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: Unlicensed Accommodation
Sub Class: Self Catering Holiday Establishment
Type: Single Unit, Multiple Unit
A considerable number of properties are precluded from being treated as a commercial hereditament due to the application of the provisions of Schedule 5 of The Rates (Amendment) (NI) Order 2006: Definition of a dwelling house (see Section on Legislative Background).
Air BnB (or similar) are recent entrants to the self-catering market. Air BnB is an online market place which lets people rent out their properties or spare rooms to guests. Airbnb takes 3% commission of every booking from hosts, and between 6% and 12% from guests. Properties advertised to let on Air BnB should be considered on a case by case basis ensuring that Para 3 Schedule 5 of The Rates (Amendment) (NI) Order 2006 is satisfied. A decision will then be made whether the property remains domestic or reverts to non-domestic based upon the facts in each case.
Types of Accommodation
This property type mainly comprises short-stay tourist accommodation in self-contained units. In some larger complexes these units may benefit from a range of on-site services, such as shops and leisure facilities.
Tourism NI define self-catering establishments as follows:
“A self-catering establishment provides one or more self-contained units i.e. house, apartment, cottage etc. offering clean, comfortable, furnished accommodation for visitors who are also provided with the means to cater for themselves.
Each unit must have an area for use as a lounge and dining area, sleeping accommodation, bathroom and toilet, plus catering facilities - all adequate for the number of visitors”.
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”.
The Rates (Amendment) (Northern Ireland) Order 2006
Self Catering accommodation which is let commercially is rateable under Schedule 5 Paragraph 3 of the Order. The accommodation must be:
- Available for letting commercially
- Available for short periods totalling 140 days or more a year
By virtue of this amendment, second homes which are let occasionally would be considered as domestic hereditaments.
The exceptions to Schedule 5 Paragraph 3 include:
Holiday cottages run by a club or charity which is not established for profit. These are valued as non-domestic under this Scheme provided they are used wholly or mainly for the provision of short stay accommodation.
Holiday flat lets which provide accommodation which is not self-contained.
All premises providing or offering to provide tourist accommodation must be certified by Tourism NI under the Tourism (Northern Ireland) Order 1992. The web link is http://www.legislation.gov.uk/nisi/1992/235/contents/made.
Tourism NI’s Quality Assurance Grading Scheme for tourist accommodation premises is designed to give visitors a clear idea of the standards of hospitality, service, cleanliness, comfort and food which they can expect during their stay. The scheme is open to hotels, guest houses, B&Bs, self-catering, hostels and guest accommodation. Tourism NI carries out inspections every four years and awards the property a rating ranging from unclassified to 5-star.
Whilst it is a legal obligation for all tourist accommodation providers to have a certificate from Tourism NI in order to operate, participating on the Quality Assurance Grading Scheme is voluntary. Research does show that consumers value the star ratings provided by national tourist boards when planning where to stay.
Tourism NI’s Quality Assurance Grading Scheme is the same common standards scheme that is used by other national tourist boards in Scotland, England and Wales.
Tourism NI also classifies these properties by size. The three bands are:
- 1-4 units
- 5-9 units
- 10+ units
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.
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.
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.
Information on accommodation/facilities at each hereditament is available from Tourism NI and can also be gained from inspection. A single bed is counted as one guest place and a double bed as two guest places. Children’s cots, camp beds and sofa beds should be ignored. Bunk beds are taken as one guest place.
Note should be taken on the availability of Ancillary facilities (revenue & non-revenue producing). The ancillary facilities available will dictate the quality/ grade of the establishment. Thus the greater the facilities, the higher the quality grading and pricing will be as a result. Facilities over and above the norm may warrant an additional increase in the overall bed space value by way of an enhancement.
Properties that are in areas which would be classed as ‘one-off’ i.e. Area of Outstanding Natural Beauty/Lake Side/Beach front etc. will be subject to an enhancement.
Bars and Licensed restaurants associated with the self-catering accommodation should be valued with reference to the LPS Licensed Premises Practice Note.
In some circumstances parts of larger complexes may be separately let to third parties. In such cases they will be separately valued, usually on a comparative basis by reference to bulk class properties.
Rent and lease questionnaire
For this Class of property Rent and Lease Questionnaire (RALQ) were issued.
RALQs have been issued and analysed by the Practice Note Author.
RALQs requested gross receipts information and not full accounts for this class of property.
For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.