Purpose
A series of Practice Notes have been produced for Non Domestic Revaluation 2023 with the purpose of ensuring a consistent valuation approach for these properties and their subsequent entry in the new Valuation List which becomes effective on the 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 (Rates (Northern Ireland) Order 1977
This Practice Note should be read in conjunction with:
- Individual Reval2023 Practice Notes recommending The Contractor’s Basis of Valuation.
- The Reval2023 LPS NI Rating Cost Guide.
- RICS Guidance Note. The Contractor’s Basis of Valuation for Rating Purposes, 2nd edition (August 2017)
Description
This method of valuation (originally known as the Contractor’s Test) is used for hereditaments which are not normally let in the market and where valuation by the Receipts and Expenditure Method would not be appropriate. It is also used to value plant and machinery in hereditaments otherwise valued by the rental method.
The basic philosophy underlying the Contractor’s Basis is set out in Dawkins (VO) v Leamington Spa Corporation and Warwickshire CC (1961):
- The hypothetical tenant has an alternative to leasing and paying rent because he can build similar premises, the ‘tenant’s alternative’.
- The hypothetical tenant would not pay more in rent, and may well pay somewhat less, than interest charged or forgone on the capital sum employed in providing the ‘tenants alternative’.
The overall aim of the Contractor’s Basis is to arrive at the effective capital value (ECV) which is then converted into annual rent. The primary method of arriving at ECV is to consider replacement building costs suitably adjusted.
The fact that the method was known originally as the Contractor’s Test is pertinent. It is not envisaged that the hypothetical tenant should be considered as constructing an actual property, but that the rental value would be “tested” by having regard to the annualised equivalent of the effective capital value.
Legislative background
Schedule 12 Part 1 paragraph 1 of the Rates (NI) Order 1977 applies –
"Subject to the provisions of this schedule, for the purpose of this Order the net annual value of a hereditament might 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 cost 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”.
Antecedent Valuation Date (AVD)
The statutory prescribed Antecedent Valuation Date (AVD) is 1 October 2021. While all costs used are to be taken at the AVD, the physical state of the property must be considered as at the date the Valuation List comes into force - i.e. 1 April 2023.
Standard approach
As the Contractor’s Basis was refined, an approach based on five stages of valuation evolved. The five stage approach was subsequently endorsed in Gilmore (VO) v Baker Carr 1964.
The five main stages are as follows:
- Stage 1 - Estimated Replacement Cost (ERC)
- Stage 2 - Adjusted Replacement Cost (ARC)
- Stage 3 - Land value
- Stage 4 - Decapitalisation
- Stage 5 - Review (Stand back and look)
Stage 1 - Estimated replacement cost (ERC)
Basis of ERC
The valuer estimates what it would cost to construct all the buildings, site works, rateable structures and rateable plant and machinery comprising the hereditament, assuming that:
- The development is provided on an undeveloped site in its actual location.
- The development is provided at AVD.
- The development is provided under a single contract.
- The development does not benefit from any form of grant, donation or financial assistance.
As the Contractor’s Basis is a notional exercise it is not considered appropriate to add VAT to the costs. In addition, any element of un-remunerative cost, for example the duplication of tasks during construction due to severe weather or natural disaster, commonly termed “reworks”, or costs involved in the provision of unnecessary embellishment as a personal choice of a particular occupier which would not enhance rental value.
LPS NI Rating Cost Guide
In order to achieve consistency of approach and uniformity the primary source of all unit cost information should be the Reval2023 LPS NI Rating Cost Guide. Adjustments for fees and charges, external works, contract size and age are available in the cost guide document and are also detailed in the appendices to this Practice Note.
Treatment of Grants and Donations
No adjustment should be made at Stages 1 and 2 for the availability of grants or donations that were paid or would have been available at AVD, as these do not affect construction costs.
Direct Cost Information
In some limited circumstances, with line management approval, it may be preferable or necessary to use actual cost information. However, using actual costs rather than the LPS NI Rating Cost Guide requires caution.
It may be appropriate to use actual cost information in the following circumstances:
- Where the property does not readily fall into a recognisable class of property in the LPS NI Rating Cost Guide; and
- Full records of costs incurred are available; and
- Costs can be allocated between rateable and non-rateable elements; and
- Costs are part of a single contract, or are suitably adjusted to reflect a single contract; and
- Actual costs are incurred before or after AVD, the costs are suitably adjusted to AVD using appropriate indices.
Adoption of a Modern Substitute
Strictly speaking the adoption of a Modern Substitute is a Stage 2 adjustment, but it has been considered in this section for convenience.
In the vast majority of cases the ERC is the replacement cost of the actual property, but in exceptional instances a modern substitute building may be considered. Where a building is such that perhaps because of age, design or type of construction it would not be realistic to envisage rebuilding it in its present form, as an alternative to estimating the cost of replacing the actual building, the valuer may estimate the cost of a modern substitute building. For example, the subject hereditament might have excessively high ceilings by modern standards or considerable ornamentation and embellishment which would not be replicated in a new building.
Where a modern substitute is adopted the design and specification should enable the use of the actual property to be carried out in a fully satisfactory manner.
Decision to adopt a Modern Substitute
The starting point for the Valuer considering a substitute building is to identify a deficiency in the actual building. In Shell UK Exploration and Production Ltd v Assessor for Grampian Valuation Joint Board (LTS 2000) the Tribunal said:
“An appropriate allowance should, admittedly, be made in valuing subjects under the Contractor’s Method in order to reflect identifiable deficiencies, and this assessment could be assisted by reference to modern substitute costs. However, the starting point was to identify a relevant deficiency. That had not been done in the present case.”
If no deficiency can be identified in the actual building then a modern substitute approach is not appropriate. The valuer should consider it generally unreasonable to adopt a modern substitute approach if the actual hereditament continues to be substantially used and is serving the purpose for which it was intended.
Appropriate Size of Modern Substitute Building
In cases where this approach is adopted because the actual building is, for example, unnecessarily ornate, the substitute building should be of a similar floor area to the actual.
In cases where the substitute is adopted because the actual building is larger than required, due to for example changes in demand or technology (functional or technological obsolescence, see Stage 2 details) then the substitute should be costed on the basis of a size that reflects modern trade and business practice at AVD. This type of adjustment may be reflected at Stage 1 by costing a suitably sized alternative building, or at Stage 2, by making an allowance for the excessive size (for example superfluity allowance).
The valuation of schools for Reval2020 provide an example of, where appropriate, a suitably sized alternative building was calculated by reference the published Department of Education school pupil enrolment numbers applicable at AVD; i.e. where the actual school was larger than required for the pupil enrolment numbers at AVD, a smaller modern equivalent area m2 was adopted at Stage 1.
If costing a modern substitute care should be exercised to avoid “double counting”. Where a modern substitute is used at Stage 1, allowances at Stage 2 should be restricted to age as all other types of functional or technological obsolescence will have been reflected in the costing of the modern substitute at Stage 1.
Stage 2 - adjusted replacement cost (ARC)
The ERC should be adjusted to take account of the difference between the property, in its actual state, and the replacement property costed at Stage 1.
Stage 2 adjustments can be viewed from the perspective of an owner-occupier, as opposed to Stages 1 and 3 which are concerned with capital sums.
Allowances made at this stage are intended to reflect the disadvantages of a particular building (or an item of plant and machinery within it). These allowances are generally termed obsolescence.
If the valuer needs to consider disadvantages pertaining to the hereditament as a whole such as poor access, cramped site or poor layout, the adjustment should be made by a further explicit allowance at Stage 5.
Age and Obsolescence
It should not be automatically assumed that because a property is old it merits an allowance. In certain circumstances, age may be a positive asset or have little effect, for example prestige buildings such as town halls, art galleries or universities. Age in itself is not a disability but rather what flows from age.
The deficiencies that may be taken into account at Stage 2 can be grouped under the heading of ‘obsolescence’ and they are normally subdivided into the following types:
- Physical obsolescence which relates to wear and tear of the building due to its age. Although age itself is not a justification for an allowance the tenant will reflect the prospect of increased maintenance and running costs in his rental bid.
- Functional obsolescence may occur when the functional capability of the property is not comparable to new building or design standards in the sector. Functional obsolescence may take the form of the building exceeding the required capacity or quality compared to current market standards, or conversely being less than adequate for the intended purpose.
- Technological obsolescence is an extension of functional obsolescence where current technology has changed so radically that the actual plant and machinery to be valued or the building housing such equipment has become redundant.
Functional and technological obsolescence are not as easy to observe as physical obsolescence, but are often reflected in:
- A falling level of operating income from the property due to excessive operating costs
- Decreased use of the property
- The competitive advantage of others in the same market using newer technology
Where the building has undergone significant improvement or refurbishment a notional age can be adopted.
The Monsanto Scale and the new Civic Obsolescence Scale (important update to approach for Reval2023)
For Reval2020, LPS applied the Monsanto Obsolescence Scale to valuations undertaken by the Contractor’s Basis of Valuation.
To set the context for the review of the use of the Monsanto Scale, in the York Museum case (Hughes (VO) v York Museums and Gallery Trust (2017)), the Tribunal commented:
“We also specifically reject the use of the Monsanto scale in these valuations. Allowances employed in the valuation of a post-war chemical works have no relevance to historic listed buildings used as museums and art galleries.”
“We do not criticise the widespread adoption of the Monsanto allowances in contractor’s basis settlements relating to industrial buildings, but their use in industrial settlements lends them no additional credibility or relevance as a tool for valuing other types of building.”
VOA has confirmed that for R2023 it will be applying both the new Civic Obsolescence Scale and the Monsanto Obsolescence Scale as appropriate to the range of property classes to be revalued. Further details on these obsolescence scales are included in this Practice Note.
For Reval2023, LPS will also be applying both the Civic Obsolescence Scale and the Monsanto Obsolescence Scale as appropriate to property classes. LPS Practice Note authors for properties valued on the Contractor’s Basis should in each case confirm with their VOA and SAA contacts the approach being adopted to application of Obsolescence Scales.
It should be noted that it may be appropriate to apply both the Civic and Monsanto A/O Scales within one hereditament to individual buildings according to building type/use. Fire Stations provide a good example of this where the main purpose built fire station would be valued by adoption of the Civic A/O Scale, but where stand-alone workshops (industrial) may be valued by adoption of the Monsanto A/O Scale. However, even in this example the valuer should consider the hereditament as a whole and whether such workshops are de minimis in terms of purpose, service delivery and impact on valuation for rating purposes.
Civics Obsolescence Scale
The scale represents the combined age-related physical depreciation along with functional obsolescence and technological redundancy typically exhibited by buildings of the relevant age. These allowances should be adopted in the majority of cases and only varied in exceptional circumstances.
1. In respect of physical depreciation, the scale is intended to reflect normal wear and tear and/or deterioration due to the age of the building. The scale assumes an average degree of cyclical refurbishment work will have been undertaken, to include whole or partial renewal of building sub-components. Most particularly this relates to mechanical and electrical services and internal fit-out, but also includes periodic renewal of roof coverings and windows.
2. It follows from the above that no adjustment away from the scale is required in the majority of cases where older buildings have been subject to modernisation and refurbishment works, as these are explicitly assumed to have occurred. An exception to this would be for a building taken back to shell and reconstructed with significant renewal of structural elements, where an abatement of age-related physical obsolescence may be required.
3. An example of a building requiring an abatement of the allowances provided by the scale (due to the mitigation of physical depreciation) would be where a major renovation has occurred utilising the original building foundations and frame (including upper floors) but with comprehensive replacement of the external envelope (walls, windows), a complete internal refit and wholescale replacement of mechanical and electrical services.
4. In respect of functional and technological obsolescence for buildings that remain in operational use, the scales include adjustments to reflect functional and technological deficiencies observable in buildings (i) typical of their original period of construction; but (ii) taking account of the level of assumed cyclical refurbishment reflected in the physical depreciation element of the scales.
5. The type of functional and technological obsolescence factors already reflected in the scale includes the following:
poor energy efficiency and/or environmental sustainability
inappropriate layout inhibiting flexible and efficient space utilization
modern health and safety, fire or building regulations that preclude or limit the original purposes of the building
dated design practices that restrict modern usage (such as lack of/or minimal floor and ceiling voids
the absence of modern space heating or air conditioning systems within a building.
6. It follows that only where buildings display specific functional deficiencies or issues of technological redundancy that are atypical for their age, consideration may be given to applying an additional allowance.
Monsanto Obsolescence Scale
The scale of allowances commonly referred to as “the Monsanto scale” (derived from the approach determined in Monsanto v Farris (VO) 1998 RA 217) continue to be applicable to Industrial buildings.
1. The scales refer to the actual age of the specific item. A notional age can be adopted where the item has undergone significant improvement or refurbishment.
2. The scales do not provide for physical obsolescence alone. They also reflect the expected degree of functional and technical obsolescence for an asset of that age.
3. Any extraordinary functional or technical obsolescence may result in an additional allowance being considered. Examples include superfluity for modern purposes or where new technology evidences that the actual asset is relatively inefficient. Where an additional allowance is made the reasons for it must be stated in the valuation notes.
4. An element of risk of failure and the requirement of the tenant to replace the item at the end of its useful life is incorporated in the allowances.
5. It should not be automatically assumed that because a property is old it merits an allowance. Age in itself is not a disability but rather what often flows from age.
6. The scales are intended to provide a degree of uniformity of allowance. They should be regarded as the maximum allowances to be given.
7. Allowances in excess of 50% for buildings or P&M should only be adopted in exceptional circumstances. It is unlikely that many very old buildings exist which have not undergone some form of modernisation or refurbishment.
8. It should not be assumed automatically that because an item of plant or machinery is old it merits an allowance. If an asset is well maintained the amount of use may well not affect the item or its value. However, with age the risk of breakdown is likely to increase and functional and technological obsolescence factors are likely to become prevalent. These factors must be borne in mind when selecting an appropriate obsolescence allowance.
9. The scales of allowances therefore take into account the average use of items over a period of time, bearing in mind the physical, functional and technical obsolescence that may occur during the stated period.
10. Where judgement through actual knowledge of the item is inconsistent with the allowance scales the item should be valued accordingly recording the reasons for the divergence from the scale.
11. In any instance of variation from the scales in accordance with these instructions, the reasoning for this must be recorded in the valuation.
In Northern Ireland the Monsanto scale had traditionally been viewed as reflecting not just physical obsolescence, but also functional and technological obsolescence for an asset of that age. However following Belfast International Airport Ltd v The Commissioner of Valuation the scale can no longer be assumed to reflect a degree of functional and technological obsolescence. In this case the Tribunal viewed functional and technological obsolescence as separate from physical obsolescence, and stated -
“from Monsanto onwards, it was generally accepted that:
a. Physical obsolescence should be assessed separately from other heads of obsolescence.
b. Physical obsolescence should be assessed by means of scales as outlined in Monsanto.
c. Functional obsolescence covered “over capacity”.
d. Functional obsolescence should be assessed by experience and understanding of the appeal hereditament and or similar premises.”
External Sports Facilities at Civic Hereditaments
At Reval2023, for certain types of external sports facilities located at civic hereditaments and valued on the Contractor’s Basis of Valuation, the ‘Civics - External Sports Facilities’ Obsolescence Scale will be applied. It should not be applied to the likes of pavilions, terraces and other building structures but rather for the valuation of external ‘artificial’ surfaces such as astro-turf, G3 and G4, tarmac and other such sports surfaces.
Superfluity or overcapacity allowance
Superfluity is defined in the Oxford English Dictionary as “an unnecessarily or excessively large amount or number of something”.
For the purposes of Contractor’s Basis valuations, it refers to a situation where the subject building is too large for business requirements at AVD, due to functional or technological obsolescence.
Superfluity can be reflected in a Contractor’s Basis valuation by either:
- Costing a modern substitute at Stage 1, the size of which reflects business requirements at AVD including projections for growth, or
- Making a Stage 2 allowance to reflect the overcapacity.
For schools at Reval2023 a superfluity adjustment is reflected at Stage 1 by calculating a modern substitute GEA based on the pupil enrolment numbers at AVD – where that actual school GEA was in excess of the modern substitute requirement, the calculated modern equivalent area was used at Stage 1.
In the Belfast International Airport case the appellant successfully argued that the terminal and some of the other structures were too large for the number of passengers using the airport at AVD. The Tribunal granted a Stage 2 allowance to reflect superfluity in addition to the normal Monsanto scale allowance for age. The amount of allowance was calculated by reference to the required size of a modern substitute in relation to the size of the existing terminal.
Superfluity allowances for a range of property types
It may be appropriate to consider the issue of superfluity where there is evidence of overcapacity. The application and level of any allowance should be considered as per the following guidance in the Belfast International Airport judgement:
“from the evidence it is clear that the correct allowances for functional and technological obsolescence must be a matter of judgement by valuers based upon experience and understanding of the operation of the appeal hereditament and or similar premises”
Specific guidance will be provided through Practice Notes for individual property types as it would be beyond scope of this Practice Note to provide advice for each individual property type.
Summary recommendations for superfluity allowances
Superfluity may be considered where there is evidence.
Any allowance for superfluity should be supported by evidence and will be a matter of valuer judgement in each individual case
Stage 3 - Value of land
Background
The consideration of the land element comprises two stages. The first is to establish the capital value of the site of the hereditament. The second is to make such adjustments as may be appropriate having regard to the fact that the site has been developed with the actual buildings or other rateable structures on it.
The value adopted for the land should reflect all the advantages and disadvantages of the site and its location and assume the following:
- The site is cleared of all buildings.
- All services existing at AVD are available for connection.
- There is planning permission for the subject buildings and their existing use.
- No development potential exists over and above that required for the existing buildings or rateable structures on the land.
Land value matrix
Evidence as to the value of the land may be obtained from market transactions for land where use falls within the same mode or category. Difficulties may be experienced however establishing an appropriate value when the hereditament is in a class of its own, and where there is normally no market in land for the particular use. In such circumstances evidence relating to sales of land used for other purposes may be considered, provided it is considered relevant by the hypothetical negotiating parties (Dawkins (VO) v Royal Leamington Spa Borough Council and Warwickshire County Council 1961).
For the assistance of Valuers using the various Contractor’s Practice Notes for Reval2023, land sales across Northern Ireland have been collated and analysed by LPS Local Market Information Managers to produce a Land Value Matrix.
Evidence has been collected by the LPS Asset Team and by LPS regional offices and analysed to a price per acre / hectare. The site of the building and an area of land surrounding the building is valued at the prevailing land value as per the matrix. This will incorporate car parking, hard landscaping and access areas. The restriction in the number of value levels in the matrix will create uniformity and consistency in the land element of Contractor’s assessments across location and class of use.
The site of the building and an area of land surrounding the building is valued at the prevailing land value as per the matrix. This will incorporate car parking, hard landscaping and access areas.
The restriction in the number of value levels in the matrix will create uniformity and consistency in the land element of Contractor’s assessments across location and class of use.
Sport & Recreation Facilities (Land Element)
It is important to note that the land value matrix does not apply to Sport and Recreation facilities. Individual LPS Practice Notes contain details on land values applied. The Reval2023 Sports Ground Practice Note also confirms that the value of the land element of the sports ground will be arrived at by applying a rate per acre derived from rental information from sports grounds.
Surplus land
Land outside the site of the building and the immediate area around it comprising access, car parking and hard landscaping will normally be considered surplus. The Valuer needs to exercise care in distinguishing surplus land from that which, while not developed with buildings, nevertheless forms part of the overall development as amenity land or a safety or security buffer zone which should properly be taken into account at the full land value. Any remaining or surplus land at the site, will be valued at a surplus/amenity land value level as per the matrix.
Alternative land values
There may be some cases where a property is located in an area of high land value for historical reasons but derives no enhanced benefit from that location. In these circumstances it may be appropriate to adopt a lower value derived from comparison with more appropriate locations. The converse also applies. The alternative value should reflect the characteristics of the actual site for the existing use.
Ebdon allowance
Once the capital value of the site has been determined (on the basis that the land is undeveloped) consideration should be given to an allowance to reflect the fact that the site is encumbered by obsolete buildings or other rateable structures. (Imperial College of Science and Technology v Ebdon VO and Westminster City Council 1984 LT). This is commonly referred to as the Ebdon allowance.
This is generally done by applying the average obsolescence allowance adopted for buildings at Stage 2, to those parts of the site encumbered by buildings etc.
Surplus land will not attract an Ebdon allowance. This could consist of land reserved for future development, or surplus land which is simply excess to requirements
Effect of Superfluity on land element and Ebdon allowance
Where an allowance for superfluity has been made this should also be reflected in the land element of the valuation or Ebdon Allowance.
If a modern substitute has been costed, a pro rata developed site area should be used prior to application of the Ebdon allowance, and the undeveloped land element will be amended to reflect this.
If a separate percentage allowance has been made at Stage 2 for superfluity, the Ebdon allowance should reflect both the age obsolescence scale adopted and superfluity allowances.
Stage 4 - Decapitalisation
The appropriate decapitalisation rate should be applied to the sum of Stage 2 and Stage 3. This converts the Effective Capital Value to Net Annual Value. The decapitalisation rate is a statutory figure and must be applied as follows for Reval2023:
a) Lower Rate - healthcare, education and church property @ 2.27%.
b) Standard Rate - all other types of property valued @ 3.4%.
Stage 5 - Review
This stage has been referred to as the “stand back and look” stage. As a number of adjustments and allowances may have been made at earlier stages, it is important to ensure that any adjustment made at this stage has not already been made at Stages 1, 2 or 3.
Adjustments made at Stages 1, 2 and 3 reflect particular deficiencies or adjustments required to the buildings and other rateable structures. Adjustments made at Stage 5 are to take account of factors which reflect the value of the hereditament as a whole.
Examples of matters which may be considered at Stage 5 are:
- Access to the whole hereditament
- General layout
- New ventures (pioneering)
- State of the industry
- Relativity to local pattern of values
- Negotiation between the parties
Where more than one disadvantage needs to be reflected, an allowance should be specified for each individual factor. It is essential to be precise when making Stage 5 allowances. The amount of each allowance, and reason for it, should be clearly stated.
Allowances for “state of the industry”
This type of allowance will be of particular relevance to industrial hereditaments. Specialised buildings and plant will be costly to provide but if there is little or no demand for the product that they are designed to produce (and no alternative use exists for the property within the same mode or category of use), this is likely to affect the value of the property.
Allowances which relate to the state of the industry, level of demand etc are considered as at AVD 1 October 2021. Those which relate to the physical circumstances of the hereditament are at the date the valuation list comes into effect at 1 April 2023. Reference Article 39A Rates (NI) Order 1977. This type of allowance should not be made unless the valuer is fully aware of the position and details involved.
New venture allowance (pioneering)
At Stage 5 it may be relevant to consider whether the hereditament is in a class of property where demand has yet to be established. If this is the case an allowance may be appropriate to reflect the uncertainties facing the hypothetical tenant.
The effect of financial aid
Following on from the decision in Allen (VO) v English Sports Council/Sports Council Trust Company (2009) no allowance should be made within a Contractor’s Basis valuation for grant funding or limited affordability on the part of the hypothetical tenant. It may however be appropriate to consider if the availability of the grant has led to a hereditament which is more costly, because of size or specification, than would actually be required by the hypothetical tenant at AVD. This judgement also stated that grant may become relevant if the grant regime has an impact on rental values in the local market of the category of hereditaments under consideration.
Allowing for rounding, application of any Stage 5 Review allowance produces Net Annual Value.
Summary of recommendations for allowances and adjustments
The overall position with regard to allowances and adjustments can be summarised as follows:
- Adjustments made at Stages 1, 2 and 3 reflect particular deficiencies or require adjustments in buildings and other rateable structures (e.g. age obsolescence, superfluity).
- Adjustments made at Stage 5 account for factors which affect the value of the hereditament as a whole (e.g. layout, access, state of the industry).
- Where more than one factor is to be reflected at Stage 5, a separate allowance for each individual factor should be clearly shown.
- Superfluity may apply to a range of property types valued on the Contractor’s Basis.
- Any allowance for superfluity should be supported by evidence and will be a matter of valuer judgement in each individual case.
- Adjustments for superfluity can be made at Stage 2 or by costing a modern alternative at Stage 1.
- Allowances for superfluity should be reflected in the area of land valued or the Ebdon Allowance.
Contacts
For advice on any aspect of this Practice Note, please contact LPS on 0300 200 7801
Appendix 1: Decapitalisation rates
- Healthcare, Education, Defence and Church property: 2.27%
- All other types of property: 3.4%
Appendix 2: Cost adjustments
Additions for External Works
The following indicative additions to the ERC are exclusive of professional fees.
| Addition | Extent of site works | |
| Minimal | 5% | Where there is minimal surplus land, typically a town centre site. Limited landscaping, staff parking and with some boundary fencing. |
| Good | 10% | A normal site, typically with some landscaping around buildings, secure boundary fencing, adequate staff parking and limited general parking within the hereditament. |
| Extensive | 15% | The hereditament is located on a large site, and the ratio of land to buildings is high. There will be landscaping around buildings, secure boundary fencing and adequate parking within the hereditament for staff and all other users. |
Aspects of specification of items to be costed may not be directly reflected in standard recommended rates and will require appropriate adjustment to be made to reflect variation in specification and contract size and fees
Having arrived at an initial Notional Cost of Contract, the table of recommended contract size adjustments, below, should be used to reflect the effect of the hypothetical overall Contract Size. The adopted “normal” contract size for analysis (and valuation) purposes is set at £4,000,000. The table is based on the assumption that reasonable quantities of all types of work are included within each contract.
Adjustments for Contract Size
The size of contract has a direct influence on tender prices and small projects will usually cost more per unit (project) than larger ones. Percentage additions as set out below should be added to the Notional Contract Cost where appropriate.
NB: If considering evidence of fees and charges obtained from local authorities and other public bodies, such costs may require an upward adjustment to allow for fees which have been absorbed by the use of in-house professional staff.
| ERC £ | % Adjustment |
| Up to 0.25 million | + 10% max |
| Over 0.25 million up to 0.375 million | 9% |
| Over 0.375 million up to 0.5 million | 8% |
| Over 0.5 million up to 0.625 million | 7% |
| Over 0.625 million up to 0.75 million | 6% |
| Over 0.75 million up to 0.875 million | 5% |
| Over 0.875 million up to 1.0 million | 4% |
| Over 1.0 million up to 1.5 million | 3% |
| Over 1.5 million up to 2.0 million | 2% |
| Over 2.0 million up to 3.0 million | 1% |
| Over 3.0 million up to 4.0 million | 0% |
| Over 4.0 million up to 5.0 million | -0.50% |
| Over 5.0 million up to 6.0 million | -1% |
| Over 6.0 million up to 8.0 million | -1.50% |
| Over 8.0 million up to 10.0 million | -2% |
| Over 10.0 million up to 15.0 million | -3% |
| Over 15.0 million up to 18.0 million | -4% |
| Over 18.0 million up to 20.0 million | -5% |
| Over 20.0 million up to 25.0 million | -6% |
| Over 25.0 million up to 30.0 million | -7% |
| Over 30.0 million up to 35.0 million | -8% |
| Over 35.0 million up to 40 million | -9% |
| Over 40.0 million | - 10% MAX |
| NB. Intermediate figures may be interpolated. | |
Additions for Fees and Charges
An overall percentage addition in line with the table below should be made to cover the following:
Professional fees
Feasibility Study
Architect - design/ landscape
CDM coordinator
Quantity surveyor
Consulting engineer - structural/ civil
Mechanical/ Electrical engineer
Other charges
Site investigation
Planning application
Building Regulations - prescribed fees
Professional disbursements
| ERC Addition for Fees/ Charges | ||
| Scheme Cost Category | Total | Unit |
| Sums up to £750,000 | 12 | % |
| £750,000 to £1,500,000 | 11.5 | % |
| £1,500,000 to £4,000,000 | 9.5 | % |
| £4,000,000 to £7,500,000 | 8.5 | % |
| £7,500,000 to £15,000,000 | 7.5 | % |
| Over £15,000,000 | 7 | % |
Up to a further 4% may be added to the above scales for hereditaments of a more complex nature. This is for highly serviced buildings where the design and co-ordination is greater due to more complex services and environmental controls.
Buildings that may attract a 2% premium are ambulance, police and fire stations, branch libraries, educational establishments, recreation and leisure facilities, community centres and conference centres.
Examples of the buildings that could attract a 4% premium are crematoria, law courts, main libraries, public conveniences, laboratories, hospitals, microelectronic factories and other such buildings.
Appendix 3: Reval2023 obsolescene allowances
The Reval2023 Obsolescence Scales are included in the published LPS NI Reval2023 Cost Guide.
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