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 Local Authority property classified as:
Class: Sport and Recreational
Sub Class: Leisure Centre / Swimming Pools
Type: Not Applicable
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”.
Article 41(2) (a) of the Rates (NI) Order 1977 applies to Council run leisure centres and swimming pools, they are distinguished as Exempt from rates i.e. ‘any hereditament which is altogether of a public nature and is occupied and used for the purposes of public service’.
Valuation Approach for 2023
The Contractor’s method of valuation is to be retained as the approach for this type of hereditament.
The overall aim of the Contractor’s basis is to arrive at the effective capital value (ECV) that is then converted into annual rent. The primary method of arriving at ECV is to consider replacement building costs suitably adjusted.
Source: RICS guidance note: The Contractor’s Basis of Valuation for Rating Purposes 2nd edition August 2017, from the Joint Professional Institutions' Rating Valuation Forum which is made up of representatives of the RICS, the IRRV, the RSA, the SAA, LPS and the VOA.
The method is employed in the case of properties that are not normally let out, which by their nature do not lend themselves to valuation by comparison with other classes where rental evidence does exist, and which are not of the type where a valuation solely by reference to the accounts of the undertaking would be appropriate.
The recommended approach to valuation comprises five stages.
Stage 1: Estimated Replacement Cost (ERC)
Identify the extent of the rateable hereditament, then estimate the replacement cost of the buildings, site works, all rateable structures, and rateable plant and machinery within the property on an undeveloped site.
In order to achieve consistency, a unit cost approach using Cost Guides is the primary method adopted.This approach will include the prevailing costs in the identified location, the effect of any contract size, and any associated professional fees.VAT is excluded, as are any grants or donations.
There may be cases where it would be appropriate to cost a modern, simpler or smaller substitute. The substitute would be of a design and specification that enables the use of the actual property to be carried out in a fully satisfactory manner.
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.
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.
Where a modern substitute has been costed at Stage 1, allowances at Stage 2 should be restricted to the disadvantages of occupying the actual buildings in comparison with occupying the costed substitute.
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.
For Reval2023, adjustments will apply for Age Obsolescence appropriate to the property class.
Stage 3 - Value of Land
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 to those parts of hereditament site that have been developed with buildings or other rateable structures on it (i.e. encumbered by buildings and to which the average obsolescence allowance that was adopted to the structures at Stage 2 will normally be applied).
The capital value adopted for the land at the first stage, and before adjustment as appropriate at the second stage for the existence of rateable structures, 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.
The assessed capital land value element will be added to form part of the total Effective Capital Value (ECV) to which the appropriate decapitalisation rate should be applied to calculate the Net Annual Value (NAV). [See Stage 4 for details on decapitalisation].
It may be appropriate to consider alternative sites in an area of high land value where the occupier of the property derives no extra benefit therefrom, however, comparisons should be made with sites of a comparable size, in the same mode or category of use.
For certain property types there may be a reasonable amount of reliable market evidence for site rents which can be used.For these property types the value of the land element may therefore be assessed by applying a rental rate per unit of assessment (acres/hectares) derived from analysis of such reliable rental information.Where this method is employed, the decapitalisation rate is not applied to the assessed land rental element, the land rental element instead being added to the decapitalised ECV to form part of the Total NAV for the hereditament.
Stage 4: Apply the appropriate decapitalisation rate to the total ECV.
Decapitalising the sum of Stages 2 and 3 by the appropriate rate converts the ECV to an annual equivalent. The decapitalisation rates are prescribed by legislation, this does not allow any degree of valuation judgement.
Lower rate: 2.27% - in the case of a healthcare, educational or church hereditament.
Standard rate: 3.4% - for all other types.
Stage 5: Review. Also known as the ‘stand back and look’ stage.
This stage is used to consider if any further adjustments are appropriate. Any such adjustments must be made for specific reasons and cannot be used to circumvent the decap rate. Care should be taken to ensure they do not duplicate allowances already made at Stage 2.
Adjustments made at this final stage are to reflect factors that affect the value of the property as a whole, e.g. poor access, cramped site conditions, inadequate layout. This stage provides an opportunity to consider whether a pioneering allowance or allowance to reflect the economic state of the industry is appropriate.
The value arrived at in Stage 5 is rounded to produce the NAV.
For full details see the following documents:
- RICS guidance note: The Contractor’s Basis of Valuation for Rating Purposes 2nd edition August 2017.
- LPS Code of Measuring Practice
- LPS NI Reval2023 Rating Cost Guide Practice Note
- LPS NI Reval2023 Rating Cost Guide Spreadsheet
- LPS Contractor’s Basis of Valuation
Superfluity is not applied to this class of property at revaluation. Its possible presence and effect on value is for the ratepayer or agent to demonstrate and evidence.
Rent and Lease Questionnaire
For this class of property Rent and Lease Questionnaires (RALQs) were not issued.
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.