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: Markets and Marts
Sub Class: Market
Type: Small Livestock Market, Medium Livestock Market, Large Livestock Market
There are three principal types of livestock markets readily identifiable throughout Northern Ireland.
(1) Modern purpose built market complexes generally spacious and accessible on the edge of provincial towns, often with ancillary accommodation providing related services to market customers. Examples of these would include Omagh and Ballymena with the most recent being Markethill.
(2) Older long established centrally located markets in the larger towns with ageing facilities and perhaps with parking / access difficulties. Examples of these would include Kilrea and Saintfield.
(3) Small local markets in towns and villages across Northern Ireland, often with poor facilities and perhaps less frequently operated (seasonal only). Examples of these would include Fivemiletown and Plumbridge.
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”.
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.
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.
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.
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.
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.
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.
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.
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