Hotel and Guesthouse (Licensed) (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/ 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.


This Practice Note refers to property classified as:

Class: Licensed Accommodation
Sub Class: Hotel, Guesthouse, Holiday Complex           
Type: Not Applicable

Hotels can vary greatly in size, range and standard of facilities and amenities offered and a regulatory rating system is in place to grade properties - see Appendix 1.

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”.

Regulatory Legislation

The Tourism (Northern Ireland) Order 1992.
Article 12. The statutory categories of tourist establishment:

1. For the purposes of this Part there shall be the following categories of tourist establishment, namely:

(a) Hotels;
(b) Guesthouses;
(c) Bed and breakfast establishments;
(d) Self-catering establishments;
(e) Hostels;
(f) Bunk house;
(g) Campus accommodation; and
(h) Guest accommodation.

Article 14. Requirements as to certification and description of tourist accommodation:

1. A person shall not provide or offer to provide tourist accommodation in any establishment unless a certificate under Article 13 is in force in respect of that establishment.

2. The proprietor of an establishment shall not describe or hold out, or permit any person to describe or hold out, that establishment as being within a statutory category of tourist accommodation unless there is in force in relation to that establishment a certificate under Article 13 allocating that establishment to that statutory category.

3. A person who contravenes Paragraph (1) or (2) shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 4 on the standard scale or to imprisonment for a term not exceeding 6 months, or to both.

Licensing Legislation

Licensing (Northern Ireland) Order 1996.

Article 5. Premises for which licences may be granted:

1. Without prejudice to Article 80, the premises in which the sale of intoxicating liquor is authorised by a licence shall be premises of one of the following kinds:

(a) premises in which the business carried on under the licence is the business of selling intoxicating liquor by retail for consumption either in or off the premises;
(b) premises in which the business carried on under the licence is the business of selling intoxicating liquor by retail for consumption off the premises;
(c) an hotel;
(d) a guesthouse;
(e) a restaurant;
(f) a conference centre;
(g) a higher education institution;
(h) a place of public entertainment;
(i) a refreshment room in public transport premises; and
(j) A seamen's canteen.

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.

Application of the Practice Note will require an estimate to be made of the fair maintainable trade (FMT). The FMT is the turnover that a reasonably experienced operator could expect to maintain in the hotel at the valuation date. The FMT is multiplied by an appropriate percentage to convert it to the rental value. Each income stream - accommodation, drink and food - is taken at a different percentage to reflect the varying profitability of that income stream.

The valuation approach for hotels used by LPS for Reval2023 has not been changed from that used for Reval 2020. The percentages applied to turnover are

Classification / Star Accommodation% Drink% Food%
1 4.5 - 5.0 4.5 - 5.0 2.5 - 3.5
2 4.5 - 6.0 4.5 - 5.0 2.5 - 3.5
3 5.5 - 7.0 5.0 - 6.0 3.5 - 4.0
4 6.5 - 8.0 5.5 - 6.5 4.0 - 5.0
5 6.5 - 8.0 5.5 - 6.5 4.0 - 5.0

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.


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


Appendix 1

Accommodation Rating

The Tourism (Northern Ireland) Order 1992 prohibits anyone from providing or offering to provide tourist accommodation as a business (that is, overnight sleeping accommodation for tourists provided by way of a trade or business) unless there is a valid certificate issued by NITB in force in respect of the premises.These regulations apply to all tourist accommodation categories including hotel, guesthouse, bed and breakfast and self-catering establishments.


The inspection, certification and classification of such premises is the responsibility of the Northern Ireland Tourist Board.Premises are classified solely on the basis of the facilities they provide.


Under the present system there are five classifications for Hotels built around a star system as follows:

5 star - prestige hotels which offer the highest international standards of comfort and service.

4 star - large hotels with high standards of comfort and service, in well-appointed premises, run by a professional team.All bedrooms have a private bathroom and some also have a private lounge.Food and beverage services meet exacting standards and there is good room service.

3 star - hotels offering good facilities and a wide range of services in comfortable surroundings.Food, wines and refreshments are available during the day and all bedrooms have en-suite facilities.

2 star - hotels offering good facilities with a satisfactory standard of accommodation, food and services.The majority of bedrooms have en-suite facilities.

1 star - hotels with acceptable standards of accommodation and food.Some bedrooms have en-suite facilities.

Unclassified - In addition, a number of hotels are ranked as unclassified.These are hotels that do not satisfy the minimum criteria of the classification scheme or do not as yet meet the minimum standards under the 1992 Order.They include hotels that, at the time of inspection, did not meet the requirements of the particular star rating for which they had applied, or are newly opened and have not been inspected yet.

Appendix 2

Fair Maintainable Trade (FMT)

Application of the scheme will require an estimate to be made of the likely level of trade [excluding VAT] considered to be maintainable at 1st October 2021having regard to the physical nature of the hotel and its location. It should be assumed that a competent hotelier 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.RALQ’s will be used to assemble past trading figures.

Where trade is not disclosed, an estimate will be made by comparison with other similar properties in the area or by reference to Companies House data.Comparison will be on the basis of FMT.

Trade Mix

Trade mix [or income split] has a bearing on the profitability of licensed residential accommodation.Even premises with the same classification are likely to show wide variations in trade mix depending on location, character, range of facilities, business emphasis etc.It is essential that FMT is apportioned between the main income streams that make up the business at each premise.These main income streams are:

  • accommodation;
  • intoxicating liquor;
  • food; and
  • Other receipts.


Accommodation receipts are generally regarded as being the most profitable of the income streams and hence, can be viewed as a useful guide to profitability.


Liquor sales are regarded as the middle ranking receipts in terms of profitability with gross profit margins in the region of 60%-65%.


Although similar to liquor in terms of gross margins, food sales are the lowest ranking receipts from a profitability point of view.

Other Receipts

Income from other sources includes room hire, telephone calls, door receipts and machine income. Although they tend to represent only about 5% of turnover such receipts can be highly profitable and should, where quantifiable, be added to the liquor trade.

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