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
This Practice Note refers to property classified as:
Class: Rights & Tolls
Sub Class: Tolls
Type: Market
This Class includes all market rights associated with markets held on a road, footpath or public place including Christmas Markets.
Street markets are usually held on a specific day per week or month and are always in the same position in the town. They may stretch along one or both sides of a street. Cookstown and Enniskillen markets are typical examples.
It is usual for stallholders to bring their own stalls or vans from which to sell goods and produce. Stallage or rent charge is often paid to a local collector on the day and is typically in the range of £15-£20 per stall per day depending on the market and type of stall. Larger markets in more commercially lucrative locations may charge a much higher amount for a fixed location over a longer period e.g. Christmas Markets which operate on a daily basis for four to six weeks per year.
This Practice Note does not apply to car boot sales, covered markets etc. these are valued under a separate LPS Practice Note.
Legislative background
Schedule 12 Part 1 Paragraph 1 of the Rates (NI) Order 1977 applies.
“Subject to the provisions of this Schedule, for the purposes 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”.
The legal definition of stallage is 'the right to hold a stall in a market’ (Oxford English Dictionary). This term is also used to refer to the rent charge paid. The owner of the market rights can be the District Council, a private estate, trustees or a private individual.
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 are 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 (Expenditure) 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
Working Expenses are deducted 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 method. It may also be possible to determine a ‘shorthand’ approach whereby a percentage is applied to the Gross Receipts to determine the NAV.
Rental information may be collected where a private individual or company is in occupation of a market. Where actual rents are available (for letting of an entire market) these should be analysed to ensure that they were negotiated at arm’s length. The relevance of a rent paid to a local authority as landlord should be carefully considered since the primary intention may be a desire to provide a service to the community rather than to obtain an economic rent.
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 issued centrally by LPS and analysed by the Practice Note author.
Contacts
For advice on any aspect of this Practice Note contact LPS on 0300 300 7801.