and anticipated profit of the business carried out at the hereditament

Firstly establish the gross profit derived from the occupation by deducting the cost of purchases from the gross receipts

The working expenses, including an allowance for renewal of the tenants assets, are then deducted from the gross profit to give the divisible balance.

The divisible balance represents the amount to be shared between the tenant (tenants share) and the landlord (rent or rateable value)

Starting point are the receipts and expenditure of the actual occupier.

It is the profit potential of the hereditament that has to be established, not the profit achieved by the actual occupier

Usual for at least 3 years accounts leading up to AVD to be examined to establish trends and levels.

Certain properties appear in a “central list”, not the “local list” and assessed by means of a statutorily prescribed formulae

Properties include those occupied by large public utilities

Lists are the responsibility of the Central Valuation Office (CVO).

Lists are the responsibility of the local authority Valuation Office (CVO).

There is a single rateable value entry for each company in the “Central Rating List”.

Any Property occupied by a central list ratepayer that falls outside the central list definition of a hereditament will be shown separately in a local list

Any Property occupied by a central list ratepayer that falls outside the central list definition of a hereditament will not be shown separately in a local list

S42 Local Government Finance Act 1988 requires a local non domestic rating list to show the rateable value of each hereditament in the authorities area.

s45

a) chattels which are not plant or machinery but which are sufficiently attached to and enjoyed with land so that its value is enhanced.

b) plant & machinery.

The Valuation for Rating (Plant & Machinery)(England) Regulations 2000. Plus amendments in 2001 & 2008.

No item of plant or machinery, whatever its size or function is rateable (i.e.assumed to be part of the hereditament) unless it can be identified as being covered by a named item in the Regulations.

Firstly it is necessary to decide whether the item is “plant & machinery”

Requires that the Valuation Officer shall, if so required in writing by the occupier, supply to him particulars in writing showing what machinery and plant, has been assumed to form part of the hereditament

P & M is valued on a cost basis (contractors valuation), with obsolescence allowances as appropriate, and decapitalised to arrive at the rental value using the prescribed rates

In the majority of cases the plant and machinery which is assumed to form part of the hereditament will be service plant, this is plant which provides the basic services to a building (heating lighting, draining and supplying of water)

Normally such plant will be reflected in the value of, and the rent paid for, the building and it will not be necessary or appropriate to value such plant other than as part of the building.

The valuation for any rating assessment is the estimate of the rent a hypothetical tenant would pay for the land, buildings and rateable plant and machinery, let as a whole.