Scope
The scope of this Practice Note is solely to ensure a consistent valuation approach for this property Class/ Subclass/ 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, and Rating Revision cases after 1 April 2023 is Schedule 12 (2)(1) of the Rates (NI) Order 1977.
Description
Raised bogs are found in lowland areas, generally below an altitude of 150m, are relatively flat and usually contain the better quality horticultural grade peat often to a depth of tens of metres. They are known as raised bogs because the bog surface is raised in the middle like a dome.
Upland blanket bogs are frequently found on exposed upland areas and usually contain lower quality (fuel grade) peat to a depth not usually exceeding a few metres. They follow the contours of the ground and drainage may be difficult. Harvesting is usually carried out by cutting out blocks of peat and stacking these in a latticed fashion to dry.
Turbary is the ancient right to cut turf, or peat, for fuel on a particular area of bog. The word may also be used to describe the associated piece of bog or peatland and, by extension, the material extracted from the turbary. Turbary rights, which are more fully expressed legally as common of turbary, are often associated with commonage, or, in some cases, rights over another person's land.
Legislative background
Schedule 10 of The Rates (Northern Ireland) Order 1977 deals with Hereditaments.
A peat bog is a hereditament in that it is either:
(i) land in its corporeal (material) sense;
(ii) a profit a prendre – a right to enter the land of another person and to take some profit of the soil, or a portion of the soil itself, for the use of the owner of the right.
Schedule 11 of the Rates (Northern Ireland) Order 1977 directs that properties not to be treated as hereditaments include:
- Entry No. 1 Agricultural land
- Entry No. 4 Turf bogs and turf banks used for the exclusive purpose of cutting or saving turf, or making turf mould there from, for fuel or manure under an appurtenant right of turbary.
A commercial peat bog is not agricultural land nor would it be an appurtenant right of turbary. It would not be excluded by Schedule 11 and should therefore be treated as a hereditament.
Only turbary rights that are not ‘appurtenant’ to the ownership of neighbouring land should be treated as hereditaments.
Schedule 14 of the Rates (NI) Order 1977 defines an industrial hereditament as a hereditament occupied as a mine, quarry or factory. The definitions relating to industrial hereditaments are comprised within Schedule 2.
A peat bog is not a mine, a quarry or a factory. The bog, together with ancillary buildings should be distinguished in the Valuation List as ‘Other’.
If there is a factory within the hereditament or contiguous with it, the hereditament should be considered for industrial treatment. When establishing primary use (and apportionment, if required) the bog should be distinguished in the Valuation List as ‘Other’.
Valuation approach for 2023
The R&E method of valuation is to be retained as the approach for this type
of hereditament.
Research by the Practice Note author concluded that there was insufficient rental evidence available to develop a comparative approach.
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.
Step 1
Gross Receipts will be determined by taking into account all income reasonably to be derived from occupation of the property. 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.
In general, receipts should include all income derived directly and indirectly from occupation of the property.
Step 2
The proper Cost of Purchases made in order to produce those receipts should be deducted to determine the Gross Profit. Such costs relate only to those purchases which form part of the venture undertaken.
Step 3
Deduct the Working Expenses from the Gross Profit to determine the Divisible Balance. Outgoings considered as allowable working expenses are those incurred as a result of the operation. For example, salaries, National Insurance payments, provision of services, insurance, phone bills, advertising, Head Office expenses. However, a mortgage payment, which is an expense of the business, is not an expense for a rating valuation.
Step 4
The Divisible Balance (or net profit) is the remaining sum available to be shared between the landlord, and the tenant. It comprises two main elements:
a. The Tenant’s Share – to provide a return on any tenant’s capital employed and a reward to the tenant for his venture reflecting the extent of the risk and the need for profit. It must be a proper and sufficient inducement, not merely a fraction of the divisible balance. A 50/50 split of the divisible balance is adopted as a last resort. This is deducted from the Divisible Balance to leave:
b. The Landlord’s Share – i.e. the amount available for the payment of rent and rates.
The above sets out the methodology for assessing a rent using the Receipts and Expenditure. It may also be possible to determine a ‘shorthand’ approach whereby a percentage is applied to the Gross Receipts to determine a rental value. The NAV can be devalued to an overall £/m2 for comparative purposes.
For 2023 peat bogs and turbary rights should be valued by reference to output in m3 x royalty rate.
Royalties are usage-based payments made by one party (the "licensee") to another (the "licensor") for the right to ongoing use of an asset. The royalty rate to be applied for raised bogs and blanket bogs is £0.50 per cubic metre. The royalty rate for turbary rights is £1 per cubic metre.
Additional buildings should be valued by reference to the appropriate bulk class. Specialised items should be valued on a Contractor’s basis with pricings derived from the LPS Guidance Note on Plant and Machinery.
Most of the plant and machinery to be found on the bog itself will be portable and therefore not rateable. On some of the larger bogs there may be a light, narrow gauge railway to transport the bulk material to a central collection point. Where there is a processing plant located on the hereditament there is likely to be a wide range of plant and machinery (for example, silos, hoppers, conveyors, steel supports, foundations, etc). These should be referenced and valued.
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 a bespoke Rent and Lease Questionnaire was issued to the operators of all Peat Bogs. A standard Rent and Lease Questionnaire was issued to the owners of Turbary Rights.
Contacts
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.
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