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www.irrv.netDecember 2009
ISSN 1361-1305
INS
IDE
: Avoid
ing
empty rate liability // V
aluation
mod
elling
// Spirerose case an
alysed
Dn’
t s
ht the Messeng
erRoger Mes
seng
er re
spon
ds to
In th
e fram
e by Cha
rles Partridge, a critique of the work of the CLG and BAs in adm
inistering business rates
2010 IRRV CONFERENCES & COURSESBENEFITS (AND BENEFIT FRAUD) CONFERENCESSouthport, 9 – 11 February 2010
SPRING PRE-EXAMINATION COURSE Keele, 24 – 30 April 2010
MANAGEMENT COURSE Keele, 28 – 30 April 2010
COLLECTION AND ENFORCEMENT CONFERENCE Harrogate, 25 & 26 May 2010
WELSH CONFERENCE Llandrindod Wells, 17 June 2010
SCOTTISH CONFERENCECrieff, 1 & 2 September 2010
ANNUAL CONFERENCEHarrogate, 28 September – 1 October 2010
For more Information please visit: www.irrv.org.uk
or call: 02076 918 987
For exhibition inquiries please contact
Vicki Parry on: 01908 306 500 or email:
[email protected] sponsorship and
advertising opportunities please contact
George Lizio on: 02076 918 987or email:
Non-Domestic Rating 1995, 2000 & 2005 Valuation List TransitionalArrangements ManualsAnne Firth IRRV
Each version in this acclaimed series of technical manuals explains and illustrates the principles behind the calculation of the transitional charge payable on business hereditaments following, respectively, the 2005, 2000 and 1995 general revaluation in the first instance, and the necessary adjustments subsequently required to reflect all of the different types of valuation list amendment. They have been written by an IRRV qualified former Metropolitan Borough Local Authority revenues practitioner specifically for users of all levels of experience and knowledge.
They provide an invaluable source of comprehensive reference and training material, and are used extensively in both the public and private sectors by a wide range of organisations and individuals, including Local Authorities and Rating Surveyors.
To order online please visit the IRRV website: www.irrv.org.uk or send an email to: [email protected]
Price:
£495.00(plus VAT + £7.50 P&P)
IRRV PUBLICATIONS VAT
Annotated Rating Legislation – 2009 UpdateEd Slater IRRV
This publication has now been updated for 2009, produced in a set of four loose-leaf volumes, and contains all primary legislation relevant to rating together with the currently applicable regulations and orders to the date of publication in 2009.
All amendments brought about by statute and statutory instrument between 1989 and 2009 have been made to the text, and legislation repealed, revoked or ceasing to have effect is so indicated, as appropriate, throughout.
This publication will be maintained by regular updates in the years to come.
An electronic PDF version is included.
To order online please visit the IRRV website: www.irrv.org.uk or send an email to: [email protected]
Price:
£495.00(plus VAT + £7.50 P&P)
IRRV PUBLICATIONS VAT
Annotated
Rating
Legislation
Enquiries Membership 020 7691 8980
Conferences 020 7691 8987
Subscriptions 020 7691 8975
Advertising IRRVGary Watson
T 0207 691 8988
Editorial John Roberts
T 07952 659 258
IRRV Valuer is produced by Abstract Associates
Ltd on behalf of the IRRV. Unless otherwise
indicated, copyright in this publication belongs
to the IRRV.
December 2009 ISSN 1361-1305© IRRV 2009. Reproduction in whole or in part of any
IRRV ValueRManaging Editor John RobertsEditorial Director Celia MatherAssistant Editor Alex DalzellArt Director Joel O’ConnorDesigner Anja Linke Publisher Helder Dantas
IRRVChief Executive David Magor, OBE IRRV
41 Doughty Street
London WC1N 2LF
T 020 7831 3505
W www.irrv.net
Abstract Associates Ltd Managing Director Roger Wilsher
Biscuit Factory J108
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W www.abstractassociates.co.uk
article is prohibited without prior written consent. The views expressed in this magazine do not necessarily represent the views of the Institute. While all due care is taken regarding the accuracy of information, no responsibility can be accepted for errors. Any advice given does not constitute a legal opinion.
IRRV Council: IRRV President Geoff Fisher FRICS (Dip Rating) IRRV Senior Vice-President Kerry Macdermott IRRV Junior Vice-President Roger Messenger BSc (Est Man) FRICS IRRV MCIArb. Phil Adlard Tech IRRV MInstLM MCMI; Alan Bronte FRICS IRRV; Robert Brown BSc FRICS IRRV; David Chapman IRRV; Tracy Crowe CPFA IRRV; Barbara Culverhouse IRRV CPFA; Carol Cutler IRRV; Tom Dixon RD BSc (Est Man) FRICS IRRV; Pat Doherty CPFA IRRV; Ian Ferguson IRRV; Richard Guy FRICS (Dip Rating) IRRV MCIArb; Richard Harbord MPhil CPFA FCCA IRRV FIDP FBIM FRSA; Mary Hardman IRRV FRICS MCMI; Gordon Heath BSc IRRV; Julie Holden IRRV MCMI CMg; Caroline Hopkins IRRV; Brian Jeffrey IRRV; Graham Ryall FRICS IRRV; Kevin Stewart IRRV MAAT MCMI; Angela Storey Tech IRRV MCMI; Bob Trahern IRRV; Julie Trahern IRRV; Allan Traynor FCCA IRRV
04 Editorial/VOA news 05 VTS update06 VOA Focus08 Caselaw update09 Planning update10 Fisher’s findings12 Cover storyRoger Messenger defends the current administration of business rating
15 Recognised European Valuer16 IRRV International18 Valuation modelling20 Rating diploma focus24 Business rates26 Compulsory purchase
Contents
“I regard the BAs and indeed the CLG as a model of how to run an extremely complex system” p12
When you have finished with this magazine please recycle it.
_Valuer_www.irrv.net
The VOA is working closely with the IRRV in developing a new Level 4 qualification which will comply with the requirements of the new Qualifications and Credit Framework. This will replace the existing IRRV (Tech) and is expected to be accredited with the Qualifications and Curriculum Authority ready to start next year. VOA personnel are also involved in the development of the valuation option of the new IRRV Diploma that will be launched in 2010.
The new qualification provides other development opportunities for staff and successful candidates can start on the IRRV qualifications. Candidates also gain full corporate membership of the IRRV.
The VOA is close to full implementation of the recently introduced Customer Service Excellence (CSE) award scheme as more groups go through the necessary steps required to get the award.
The scheme, which is expected to be fully in place by March 2010, is designed to further improve the way the VOA serves its customers and ensure first class delivery of service in all areas of work.
Most groups in the VOA have already achieved the award after being assessed by independent assessors appointed by the Cabinet Office. The remaining ones will apply for the new standard when their existing Charter Mark awards expire over the next few months.
The scheme’s success is directly linked to each customer group being assessed independently of others, which has introduced a sense of ownership and pride in attaining the award.
Successful groups have to satisfy the assessors against five criteria:u Customer Insight – focusing on the importance of developing in-depth customer understanding.u Culture of the Organisation – including corporate commitment to putting the customer at the heart of service delivery.u Information and access – the availability of accurate, detailed and timely information.u Delivery – relating to how the applicant’s business is conducted, the outcomes for the customer, and how problems which arise are managed.u Timeliness and Quality of Service – looking in detail at the standards set and the monitoring undertaken.
The CSE awards are valid for three years and replace the Charter Mark, which has been in existence for 17 years; Charter Mark has now been closed to all new applications since 1 July 2008. D
Customer service at the
forefront
he 2010 non-domestic revaluation has been delivered by the Valuation Office Agency to schedule. The slight concern raised by the one-year postponement
of the Northern Ireland revaluation has been overcome, and we look forward to the revised rate bills arriving in April 2010. As with all recent revaluations, we know that the bill will be complicated by the “normal suspects” – transition, reliefs and supplements.
Surely the time has come to review these elements of the law that dilute the tax base and turn a simple tax into a mathematical nightmare. Now is the time for a complete review of the non-domestic rating system. The starting point should be a commitment to a short period between revaluations to reduce the need for transition, with effective use of automated valuation tools. This initial step should be followed up by a review of exemptions and reliefs, as the majority of these are as a result of historic legislative precedent or because of caselaw which has no place in the modern property tax system.
If we are to move forward to modernise local taxation in Great Britain and Northern Ireland we must embrace change. No longer can we accept that the current approach is the right approach because ‘that’s the way it has always been done’.
We live in a changing world – why should the rating system be resistant to this process? D
T
Over 50 people working
at the Valuation Office
Agency have attained
the industry recognised
IRRV (Tech) valuation
qualifications over the
last 10 years. Another
20 have gained the
full professional
qualification, while
50 are currently on
the course.
The training scheme,
which started in 1999,
is part of the VOA
commitment to make
sure that staff have
the skills required to
do their jobs properly
to meet the needs of
clients and customers
and develop their
careers. The schemes
provide a route to
a professional
surveying qualification.
The IRRV
qualification was
developed by the
VOA for its staff and
approved by the
IRRV and its external
verifiers. On completion
of the five units, VOA
staff can move on to
the IRRV/VOA
professional qualification.
The VOA and IRRV
in partnership
for training
If the rating system is going to keep up with modern times then we must be prepared to embrace change, urges David Magor
Moving with the times
➦David Magor, OBE IRRV, is Institute Chief Executive
VOA news is brought to you by the Valuation Office Agency press office
04_EditorialVOA news
n 1 October 2009 the Valuation Tribunal for England (VTE) acquired its jurisdiction and became the new tribunal responsible
for the effective disposal of non-domestic rating, council tax and drainage rate appeals in England, bringing to an end the 56 local valuation tribunals that existed previously and becoming the judicial body that will work in partnership with the Valuation Tribunal Service. The VTE (Membership and Transitional Provisions) Regulations 2008 – Statutory Instrument 2009 no 2267 – came into force on 30 September 2009 and provided for the initial composition of the VTE.
Four new sets of regulations come into force on 1 October 2009 to support the VTE:u The Non-Domestic Rating (Alterations of Lists and Appeals) (England) Regulations 2009 – Statutory Instrument 2009 no 2268;u The VTE (Council Tax and Rating Appeals)
(Procedure) Regulations 2009 - Statutory Instrument 2009 No 2269; u The Council Tax
(Alteration of Lists and Appeals) (England) Regulations 2009 - Statutory Instrument 2009 no 2270; andu The Valuation Tribunals (Consequential Modifications and Saving and Transitional Provisions) (England) Regulations 2009 – Statutory Instrument 2009 no 2271.
The first sitting of the new tribunal, which saw the simultaneous sitting of the President with all four Vice Presidents, took place at the Royal Institution of Great Britain on 1 October 2009, at 4pm. In convening the tribunal the President handed down the Tribunal Business Arrangements, which he is required to make regarding the selection of the member or members of the tribunal to deal with any appeal.
The VTE (Council Tax and Rating Appeals) (Procedure) Regulations have been very much modelled on those of the Social Entitlement Chamber of the first-tier tribunal, with the modifications to reflect this tribunal’s jurisdiction. Regulation 6 provides for Appeal Management Powers to assist with the effective disposal of cases by the tribunal. Much of this will be done by instructions, directions and Practice Statements. The issuing of Practice Statements allows the President to put flesh on
the bones of the statutory regulations where detail is missing or unclear. Naturally these may change over time, however, once issued these Practice Statements will represent the tribunal’s formal policy and will be adopted nationally, adding much needed consistency.
We are very much aware of the concerns expressed by the professional bodies regarding the impact of such Practice Statements. In addressing these concerns we have established a Valuation Tribunal User Group. This group will provide a forum bringing together representatives of the IRRV, The Rating Panel of the Royal Institution of Chartered Surveyors, the Rating Surveyors’ Association and the Valuation Office Agency. This important group will help to shape the practices to be introduced.
We have also taken this opportunity to reflect on the role of the clerk at the hearing and have introduced some fundamental principles for advising the panel. While judicial decision making rests exclusively with the members of the panel, the system depends critically on the provision of appropriate advice by the clerk officiating at the hearing. The clerk at
the hearing has a duty to furnish appropriate advice and the panel must co-operate fully in this regard. Any substantive advice that is given to the panel by the clerk will be given in public and the parties must, if present, be given an opportunity to comment by the presiding member. It will remain the paramount duty of the clerk at the hearing to ensure that every case is conducted fairly. One change that will be immediately obvious is the procedure at the conclusion of the hearing – the clerk will not withdraw with the panel members, until invited to join them. This emphasises that it is the panel that is making the decision and the clerk is not exerting undue influence in the process.
It will take time for the new VTE to realise its potential and it was always envisaged that not everything could be brought in on 1 October 2009. Of course the regulations are in force, but our intention remains to apply changes gradually and we are currently working towards full implementation in January 2010. The establishment of the User Group will be a big step forward in bringing together users as we develop the tribunal for the future. D
➦Tony Masella MRICS MCIOB IRRV AFA FinstAM is Acting
Chief Executive of the Valuation Tribunal Service. Contact him
O
_Valuer_www.irrv.net
newbeginning
The new Valuation Tribunal for England will realise its full potential in October 2010. Tony Masella believes the changes will give the tribunal a new lease of life
VTS update_05A
06_VOA focus
he essential difference between a dwelling defined by occupation and a dwelling defined because it is a self-contained unit is a concept that can be difficult to
grasp for the public and Valuation Tribunal members.
But gaining an understanding of the legislation, and the particular circumstances where each part applies, is vital in order to correctly band properties for council tax. The meaning of a dwelling is straightforward enough. Basically, anything that was a hereditament under the General Rate Act 1967 and is domestic living accommodation together with any appurtenances (accessories), is a dwelling under the opening paragraphs of section 3 of the Local Government Finance Act 1992. The hereditament is defined by the curtilage of a person’s occupation of land and buildings:
“Anything which would…be one dwelling shall be treated as two or more dwellings; and anything which would… be two or more dwellings shall be treated as one dwelling…”
So what does this mean? The Council Tax (Chargeable Dwellings) Order 1992 explains this in four short paragraphs, as set out below.
Article one declares its name:1. This Order may be cited as the Council Tax (Chargeable Dwellings) Order 1992 and shall come into force on 31 March 1992.
Article two holds some vital definitions, understanding of which is vital for the rest of the Order to be properly understood:2. In this Order: u ’the Act’ means the Local Government Finance Act 1992;u ‘multiple property’ means property which would, apart from this Order, be two or more dwellings within the meaning of section 3 of the Act”;u ‘multiple property’ therefore means multiple dwellings created by multiple occupations (multiple hereditaments) within a property;u ‘single property’ means property which would, apart from this Order, be one dwelling
within the meaning of section 3 of the Act”;u ‘single property’ therefore means a single dwelling based on single occupation or a single hereditament; andu ‘self-contained unit’ means a building or part of a building which has been constructed or adapted for use as separate living accommodation.
This particular definition of ‘self-contained unit’ was introduced by the Rating (Caravans and Boats) Act 1996, which therefore excludes both caravans and boats as neither are ‘buildings’ in the true sense of the word.
In Article 3 of the Order the really tricky stuff begins! Here, we have introduced a completely new type of dwelling – one that is treated as a dwelling by design or adaptation simply because it is a self-contained unit rather than one defined by exclusive occupation. This was a new diversion from previous hereditament law, and specifically applies to domestic buildings for council tax purposes. The word ‘disaggregation’ has been attached
to the concept of the dwelling based on the self-contained unit principle, though the word itself never appears in the legislation. 3. Where a single property contains more than one
T
Don’t dwell on it When is a self-contained unit a domestic dwelling? Justin Giles reviews the legislation that the VOA uses to define dwellings by occupation and self-containment and resolves the riddle once and for all
➦Justin Giles BSc (Est Man) MRICS – Council Tax (Technical), with the Chief
Executive’s Office at the Valuation Office Agency
? ? ? ? ?
? ? ?
?
? ?
?
VOA focus_07
_Valuer_www.irrv.net
self-contained unit, for the purposes of Part I of the Act, the property shall be treated as comprising as many dwellings as there are such units included in it and each such unit shall be treated as a dwelling (my emphasis).
The clause I’ve emphasised is not optional. Where a single occupation includes more than one self-contained unit, such as an annexe to the main accommodation, each part will be treated as a separate dwelling.
It also includes accommodation that ‘accidentally’ finds itself designed as two or more units suitable for multi-occupation. Each unit will be treated as an individual dwelling, even though they are not dwellings, because they are separate hereditaments. Every self-contained unit, therefore, should be banded without exception and without regard to the boundaries of the occupation.
The application of disaggregation had the effect of requiring, for example, any self-contained unit within a care home, occupied by those unable to look after themselves, to be treated as a separate dwelling. This attracted criticism, and following the High Court decision in Williams LO v Royal National Institute for the Blind 2003, the Order was amended. This amendment was introduced as Article 3A in 2004 and specifically addresses registered care homes.3A. A care home shall be treated as comprising the number of dwellings found by adding one to the number of self-contained units occupied by, or if currently unoccupied, provided for the purpose of accommodating, the person registered in respect of it in accordance with Part 2 of the Care Standards Act 2000, and each unit shall be treated as a dwelling.
Only the unit or units occupied by the person holding the registration certificate should be disaggregated. All other self-contained units within the home are treated as if they are one dwelling.
Article 4 now turns to ‘multiple property’, where a property comprises multiple dwellings defined by occupation.4. (1) Where a multiple property –(a) consists of a single self-contained unit, or such a unit together with or containing premises constructed or adapted for non-domestic purposes; and(b) is occupied as more than one unit of separate living accommodation, the listing officer, may, if he thinks fit, subject to paragraph (2) below, treat the property as one dwelling.2) In exercising his discretion in paragraph (1) above, the listing officer shall have regard
to all the circumstances of the case to which the parts of the property separately occupied have been structurally altered.
The important point here is recognising where multiple property matching this legislation exists. The original building in which the multiple dwellings exist must “consist of” a single self-contained unit. (If it doesn’t – move on – you won’t be in Article 4 territory!). The original self-contained unit might typically be a large Victorian house or extensive living accommodation over a shop, for example, which is now multi-occupied.
Article 4 introduces the possibility of yet another type of dwelling, one that is created at the discretion of the listing officer. This arrangement is not new, as similar wording appeared in the General Rate Act 1967 to cover similar circumstances. Where a house in multiple occupation has little or no adaptation or structural alteration from its ‘self-contained unit’ original, the listing officer may exercise a discretion to aggregate all the bands into one.
Difficulties arise when such a property manifests degrees of self-containment and alteration, and the building will no longer fit into the mould of Article 4. Where discretion can be exercised by the listing officer, the dwellings will not be defined by occupation (as there would be multiple bands) but will again reflect the value of the original ‘self-contained unit’. Where odd rooms scattered around a multi-occupied building form separate dwellings, but do not ‘consist of’ a single self-contained unit, the application of discretion is inappropriate.
As an example, when an attic room is let as a bedsit to a tenant, but no structural
alterations or adaptations made, then the listing officer may treat the property as a single dwelling. Where that room, being a separate hereditament, has been structurally altered significantly by addition of some separate facilities, discretion to aggregate will not be warranted, and
the dwellings should reflect the pattern of occupation. Such dwellings don’t have to be self-contained to qualify for separate bands.
The recent High Court decision in the case of Rawsthorne (LO) v Parr 2009 emphasised the need to examine occupation in a property and define the number of hereditaments as a primary consideration, and only then to apply the Order. If you have a ‘multiple property’ consisting of multiple dwellings, then application of Article 3 to that situation will be a clear legal error. Looking for self-contained units in a multiple property will inevitably lead to a misapplication of the law. It is vital to know the difference between a dwelling defined by occupation and one simply created because it happens to be a self-contained unit. Only in this way will correct conclusions be reached on the particular facts of each case. D
“The word ‘disaggregation’ has been attached to the concept of the dwelling based on the self-contained unit principle”
Tapp v Ryder (Inspector of Taxes)Valuation of property for the purposes of inheritance tax. The property was in the process of being refurbished at the time of death, and was subsequently sold on completion of the refurbishment.
Artworld Financial Corporation v Safaryan (Court of Appeal)Property had been leased for a term of three years, but the tenant vacated the property with 15 months of the term unexpired, and returned the keys to the landlord.
Having found that the property had been surrendered in operation of the law, and that the landlord had entered the property, redecorated it and had, for a period of time, occupied the property, his claim for rent for the 15 months was rejected by the Court.
➦Peter Brown is Professor of Property Taxation at Liverpool John Moores
University and a Consultant with Legat Owen, Chartered Surveyors, Chester
Charlton v Northern Structural Services LtdFollowing advice from a firm of structural engineers to remove trees from around a property, the claimant noticed cracking to the property and earlier cracks had opened up as a result of ground heave due to removal of the trees. Whilst the situation stabilised over a period of time, the claimant could only dispose of the property at a substantial discount. The court found that the company had failed to exercise the appropriate standard of care in its recommendations, and the claimant was entitled to damages representing the diminution of value. D
The claimant sought compensation for business loss arising from the use of the subject land, and the loss of value resulting from the disposal of the items by the authority.
The Tribunal found that the claimant’s use of the land was unlawful, in that he had failed to comply with the enforcement notices. With regard to any personal items stored by the claimant on the land which were not used as part of the business then he may have a claim for compensation in respect of their value.
In a subsequent case, the claimant sought compensation for the loss of items of a personal nature held on the site and removed and sold by the authority. He claimed that the items were worth more than the figure obtained by the authority, and he had not been in a position to sell the items himself as he had been declared bankrupt. He claimed he would not have been in such a position if the authority had made an advance payment. The tribunal found that as no formal written request had been made for an advance payment by the claimant, then the authority could not be held to be a cause of the claimant’s bankruptcy.
Hall v Sandwell MBCReference to Lands Tribunal to determine a preliminary issue following the making of a general vesting declaration. The property was used for the sale of motorcycle accessories, with living accommodation above. Storage and machinery repairs were also carried out on the land.
At the date of the GVD the property was subject to two enforcement notices. One related to the requirement to demolish certain property, and the second required the cessation of the use of the land for vehicle repairs and the repair and storage of vehicles, and to remove associated items from the land. The authority served notice on the claimant, requesting him to remove the required items, and when this was not complied with, they removed said items.
“The Tribunal found that the claimant’s use of the land was unlawful, in that he had failed to comply with the enforcement notices”
Problems of premisesPeter Brown picks up on the relevant case law of the past months
Legal update_08
Plans forn 6 April 2010 the government proposes to introduce a Community Infrastructure Levy (CIL)
through Regulations to be made under the Planning Act 2008.
The CIL will be a new charge that certain authorities may be entitled to levy on most forms of new development in their area. It is proposed that the charge will be levied on new buildings of over 100m2. Development by householders will be exempt.
The proceeds from the levy must be applied to infrastructure projects that will support community needs. What constitutes infrastructure has, however, been left purposely wide in order to enable authorities to decide what is appropriate for their areas. The charging authority will also be the collecting authority, and will be under an obligation to report receipts from CIL and detail of what the income was spent on.
The levy will apply to England and Wales but not Scotland. The authorities that will set the charge include district and unitary authorities, London boroughs, national parks, and the Mayor of London in England; and in Wales, county councils, county boroughs and national parks. There is, however, no compulsion to adopt CIL, and charging authorities are free to choose whether or not they impose it. The amount of revenue raised by CIL will depend on how many authorities adopt the charge, but estimates anticipate that it should raise hundreds of millions towards infrastructure projects.
Charging authorities will be able to decide the level at which to set the charge, having regard to the economic circumstances prevailing in their area. In selected cases, differential rates
expansion
In early 2010 new charges will allow most authorities to levy on new development in their area. Tony Prior underlines the rules and regulations involved
may be applied to different types of development. Charging will be based on a tariff related to the rate prevailing at the date of the grant of planning permission applied to the gross internal floor area of the building being developed. However, payment would not be required until the commencement of building works.
CIL will not be permitted for use as general local authority expenditure, nor may it be used to remedy existing shortfall, but it can be applied to increasing the capacity of existing infrastructure. The CLG gives the example of additional sports facilities. It may also be applied to repair failing existing infrastructure.
The scheme will permit an authority to spend money on infrastructure outside of its area, including sub-regional expenditure, to encourage cross-border working with regard to infrastructure needs, as well as setting up joint committees, with representatives from local and where appropriate national organisations.
The scale of charge will be derived from an average cost across a number of infrastructure projects. To establish the level of charge an authority
The use of planning obligations under s106 of the Town and Country Planning Act will continue to be available. CIL will, however, be a mandatory charge where adopted, but s106 payments will continue to be negotiated. Accordingly, consent for development will not be delayed as a direct consequence of CIL, whereas failure to agree a s106 obligation may result in failure of the application. Restriction on use of planning obligations will be reviewed as part of CIL legislation, with planning obligation tested by five proposed rules:(i) relevant to planning;(ii) necessary to make the proposed development acceptable in planning terms;(iii) directly related to the proposed development;(iv) fairly and reasonably related in scale and kind to the proposed development; and(v) reasonable in all other respects.
These proposals will apply whether or not an authority adopts CIL.
Clearly the introduction of CIL will require staff in local authorities and other organisations to acquire new skills to implement, maintain and manage a range of new responsibilities. D
O
will have to have regard to the infrastructure needs as identified in an up-to-date development plan, taking into account other funding sources. Whatever level of charge is adopted it will be indexed, and the current proposal is to tie this to building cost indices.
An authority must set out the level of charge in a schedule. The schedule will form part of the local development framework document. While not strictly part of the development plan, the proposed level of charging must be supported by appropriate evidence, and will be open to public consultation, with scrutiny to be heard before an examiner aided by assistant examiners. The Valuation Office Agency (VOA) is suggested as being a suitable provider of these roles. Appeals on matters of fact concerning calculation of levy will also go to the VOA.
➦Tony Prior is
the IRRV’s valuation
consultant
Planning update_09
_Valuer_www.irrv.net
IRRV President Geoff Fisher brings readers a bumper Christmas issue of his regular column
Pho
tos
cour
tesy
of R
icha
rd G
uy
These guys need buttering up! David Magor, IRRV Chief Executive, Nic Cooper of CLG and Tony Masella of the VTS, at the RSA Guest Dinner in October 2009
The IRRV President with Allen Evans, the Rating Diploma Holders’ chairman
he Rating Diploma lunch was held on 27 November 2009 in the RAF Club, Piccadilly. This followed the packed September conference on ‘Valuation – In Recession – again’, with the focus on the 2010 revaluation. Rating
Diploma Holders regularly contribute to Valuer – look out for more articles in 2010.
The Rating Surveyors Association held its Guest Dinner on 21 October, also at the RAF Club, Piccadilly, chaired by President Mark Higgin, who contributed to the Valuer Day in Bournemouth. The Rating Surveyors’ Association is a professional organisation representing the interests of experienced chartered surveyors who specialise in the field of business rates. The Association was founded in 1909 and now has over 350 members drawn from private practice, corporate bodies, the Valuation Office Agency and local authorities. www.ratingsurveyorsassociation.org.uk.
T
10_Fisher’s findings
News and views
ViP issue 15 (Oct 2009) has details of the Cumbria VT decision that a public convenience was in beneficial occupation and rateable – except when it was in a public park. www.valuationtribunal.gov.uk/vip_newsletter.aspx
STAND BACk AND LOOk! The Lands Tribunal website has an important decision on the Contractors Test, and the prescribed decapitalisation rate. The Tribunal allowed the VO’s appeal after a comprehensive review of caselaw, and confirmed an RV of £478,250 after a small allowance for the flooding of the golf course. The Tribunal decided that a £10m Lottery Grant on the National Sports Centre, Bisham Abbey near Marlow, was not to be taken into account, apparently overturning Willacre v Bond (VO) 1987 RA 199, where a grant was deducted from the construction cost: Paul Allen VO v English Sports Council /Sports Council Trust Company (RA/4&7/2006).
However, the VO lost an appeal in Richard Ebury (VO) v Central Methodist Church, where the Lands Tribunal decided that the Cornerstone Christian Books and coffee shop was exempt as part of the church hall under paragraph 11(1)(b) Section 5 of the Local Government Act 1988. The underlying purpose was both to promote the Christian religion as practiced by the Methodist church, and attendance at the church and involvement in its activities such that it was indeed exempt under that provision. www.landstribunal.gov.uk/Aspx/
COMPENSATION FOR TUNNELLINGIn two decisions embracing some 81 and 147 North and East London claims of compensation for acquisition under the Channel Tunnel Rail Link Act 1996, the Lands Tribunal awarded £50 per plot for the acquisition of subsoil some 24 metres underground, and in each case there was no compensation for severance and injurious affection. ACQ/375 etc., and 370 etc.
In another case concerning the Channel Tunnel Rail Link, Pattle & Pattle v Secretary of State for Transport (ACQ 7/2007) the Tribunal decided on a preliminary issue that the ‘2nd leg’ of Rule 6 of the Land Compensation Act 1961 could include a claim for an earlier loss of rent due to the prospective acquisition of part of the land.
In Weybridge Management Ltd v Spelthorne Borough Council (ACQ/430/2007), the Tribunal decided that the compensation for acquisition of some 3.65 acres of meadow and trees at Sudbury on Thames should be £100,000, to include ‘hope value’, despite its inclusion in the Metropolitan Green Belt. www.landstribunal.gov.uk/Aspx/ D
IRRV ASSOCIATION NEWSThe London and Home Counties Association held a well attended ‘Reval 2010’ meeting in October at Montagu Evans’ London W1 offices. Association Chairman Peter Scrafton introduced speakers Patrick Bond (VOA), Blake Penford (GL Hearn), and Tony Masella (VTS), followed by a lively question time. See the London Association website for the slide presentations. Make a note in your diaries for the Association Annual Dinner on 12 February 2010.
The South Wales Association held a ‘Reval 2010’ meeting in Cardiff in October, chaired by Institute Senior Vice President kerry McDermott, with presentations from Brian Jones, South Wales VO (Reval lead) and Institute President Geoff Fisher. See the President’s blog for more details.
COMING SOON…EAST ANGLIAN ASSOCIATION26 January 2010, 2pm: the new transition scheme, South Norfolk Council’s offices. 24 March 2010, 2pm: the new Valuation Tribunal Service, South Norfolk Council’s offices.
TEGoVA Elsewhere in Valuer you will find details of the Recognised European Valuer qualification. The spring 2010 meeting is to be held in Paris – check out www.tegova.org.
CHRISTMAS CAROL SERVICE 18 December 2009, 12.45pm for 1pm, at St George’s, Hanover Square, with the chance for all to join fellow ‘property people’ to celebrate Christmas with carols and a brief talk. Hosted by Christians in Property. www.christiansinproperty.org.
The Valuation Office Agency stand at the Bournemouth Conference introduced the new ‘2010 Reval’ website, which includes an agent direct route to the Rating Lists’ assessments. The many visitors to the stand included the new appointed Chief Executive of the Agency, Penny Ciniewicz.
The VOA has issued a timely fact sheet on its website warning of rating cowboys called, Business Rates: Getting professional advice – Make a choice, not a mistake. www.2010.voa.gov.uk/rli/static/HelpPages/Documents/professional_advice_leaflet.pdf
See also IRRV Council member Mary Hardman’s presentation on the Revaluation 2010 on the Institute’s website.
100 years of the Valuation Office. The VOA is to celebrate 2010 as marking the centenary of the Valuation Office, and would welcome any old photos, articles or memories of years past to contribute to a planned exhibition. Valuer will be featuring more news of the centenary in future issues.
The Valuation Tribunal has a new look website, covering both the judicial arm, the VTE (Valuation Tribunal England), and the administrative and operational VTS (Valuation Tribunal Service). The regular VTS newsletters are still there, but rather hidden away under Publications as ViP’s Valuation In Practice Newsletters. www.valuationtribunal.gov.uk/vip_newsletter.aspx
ViP issue 14 (June 2009) includes a summary of a VT case on New Scotland Yard, which concerned first whether a first proposal was agreed or withdrawn, and then whether the Net Internal Area (NIA) used to assess the 2000 List RV should exclude some internal corridors formed from demountable partitioning. The VT confirmed they were not “essential fire corridors”, and therefore should be included in the NIA. Another VT case concerned a police station adjacent to the large Harlequin shopping centre in Hertfordshire. The VT confirmed that it should be assessed as office values, rather than at the shopping centre’s concessionary rental for use as a police station.
➦Geoff Fisher is IRRV President,and professional consultant at Strettons
Chartered Surveyors. Email him at:[email protected]
Fisher’s findings_11
_Valuer_www.irrv.net
n response to the article penned by Charles Partridge in September Valuer, I seek to set the record straight on a number of elements that Charles debated. First, I would entirely endorse
Charles’ view that the Valuation Office Agency (VOA) has improved its methods of operation. I similarly endorse his view that the enhanced use of IT in the publication of the rating lists and summary valuations on its website must be a step in the right direction, albeit that the draft list for 2010 has, within a couple of days of its arrival online, been beset with difficulties on access due to ‘browser’ problems. One would have hoped that this could have been avoided given the problems on the last list, and the well-publicised view that there would be no IT difficulty on this new list.
Charles goes on to say that, while the improvements in the VOA are impressive, there remain major shortcomings with the CLG as the parent department and the Billing Authorities (BAs) as a collection vehicle. I entirely disagree. Charles rightly points out that the VOA and the Valuation Tribunal Service (VTS) have recognised that non-domestic ratepayers are a major stakeholder and he used the word “primary”. Clearly this fails to recognise the function of the BAs in the raising and collecting of council tax (CT).
He points out that non-domestic rate (NDR) raises approximately £20bn a year, whereas the annual yield from CT is in fact about £25 bn. On this basis, CT payers are at least equivalent stakeholders. The role of the BA is many fold and is intended to be the face of local democracy. CT is set and collected locally by the BAs, and each CT payer has a correlation between what he or she pays and the provision of local services. In respect of NDR these are collected by the BA on behalf of central government, which then redistributes the money via a grant system. I think it is completely wrong to suggest that this collecting system is somehow broken.
In my experience, the BAs are fairly efficient in collecting the non-domestic tax, albeit with the annoyance of different style of bills and different layout making clarity difficult. However, this is a result of the complexity of the regulations and the transition calculations. This is not in the control of the BA. If you look at the collection rates of BAs despite the recession and despite the hugely unpopular empty rate issue, they have stood up extremely
ICover story_12
Dn’
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base, and in my view staff in BAs in revenues and collection are just that – leaders, both competent and knowledgeable.
Charles makes the point on size that many BAs are so small that they only have one full-time or one part-time specialist in NDR matters. Given the complexity of NDR as a result of central government legislation and regulations, it is hardly the fault of the staff that the more complex cases are reduced to being dealt with by a smaller number of more senior more experienced individuals. The same would apply to HMRC in respect of income tax queries, but I have to say that the response time and accessibility to BAs is far in excess of HMRC and is to be applauded. A number of smaller authorities are grouping their functions together to achieve even greater economies on what is already a very modest cost of collection for this tax.
Charles also ignores the inspection function of the BA. The VOA, while having a statutory right to inspect, is not very proactive in bringing assessments into the list or identifying changes which results in a shared responsibility between the VOA and BAs (who have a statutory responsibility in this respect). Inspections need to be kept local and local knowledge is fundamental to keeping the system working.
Unfortunately, the inspection regime is more limited than most BAs would like because, as a collection function on behalf of central government, the funding of inspectors goes straight to the bottom line of the authorities’ costs, without additional revenue from central government to fund additional inspectors. Any additional rates collected on behalf of central government are not reflected in the ability to employ more inspectors at a local level. Any criticism of BAs is as a result of the lack of funding that they receive to carry out their tasks. Despite this, they achieve a remarkable success rate and recovery on collection.
There is a place for uniform style rate demands and an urgent need to review a whole variety of extra supplements, transitional arrangements and other impositions, all imposed upon the BA to administer and collect. The latest system of deferral announced at the last minute earlier this year by government and imposed on local authorities is a case in point. Would the HMRC have been able to react in such a cohesive way? *
Roger Messenger responds to In the frame by Charles Partridge, a critique of the work of the CLG and BAs in administering business rates. While Roger concurs with some of the reasoning, he mainly finds himself at odds with Charles’ rationale
well and are impressive collection rates comparing very favourably with collection rates on other taxes, including income tax by HMRC.
Charles complains that there is no clear leadership or line of responsibility – again I entirely disagree. In most cases the BAs, while having only a small number of staff, are nevertheless helpful and approachable, and those staff who are employed, certainly at senior level, are knowledgeable and well trained. I agree that there is always scope for better training and better education, particularly of back-office staff, and the IRRV provides such training schemes and education systems. I think these resources are under used by the BAs, although this is not by intention but merely through lack of funding.
The deterioration in service complained of by Charles in my experience has resulted particularly where some BAs have chosen to outsource non-domestic rate collection to large corporate entities who are rather more faceless and lack individual responsibility and the personal touch. Arguably rather more akin to HMRC, if you have ever tried to deal with your local tax office!
I am at one with Charles in the need to raise qualifications and improve knowledge, but this is not from a low
➦Roger Messenger BSc FRICS IRRV MCIArb is Junior Vice President
of the IRRV and Senior Partner with Wilks
Head and Eve
_Valuer_www.irrv.net
Dn’
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The protocols which were developed for the property investment industry may well be suitable for bulk transmission of information, but I think that the Unique Property Reference Number (UPRN) would be a better place to start. Charles admits that the Pisces format is subject to many variations, therefore that the UPRN under Valuebill is a much better project. I agree with Charles that the failure of CLG to see this project through is a frustration, and while he believes that this inability is a “clear indictment of its competence and demonstrates inability to control BAs”, in contrast I believe that this indicates a lack of support to BAs as opposed to control, which I don’t believe is within their remit.
Charles goes on to suggest in his article that the CLG as the parent authority should transfer that function to the Treasury. I personally think this would be a disaster. The frequency of staff moves within CLG is alarmingly frustrating, and I agree that there should be a greater level of commitment from CLG to staff in a proper career structure, that allows them to maintain and grow knowledge of an extremely complex area; as CT and NDR.
I think it an unfair categorisation that the collection of a national property tax is administered by “well intentioned but totally untrained amateurs within the CLG and collected by around 330 different BAs some which have no qualified staff”. The collection of tax is an administrative function, and by result the BAs are not open to much criticism in terms of the tax collected. No one is pretending that the administration could not be smoother with uniform rate bills and more comprehensive training of staff, but this is the case the world over.
I think far more concerning for the future of rating is not the administration of the system, which broadly these days is largely IT-driven anyway, but more the dysfunctional nature of the non-domestic rating system that has demonstrated its complete inflexibility to react in changing times. Recent decisions from the Lands Tribunal on obsolescence, and the effect of Lottery Grant, to my mind demonstrate that the rating system is both inflexible, unreactive and fails at the altar of a modern fair tax.
The VOA is equally at fault in maintaining the status quo and failing to spearhead the modernisation of the valuation processes to take account of market conditions. It is that inflexibility and consequential cost to ratepayers that is of far more concern to the non-domestic ratepayer in what appears to be badly judged assessments, given economic conditions as opposed to the way the money is actually collected.
I am hugely in favour of revaluations,
Charles suggests that for multiple occupiers of business rate premises there is an unacceptable burden of multiple administrations through a number of BAs. Here, I return to the theme of local democracy. The system has to be designed for the individual lay ratepayer, of which there are millions, and not for a relatively small number of corporates occupying multiple premises albeit with much higher rateable values. I believe that about 70% of non-domestic assessments are at a level below £15,000 rateable value, but attracting a much smaller percentage in the order of 15%-20% of the total tax revenue. The system is therefore designed to be all embracing.
Charles also suggests that with the VOA and VTS appreciating the primary stakeholder as the non-domestic ratepayer, this has extended to their agents. Again, I would suggest that the system needs to be designed for the individual ratepayer and CT payer, with agents more than able to look after themselves.
In his article Charles indicates that the VOA and agents would like to adopt the Pisces protocols to ease the process of electronically transferring rental data. I have to confess that, as a rather smaller practice than Charles’ employer, we would not be in favour of Pisces as we have a more personal ‘hands-on’ approach to handling data on behalf of our clients.
and I think the frequency needs to be revisited as a matter of urgency to ensure that if we are to maintain what is a very inflexible system revolving around the antecedent valuation date, then this needs to be far more frequent to take account of rapidly and, in some cases, dramatically changing economic conditions, which apparently cannot otherwise be reflected. The one thing that income tax does do is relate to economic conditions, whereas rating is lost in a sea of unintelligible and opaque regulations leading to an inflexible and arguably old-fashioned tax.
It is not the collection of that tax or those who collect it that are at fault, but the fundamentals of the valuation system for which the VOA and CLG maintain ultimate responsibility.
Charles concludes by suggesting that: “It is time to make the whole system transparent and responsibility for rating law and practice should be transferred to the Treasury, and collection to HMRC, which has the experience and ability to collect this national tax consistently”. I regard this proposal as a complete disaster.
The collection rates of BAs from non-domestic ratepayers, both as lay small ratepayers and from corporates together with their major role of CT, is a demonstration of local democracy and administrative powers in complete contrast to HMRC. The CLG, being much closer to local authorities and their BA function is in my view a more reactive body than the Treasury could ever be, and it is the plethora of opaque regulations imposed on the rating system which gives rise to the tensions in the administrations, as opposed to any fundamental flaw within the BAs or indeed CLG.
The administrative system is working despite everything, and
what is needed is a simplification of how the tax is collected, and without all Bids, supplements and reliefs being imposed at will. A modernisation of the valuation
system that allows for ratepayers to understand how their liability relates to their economic circumstances is fundamental. Historic values are anachronism to a modern taxation system, not the way it is collected.
Far from being past their sell by dates, I regard the BAs and the CLG as models of how to run an extremely complex, indeed over-complex, system brought about by a completely inflexible and old-fashioned way of assessing liability based on flawed valuation parameters. Valuers should look to their own corner as to how we arrive at valuations in the real world and then under the rating system before we criticise how people try and collect against these follies. D
“Far from being past their sell by dates, I regard the BAs and the CLG as models of how to run an extremely complex system”
he IRRV is demonstrating its international commitment to TEGoVA and The Recognised European Valuer Scheme [REV™]. REV was the major theme of the TEGoVA (The European Group of Valuers’ Associations) General Assembly in Brussels between the 13 and 14 November where the IRRV President Geoff Fisher and Junior Vice President and current Chairman of TEGoVA Roger Messenger were awarded certificates signifying that they met the high standards of the scheme.
With over 120,000 valuers in Europe, there clearly exists a need to harmonise and establish a common means to identify practitioners of competence and integrity – the reason why the REV scheme is becoming widely accepted. With the post-nominal initials REV, a valuer has a badge of excellence capable of assuring clients that they have the highest possible standard of professional ability.
In addition to the UK, countries already members of the scheme include France, Germany, Poland, Romania and Russia, with further applications in process from Greece, Austria, Italy, Dubai and Norway. Expressions of interest have also been received from Ireland and the UAE.
REV is recognised by clients across the Union and beyond. This is truly European, because REV is not the franchise of a single national body, but a product for European valuers created by European valuers under the TEGoVA banner, federating valuers in 25 countries.
The General Assembly meeting in Brussels recognised REV as a guarantor of quality endorsing its demanding standards of expertise for admittance, while seeking to achieve a level European playing field for valuers and their clients. The REV designation therefore provides a European mark of quality, enabling valuers to assure clients that they possess the level of professional knowledge, experience and ethical behaviour coupled with lifelong learning needed to meet the standards set by TEGoVA.
In addressing the Assembly, Chairman Roger Messenger, said: “There are three reasons for REV’s success. First, REV is exclusively designed
to maintain. enhance and harmonise professional standards for the valuation profession in Europe. Second, it is truly European, created and managed by valuers from all over Europe on a voluntary basis. Members who meet the demanding standards must decide for themselves whether REV status adds value to their professional practice. Third, it is flexible and highly adaptive to the forces of EU integration, with endorsement by the European Mortgage Federation.”
REV was formally launched in London earlier this year, among representatives of the professional press, key IRRV personnel, and representatives of partner organisations the Association of Chief Estates Surveyors (ACES) and the Central Association of Agricultural Valuers (CAAV). The IRRV is also developing a marketing strategy for REV liaising with investment banks and major valuation firms, working in close partnership with CAAV.
Valuer magazine will bring readers regular updates on the progress of REV. D
TEGOVA’S ROLETEGoVA has three main roles:(a) setting standards;(b) lobbying the European Commission on real estate issues; and (c) education.
REV fits in with (c) – the IRRV plays key roles on all these fronts, with John Hockey chairing the Standards Board (another IRRV member), Tony Prior chairing the REV Committee, and Roger Messenger from the secretariat presenting issues to the Commission. The General Assembly took proactive steps on all these matters, with clear indication that TEGoVA is a major player in shaping the interests of valuers in Europe.
➦Tony Prior is the IRRV’s valuation
consultant
T
_Valuer_www.irrv.net
Top
pileof the
Valuer gives a potted history of the new ‘must have’ valuation label of excellence, developed through TEGoVA
REV™_15
he purpose of this project is to invest resources in the preparation of detailed guidance notes and information
papers to support European Valuation Standards, and to encourage best practice in valuation. A publication has already been produced which details valuation standards (known in the industry as the ‘Blue Book’), but the partners wish to transfer this material and adapt it for use as training material in the different partner member states. The output will be a series of modules which will be a logical extension of the ‘Book’. This will be achieved by expanding and updating sections, and, crucially, introducing local practice manuals and case studies as a series of papers, available online and in hard copy, which will enable the book to be used both in a training context and as a guide for professional practice in the industry.
Within the sector, the ‘Blue Book’ has made a huge contribution to European standards in valuation. Compilation by The European Group of Valuers’ Association (TEGoVA) members was a lengthy task, but is a first-rate example of European cooperation and collaboration. However, it is not of much use to professional practice, qualifications or training. This need is particularly great as:u there is a requirement for much greater sophistication in training; andu training would benefit from an e-learning element, and there needs to be a re-balancing of this with face-to-face teaching and work-based competence training.
This project has been granted funding under the Leonardo da Vinci ‘Transfer of Innovation’ programme for a period of 24 months, starting 1 October 2009, and it is expected that it will involve:u the transfer of the ‘innovation’ inherent in the content of the ‘Blue Book’ to partner countries and to others in the TEGoVA network, so that it can have practical value at a local level; u the development of the content so that it can be used for training and as a multipurpose guide as to how to conduct a valuation in a wide variety of situations. The output will take the form of modules, which will be transnational in outlook, but much
T a professionalof which will contain content specific to a particular country. Effectively, the ‘Blue Book’ will become a practice manual with strong training elements, in which E-learning will be an important feature; andu each partner will be expected to produce ideas for transnational modules with transnational applications, but crucially they will make suggestions as to how to take the ‘Blue Book’ and adapt it for use at a local level, to include specialist areas such as law on land lease, supported by case studies. Under the contract it is expected that the work will be shared between the partners.
The specific objectives are:1. to improve professional standards within the sector;2. to improve general skills levels of all people working in the valuation profession;3. to enhance the links and cooperation between the different organisations in the project;4. to increase employment opportunities for people working in the sector, especially transnationally;5. to make an improved training model a reality beyond the period of Leonardo intervention;6. in the longer term, the project will result in increased mobility of valuation professionals so that, subject to meeting local requirements, people working in one member state will be able to offer advice and services in relation to another without hindrance; and7. to implement the idea of a trans-European vocational qualifications framework for European valuers.
The partnership is a combination of:u the IRRV; u SNPI, a French trade association which is a leader in its field;
u TEGoVA, an ‘umbrella’ organisation; u Polish Federation of Valuers Association (PFVA); u ANEVAR, the Romanian Valuers’ Association; andu Registru Centras, The Lithuanian State Register of Property. The IRRV is lead partner, and already has a well developed education department which offers its own training and qualifications, accredited by UK QCA. This role is critical to providing the necessary credibility, and it has developed innovative methods for the delivery of training and qualifications, which will be used to provide advice and support for practical implementation of qualifications development and accreditation at a European level.
partnership
16_IRRV international
a professional
The target groups of beneficiaries will be:u professional valuer trainees and their employers who wish to offer an improved and more transparent form of training. It is estimated there are 100,000 valuers in 42 countries who would have an interest in engaging with this material;u individuals who have an interest in valuation, either by virtue of the fact that they might be considering a career in valuation, or have an interest through working in local government; andu consumers, who have an interest in ensuring that they are being fairly assessed for local property-based taxes. The project will be undertaken in a series of ‘work packages’, into which partners are expected to have considerable input. These are:u Consortium management. The establishment of organisational structures, channels of reporting between the various groups and committees involved in the project. Communication will also be established with selected outside organisations, such as appropriate government departments, NGOs and other interested groups, such as those responsible for a training provision;
u Development of modules. This work package will include the development of the material, and it is expected that it will be made available electronically. Selected modules will be made available over the internet to enable beneficiaries working on the project to use an electronic medium. Accurate translations will be made at a later stage after the plenary group has approved the final draft;u Testing and evaluation of modules when completed. A special working group will undertake this and will provide feedback and recommend appropriate changes;u Valorisation. The aim of this work package is to ensure that material produced adds value to that already available, and to create the widest possible awareness at a professional level and within professions associated with this sector. It defines the external relationships of the project and includes marketing and dissemination. An additional element to this package relates to the commercialisation of the modules developed during this project; u Finalisation of the project. To complete the project, modules should be produced in bound paper format, and also electronically; and u Translation. The modules will be made available in English and all the languages of the participating partners.
In short, the partners have an asset, the “Blue Book”, which is a standards manual. This is currently owned by and marketed by TEGoVA, and is an innovative piece of work in its own field. It has taken valuation practice methodology from different member states and moulded it into a single document. However, much work has still to be done in developing it into a practice manual which can also be used as a serious training resource.
The partnership has an opportunity to make a huge contribution to valuation standards and practice internationally through the coordination of trans-European collaboration. The impetus has been created by the rapid expansion of the EU and the desire of all member states to become part of a European best practice and standards network, and the recognition by the Commission that Europe should have a powerful voice in this important area. The funding granted for this project will enable these plans and ideas to be implemented. D
partnershipThe IRRV is leading a European partnership to improve valuation training standards. Richard Taylor reports on the Leonardo da Vinci-funded DEFVAS project
➦Richard Taylor is a freelance consultant specialising in European issues
_Valuer_www.irrv.net
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18_Valuation modelling
The formulas used in cells H111 – H115 simply add up the years determined in table 8, column E.
Table 12 is the same valuation, but using a discounted cash flow layout. The layout as developed is quite simple and could be further developed. The first column contains the period (years) which is being valued, and the second, the rent received. The third is the YP for the appropriate period at the equivalent yield. And the fourth is the PV for the appropriate period, also at the equivalent yield. The final column is the rent multiplied by the YP and the PV to give the capital value of that income.
Other than for the terms, the table combines income into ‘income groups’ dependent upon the rent review frequency. This makes a more compact valuation and avoids the need to have annual cash flows going on into perpetuity, even though this would be simpler to construct.
Freehold valuation Following on from his articles in Valuer March and June 2009, Peter Brown concludes his demonstration of freehold valuation spreadsheet modelling.
In the previous two articles Peter covered the data required to undertake the valuation and then valued the property using the traditional term and reversion approach. In this article he uses the same data, but values the property using the equivalent yield approach, where he uses both a traditional and a discounted cash flow layout to show the differences in their development. This article should enable readers to be in a position to adapt and develop the techniques and example models for their own use.
Valuation (10) TERM 1 Net income £89,200 YP 1 yrs @ 9.00% 0.9174 £81,835
TERM 2Net income £97,800 YP 1 yrs def 1 yrs @ 9.00% 0.8417 £82,316 TERM 3 Net income £143,380YP 1 yrs def 2 yrs @ 9.00% 0.7722 £110,716 TERM 4 Net income £151120 YP 1 yrs def 3 yrs @ 9.00% 0.7084 £107,057 REVERsIoN To FRV FRV £158,000YP perp def 4 yrs @ 9.00% 7.8714 £1,243,680 Capital Value £1,625,604
Table 11 is used to calculate the deferment period and to ensure the correct rent is used for each of the terms of the discounted cash flow approach:
Deferment (11)1 £892002 £978003 £1433804 £1511200 £158000
Valuation preparationThe model is identical to the earlier models up to table 7 (table of net income).
Equivalent yield approach (8)Table 8 follows the same approach as table 8 in the previous model, though the title has changed to reflect the different valuation approach:
Term Rent Yrs
Term 1 £89,200 1Term 2 £97,800 1Term 3 £143,380 1Term 4 £151,120 1FRV £158,000
Table 9 is far simpler, as this is where the equivalent yield is entered. By definition, the same yield is applied to all the terms and the reversion:
Equivalent yield choice (9) Yield 9.00%
Table 10 is the equivalent yield valuation laid out in a traditional term and reversion format. This is identical to the valuation approach in the last article with the exception that the yields always refer to the single equivalent yield:
“The OFFSET function allows you to start a formula from a varying position”
(part 3)
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_Valuer_www.irrv.net
Freehold valuation
➦Peter Brown is Professor of Property Taxation at Liverpool
John Moores University and a consultant with
Legat Owen, Chartered Surveyors, Chester
Cell E148 =1/(1+($D$105))^0 for the first term and then
Cell E149 =1/(1+($D$105))^H148
with H148 referring to the cell where the deferment period can be found.
Column F is simply multiplying the rent by the YP and by the PV, to give the value of that flow of income. Finally, the column is added up to give the value.
As to be expected, both valuations give the same value.
Further developmentThe model could be condensed with some of the intermediate tables being combined into more complex formulae. The danger of doing this is that the formula can become difficult to understand at a later date. Alternatively, intermediate steps can be hidden or put in a different worksheet – again this can lead to problems in the future if the model needs to be changed.
Using the DCF layout it would be possible to develop the model to value on an equated yield basis, remembering that it is necessary to adjust rents, etc, to allow for rental growth and other changes in values.
As with all the models developed in this series of articles, it is assumed that the income is received annually in arrears, in accordance with the standard valuation table assumptions, while in reality income is receivable quarterly in advance. In the next article in the series I will examine the whole subject of ‘quarterly in advance tables’, their underlying assumptions and how they can be incorporated into valuation models.
As usual, full working examples of the spreadsheets can be found on the IRRV website at www.irrv.net. D
To set up the periods in column B we need to calculate the start of the period to be valued, as well as the end of the period. From some periods this may be a single year, for others the length up to the rent review period.
Table 13 is used to set up the periods in column B. This calculates when the rent changes due to rent reviews.
Based on this, the text is built up by a series of formulae to display the text correctly. For example:
Cell B148 =FIXED(1,0,TRUE)&” -
“&FIXED(H148,0,TRUE)
and
B157 = FIXED(H157+1,0,TRUE)&” -
“&FIXED(H158,0,TRUE)
column C uses the ’lookup’ formula to:
C148=IFERROR(VLOOkUP(H148,$J$146:$k$150,2,FALSE),
MAX($k$146:$k$150))
this formula inserts the correct rent for the appropriate period of time.
The YP is calculated using the traditional formula as below:
Cell D148 =(1-(1/(1+$D$105)^H148))/
($D$105)
with H148 referring to the cell where the deferment period can be found.
The PV is calculated as follows:
Valuation (12)Period Current YP @ PV£1 @ DCF Value 9.00% 9.00%
1 - 1 £89,200 0.9174 1.0000 £81,8352 - 2 £97,800 0.9174 0.9174 £82,3163 - 3 £143,380 0.9174 0.8417 £110,7164 - 4 £151,120 0.9174 0.7722 £107,0575 - 9 £158,000 3.8897 0.7084 £435,37310 - 14 £158,000 3.8897 0.4604 £282,96315 - 19 £158,000 3.8897 0.2992 £183,90620 - 24 £158,000 3.8897 0.1945 £119,52725 - 29 £158,000 3.8897 0.1264 £77,68430 - 34 £158,000 3.8897 0.0822 £50,48935 - 39 £158,000 3.8897 0.0534 £32,81540 - 44 £158,000 3.8897 0.0347 £21,32745 - perp £158,000 11.111 0.0226 £39,596 Capital Value £1,625,604
Valuation modelling_19
(part 3)
The tenant’s share (part one)
Calculating the tenant’s share in a valuation can be tricky. Pat Brennan examines six case studies to help you work out how the tenants should be rewarded
or rating purposes, most of the large utility properties in the UK were returned to conventional assessment for the 2005 rating list.
Many of these assessments have been using the Receipts and Expenditure (R&E) valuation method. This method has developed over many years and is defined by the Joint Professional Institutions’ Rating Valuation Forum guidance note as ‘a method to ascertain the rental value of a property, for the purposes of rating, by reference to the receipts and expenditure, adjusted as necessary, of an undertaking carried on at that property’. One of the most important elements of this method is the calculation of the tenant’s share. This requires careful consideration, as it will dictate how much of the divisible balance is left for the landlord, which is effectively the rent, and therefore will determine the level of the rateable value.
To understand how a valuer should approach the calculation of the ‘tenant’s share in a valuation, it is appropriate to consider what the courts have said on this aspect of the valuation, and what exactly a hypothetical tenant is deemed to do when occupying a property valued using the R&E method of valuation, and how they should be rewarded.
F“The calculation of the tenant’s share requires careful consideration, as it will dictate how much of the divisible balance is left for the landlord”
CAsE 1
Kingston Union A C v Metropolitan Water Board (HL) (1926) AC 331
Viscount Cave described the Profits valuation method as follows:“From the gross receipts of the undertakers for the preceding year they deducted working expenses, an allowance for tenant’s profit, and the cost of repairs and other statutable deductions, and treated the balance remaining (which would presumably represent the rent which a tenant would be willing to pay for the undertaking) as the rateable value of the entire concern.”
CAsE 2
Railway Assessment Authority v The Southern Railway Co (HL) (1936) 6 DRA 217
Lord Hailsham said: “It is true that the expression ‘division of the net receipts’ is not a very happy phrase to describe the deduction from the net receipts of the amount necessary to induce the hypothetical tenant to embark upon the enterprise, but I see no justification in that fact for altering the conception of the relationship of landlord and tenant to a conception of joint adventurers.
“A tenant is not to be regarded merely as an investor in railway shares and to be treated therefore as reasonably compensated by the ordinary rate of interest which can be obtained by such an investment. He is a person embarking upon a commercial undertaking in which he is to sink his capital, in which he takes all the risks of success or failure, and in which he has not only to be compensated by receiving a reasonable interest upon the capital invested, but also to receive such a profit upon his venture as to reasonably compensate him for the risk which it involves and to induce him to embark upon its prosecution”.
20_Rating diploma focus
The tenant’s share (part one)
CAsE 4
St James and Pall Mall Electric Light Co v Westminster Assessment Committee (HL) (1934) AC 33
Lord Atkin described the valuation system as intended to be an application of an economic theory of rent. He went on to say:“The system roughly speaking is that the gross receipts of the undertaker are taken for the year of calculation; from them are deducted expenses of earning those receipts, from the residue a ‘tenant’s share’ is subtracted, a hypothetical sum which represents what the tenant might reasonably be satisfied for his ‘profits’ which will include interest on the capital, remuneration for his industry and compensation for his risk.”
CAsE 3
Sandown Park Ltd v Esher UDC Castle (VO) (CA) (1954) 47 R&IT 351
This case was concerned with the valuation of Sandown Park racecourse in England.
One of the questions which the Court of Appeal was asked to consider was: (a) whether the Southern Railway Company case should be followed, ie, that the ‘tenant’s share’ was the first charge on the divisible balance; or(b) whether the joint venturers approach, where the rent depends not only on the landlord’s willingness to accept a certain sum as rent but also on the tenant’s willingness to pay this sum should be followed.
The answer was clearly given by Lord somerville, who said: “Doing the best I can, I think a conception of joint venturers is not in accordance with the law.”
In the same case,Lord Romer said: “It is suggested that Lord Cave’s formula (in kingston Union v Metropolitan Water Board above) is only appropriate to public utility undertakings, and that it must be varied if applied to business enterprises at least to the extent as regarding as equally relevant the rent which a landlord would be willing to accept as the rent which the tenant would be willing to pay. I am not altogether satisfied that the distinction between undertakings of which profits are fixed or limited on the one hand and ordinary commercial undertakings on the other, logically justifies this nor any other general variation in treatment – although the principle might require some modification in certain cases, eg, where the relevant net profits are extremely high. In any event, however, I think that in all cases where actual receipts and expenditure are accepted as being relevant for the ascertainment of gross values, those sums at least which reflect the tenant’s reasonable profit, risk and interest on capital should be together treated as a charge upon the divisible balance in priority to other deductions.”
Rating diploma focus_21
_Valuer_www.irrv.net
➦Pat Brennan FRICS Dip Rating is a consultant to Ruddle
Merz Limited
*
a profit upon his venture as reasonably to compensate him for the risk which it involves, and to induce him to embark upon its prosecution (case 2);4. ‘tenant’s share’ – a hypothetical sum which represents what the tenant might reasonably be satisfied for his ‘profits’, which will include:
a. interest on the capital; b. remuneration for his industry; and c. compensation for his risk (case 4).
5. the starting point must always be what the tenant is able and willing to pay, and the landlord will then have the whole balance. The tenant’s reasonable profit, risk and interest on capital should be together treated as a charge upon the divisible balance in priority to other deductions (case 6);6. a conception of joint venturers is not in accordance with the law (case 3);
From these cases, I find the following main points which have to be considered when calculating the ‘tenant’s share’:1. rent is properly a first charge upon property — not a residue of gross receipts after profits has been deducted (case 5);2. the rental value of the property is to be assessed without reference to the cost to the landlord of supplying it, and that it will be a residual amount after deduction of what is required to induce the tenant to take the tenancy and to carry on the business (case 6);3. the hypothetical tenant is a person embarking upon a commercial undertaking in which he is to sink his capital, in which he takes all the risks of success or failure, and in which he has not merely to be compensated by receiving a reasonable interest upon the capital invested, but also to receive such
CAsE 6
Cairngorm Chairlift Co Ltd v Assessor for Highland Region (1994) (unreported)
On behalf of the assessor reliance was placed on passages, quoted in Armour, from Adam Smith’s The Wealth of Nations, in which it was stated that rent, as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land, and that it is a monopoly price, not proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take, but to what the tenant can afford to give.
Reference was also made to the statement that the landlord would demand
as rent the whole profits, leaving to the tenant only such a balance as would induce him to carry on the business. No doubt that is so, but it does not follow that what one must look at first – what the landlord would demand as rent, and that the tenant must be content with what remains.
The starting point must always be what the tenant is able and willing to pay, and the landlord will then have the whole balance. The basis on which the revenue is divided will therefore depend on the relative bargaining strengths of the landlord and the tenant respectively. The passages referred to in Armour do not appear to the tribunal to do more than to confirm that the rental value of the heritage is to be assessed without reference to the cost to the landlord of supplying it, and that it will be a residual amount after deduction of what is required to induce the tenant to take the tenancy and to carry on the business.
CAsE 5
The Oakbank Oil Co v Assessor for Mid-Lothian – Lands Valuation Appeal Court (1902)
This case was not an R & E valuation at all. It dealt with the valuation of an oil works where the Appeal Court held that a revenue principle valuation did not apply because it was impossible to work out where the oil company made its profits – in the oilfield or in the oil works. The case does, however, indicate the nature of rent – a debt which must be paid by the tenant before he can receive any profit.
Lord Kyllachy said: “The truth is that in all ordinary cases rent is properly a first charge upon property, not a residue of gross receipts after the tenant’s profit has been deducted.
“Extreme cases may of course be encountered where the profits of a particular trade may afford a limit. This could occur where the premises cannot be otherwise utilised, and the profits do not cover what would be demanded by the landlord in rent.”
So, despite the fact that in an R&E valuation rent is the result of the calculation, in reality rent is an amount which must be paid by the tenant before he can take any income and profit.
22_Rating diploma focus
7. there may be cases for example when the relevant net profits are extremely high, and the normal method of calculating the ‘tenant’s share’ can be modified (case 3); and8. there may be cases where the property can only be used for one purpose, and the profits, actual or prospective which can be earned do not cover the rent which a landlord may wish to charge (case 5).
The Joint Professional Institutions’ Rating Valuation Forum Guidance note sets out the four ways in which the ‘tenant’s share’ has normally been calculated by rating surveyors over the years. In my view, these approaches properly reflect the reward which a hypothetical tenant should receive under the rating hypothesis when he is working out how much he can afford to pay in rent to the landlord. However, it remains to be seen whether the approach adopted in the China Light and Power case (RA 1996 475), where the tenant’s share was determined by reference to a return equivalent to the owner-occupier’s WACC, as calculated by economists on the capital value of the tenant’s assets, is a more reliable and objective method for determining the tenant’s share.
Tenant’s share as a percentage of gross receiptsThis method has usually been adopted in cases where the tenant carries out a business from a specialist property which involves significant expertise and effort, but because of the way the Plant and Machinery Order has been drafted, there are relatively few assets which the tenant is deemed to own. Typical cases where this approach has been applied has been water supply property cases. The value of the tenant’s assets in water supply hereditaments represent only 7% of the value of the total assets. Applying what might be regarded as a fair return to reflect interest, risk and profit, would not produce a figure which would induce the hypothetical tenant to rent the water supply hereditament. So, rating valuers in the 1950s calculated the ‘tenant’s share’ by reference to 7%-10% of the gross receipts.
This approach was also adopted in the Cross Harbour Tunnel case in Hong Kong in 1978, where the tenant had a small amount of capital assets but received as his “tenant’s share” 13% of the divisible balance or 11 % of the gross receipts.
Tenant’s share is a percentage of the divisible balanceThis approach should, in my opinion, be looked at in cases where the divisible balance is such that it is more than adequate to reward the landlord for
the return on the value of his a
