Cinemas (Non Domestic Valuation practice notes)

Part of: Non Domestic Valuation practice notes (NI Reval2023)

These Practice Notes were developed for the purpose of revaluing non domestic property in Northern Ireland as part of Reval2023. They were produced primarily as guidance for LPS Valuers to ensure, amongst other things, consistency of approach and practice in rating valuations.


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, and Rating Revision cases after 1 April 2023, is Schedule 12 (2)(1) of the Rates (NI) Order 1977.


This Practice Note refers to property classified as:

Class: Non-Sporting Rec Facility
Sub Class: Cinema
Type: Multi Screen, Single Screen

These entries range from single screen cinemas in provincial towns to multi–screen complexes. 4 other List Entries include cinemas but have other primary classifications.

There are currently 30 entries in the Non Domestic Valuation List. The Cinema Scheme Practice Note Author will provide the valuation of the cinema element for these leisure complexes.

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”.

Basis of valuation

At 8th Revaluation the basis of valuation was the R&E method.

Valuation approach for 2023

The shorthand version of the R&E method of valuation is to be retained as the approach for this type of hereditament.

Full R&E analyses have been carried out in respect of a sample of the various types of cinemas.

For all cinemas, the initial consideration is to determine fair maintainable trade (FMT) i.e. the gross receipts from all sources exclusive of VAT, as at the antecedent valuation date (AVD), 1 October 2021.

The box office income per seat can be used as a performance indicator and unit of comparison. With many cinemas, now achieving a significant proportion of their receipts from “food & beverage” sales this enables a proper reflection of the impact of this upon relative profitability.

It is considered that all the disadvantages (locational and physical) are inherently reflected through the level of gross receipts and the respective level of box office income per seat.

Valuation scales based on a percentage of gross receipts and derived from an analysis of the available evidence has been produced.

Whilst estimating the FMT, the hypothetical tenant is envisaged to be a reasonably experienced operator who responds to normal trading practices and competition in the locality.

The Receipts and Expenditure Method of Valuation

In the absence of adequate 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. 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.

2. In general, receipts should include all income derived directly and indirectly from occupation of the property.

3. 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.

4. 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.

5. 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:

  • 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:
  • 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 R&E method of valuation.

However having derived a number of rents from a full analysis, it may be possible to determine a ‘shorthand’ approach whereby a percentage is applied to the Gross Receipts to determine a rental value, or the NAV is devalued to an overall £/m2. This is in effect a comparative method of valuation using comparable assessments, which have been derived from a full R&E analysis.

The estimation of the value of a cinema by reference to a percentage of actual or estimated gross receipts is a well-established practice, which has been approved in Lands Tribunal decisions.

1 .Rank Organisation Limited -v- Priest (VO) (1966 RA 540).

2. Associated Cinematograph Theatres Limited -v- Holyoak (VO) (1969 RA 305).

“The nature of some cinemas is such as to have the external appearance and construction of retail warehouse or shop premises; in fact some were marketed as such and converted. The nature and degree of this conversion is such as to preclude their valuation using the comparative method. The rule of rebus sic stantibus as delineated in Scottish & Newcastle Retail Ltd .v. Williams (VO), Court of Appeal - Lands Tribunal, RA/480/1993 held that for the mode or category of use both physical alterations and change of use would offend rebus sic stantibus rule. As such properties requiring major adaption or alteration should not be valued by reference to rental values of properties in other uses”.

Fair maintainable trade (FMT)

Application of the Practice Note will require an estimate to be made of the likely level of trade (excluding VAT) considered to be maintainable at 1st October 2021 having regard to the physical nature of the cinema and its location. It should be assumed that a competent cinema operator responding to the normal trading practices and competition in the locality would proficiently carry out the business. This is known as the Fair Maintainable Trade (FMT) and should equate to the level of trade the hypothetical tenant would envisage when looking at the premises vacant and to let”.

The estimate of FMT should, in the first instance, be based on actual receipts. These can usually be regarded as being representative of the trade of the hypothetical tenant. It will, however, be necessary to investigate all aspects of the trade in order to consider what should properly be taken into account in the hypothetical scenario.

Admissions and gross receipts vary from year to year for a number of reasons, not least being the desirability of the films on offer for public viewing. As a consequence, the actual gross receipts at AVD may not provide a true reflection of fair maintainable trade on a year-to-year basis. To overcome this difficulty the trend of admission numbers over the 3 trading years prior to AVD should be considered.

Having established the likely FMT for the 2019 trading year (AVD is 01-Oct-2021), the valuer should then consider any further adjustments needed to reflect the receipts envisaged as of 1 April 2021.


An end adjustment will be appropriate for multiplex cinemas that are constructed with auditoria and/or other related facilities on more than one main floor This is to reflect significantly higher working expenses incurred in such cases.

A main floor is either a floor containing the main box office and principal retailing facilities or a floor affording direct access to one or more screens.

End adjustment for Auditoria and/or other related facilities:

On two main floors – 5% of total NAV

On three main floors or more – 7.5% of total NAV


In England and Wales, the Valuation Office Agency (VOA) approach is based on the R & E method.
VOA Section 240: Practice Note 1: 2017: Cinemas refers.

In Scotland, the Scottish Assessors Association (SAA) approach is based on the R & E method.

Practice Note 25 Valuation of Cinemas refers.

The method of valuation proposed in Northern Ireland is aligned with that adopted in England, Wales and Scotland.

This remains the position as it was at 8th Reval.

Inspection procedures

If inspection is required, appointments should be made and the following should be checked and referenced on inspection:

Survey Requirements

Survey: the basis of measurement should be Gross Internal Area (GIA) as defined in the LPS Code of Measuring Practice for Rating Purposes.

Services, access to property, block, zone, description, use, floor, access to floor, year built, repair, finish, height, and construction should all be noted and entered or amended on AO as required.

In addition notes should be made of the style of operation (main stream or arts cinema), provision of confectionery, food and drink, type of auditorium (sloped floor or stadia seating), number of screens, number of seats, admission prices, heating, air-conditioning, parking facilities and any reliable figures regarding numbers of admissions and gross receipts/average spend per head.

All inspection notes, checklists, plans and any other relevant material should be attached to the Property Viewer.

Rent and Lease Questionnaire

For this class of property Rent and Lease Questionnaires (RALQs) will be issued by the Practice Note author.


For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.

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