Scope
The scope of this Practice Note is solely to ensure a consistent valuation approach for this property Class / Sub Class / Type for Non-Domestic Revaluation 2023 and subsequent entry in the new Valuation List which becomes effective on 1 April 2023.
The basis of valuation for new entries in the Valuation List, or Rating Revision cases after 1 April 2023, is Schedule 12 (2)(1) of the Rates (NI) Order 1977.
Description
This Practice Note refers to property classified as:
Class: Utilities
Sub Class: Dock Authority
Type: Cumulo Basis
And:
Class: Freight Transport (other than Public Utility)
Sub Class: Dock Undertaking
Type: Not Applicable
Ferry terminals (such as Strangford, or the Stena terminal in Belfast Harbour) also fall under this classification, however this Practice Note is not applicable to these hereditaments.
Legislative Background
Schedule 12 Part 1 Paragraph 1 of the Rates (NI) Order 1977 applies.
“Subject to the provisions of this Order, the Net Annual Value of a hereditament shall be the rent for which, one year with another, the hereditament might, in its actual state, be reasonably expected to let from year to year, the probable average annual costs of repairs, insurance and other expenses (if any) necessary to maintain the hereditament in its actual state, and all rates, taxes or public charges (if any), being paid by the tenant”.
Valuation Approach for 2023
The valuation approach is the Receipts and Expenditure (R&E) method.
In the absence of rental evidence, or a suitable unit of comparison to permit such rental evidence to be reliably analysed, the preferred method of valuation may be either the R&E method or the Contractor’s basis. Where the nature of the occupation of the property is primarily concerned with achieving anticipated profit, and the tenant’s rental bid is therefore likely to be based upon a consideration of receipts and expenditure, then in the absence of reliable rental evidence, the R&E method may be the most appropriate method of valuation to adopt.
Source: The Receipts and Expenditure Method of Valuation for Non-Domestic Rating Guidance Note produced in 1997 by the Joint Professional Institutions' Rating Valuation Forum which consists of the RICS, the IRRV, the RSA, the SAA, the VLA and the VOA.
1. A period of three years accounts, prior to the AVD, should give sufficient information to establish a fair and reasonable indication of the trading position. In the case of new ventures where trading accounts do not exist, refer to the accounts of similar ventures, or to the business plan prepared for the new occupier.
2. Relevant Income will be determined by adjusting Gross Turnover. Adjustments may be required in respect of: -
- Income derived from third party rents (separately assessed properties) such as warehousing.
- Income from statutory functions such as conservancy or pilotage.
- Ground rents.
Consideration should be given to the size of the hereditament relative to the extent of the statutory undertaking.
3. Relevant Expenditure is determined by adjusting the Cost of Sales, with consideration given to certain elements, including: -
- Costs not directly linked to the occupation of land (those incurred outside the hereditament).
- Costs associated with the management of separately assessed properties (estate management costs).
- Costs associated with conservancy and pilotage.
4. EBITDA is established by taking the Relevant Expenditure from the Relevant Income and can be expressed as a percentage of Relevant Income enabling a comparison with other ports.
5. A percentage is then applied to the Relevant Income based on the level of EBITDA, in order to establish the Net Annual Value (NAV).
If operating at a loss (negative EBITDA), the minimum 5% of relevant income should be applied.
Having arrived at an initial valuation it will be necessary to stand back and take an overview of the assessment to ensure relativity with other comparable premises.
Rent and Lease Questionnaire
For this class of property Rent and Lease Questionnaires (RALQs) were not issued. Three years audited trading accounts were requested directly from the dock operators.
Contact
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.