Scope
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.
Description
This Practice Note refers to property classified as:
Class: Sporting recreational
Sub Class: Race track
Type: Horse racing / Dog track
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
Horse Racing Ireland (HRI) is the governing body of horse racing on the island of Ireland and is responsible for racing in both the Republic of Ireland which has 24 racecourses and in Northern Ireland which has 2 racecourses.
Horse Racing Ireland are responsible for the governance, development and promotion of the industry throughout the island of Ireland under the Horse and Greyhound Racing Act 2001.
The Irish Greyhound Board is the governing body of greyhound racing on the island of Ireland.
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.
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 ‘short hand’ 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 FMT i.e. the likely level of trade [excluding VAT] considered to be maintainable at 1st October 2021, for each property. In assessing the FMT, some adjustments may be required to reflect the nature and type of business carried on at each establishment.
The established FMT will be apportioned between the primary income sources i.e. accommodation, drink, food and other income of the property. The Net Annual Value (NAV) is then assessed by the application of differential percentage rates to each of these income streams.
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 not issued – Occupiers were contacted and asked to provide accounts.
Contacts
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.