by Tim Stapleton
The advent of the 1990 non-domestic revaluation has raised the profile of the professional side of many firms as the potential of a largely unknown area of work has been reviewed. Old files have been dusted down and old textbooks opened — only for the Government, rather unsportingly, to change the rules through a complex route of statutory instruments produced alarmingly late in the day. One result is that the local authorities have become rate-payers, like any other occupier.
The changes are not just in the fields of detailed legislation affecting valuation, liability, powers and procedures; perceptions have also changed, none more so than those of rating authorities. From being financially interested in the proceeds of the rating system, as a direct revenue source to their authority (though in reality the majority of the income often went to the county council), they now become charging authorities. The change in title is highly significant, since they do indeed charge the rate, but only as agent of central government: they are no longer responsible for the maintenance of the valuation list. In some cases the formula-calculated grant which they receive from the central pool differs substantially from the previous direct contribution of non-domestic rate income. Most cities are losing a substantial amount of their non-domestic rate revenue, which can be retrieved only by a higher community charge.
One result is that councils now see themselves as typical occupiers, subject to the same outgoings as any other business occupier: this is entirely separate from their role as charging authority.
Since 1988, towards the end of the last valuation list, my practice have undertaken limited rating work for two district councils in Devon, and in so doing reduced the assessment of one leisure centre by 40%, due in large part to reviewing the treatment of a grant under the contractor’s method with the benefit of the decision in Willacre Ltd t/a David Lloyd Slazenger Racquet Club v Bond (VO) [6] 1 EGLR 224; (1986) 278 EG 629. We also reduced the assessment of a cattle market by 21%. From early 1989 it became clear that the local authorities’ approach was changing rapidly, not only for the reason referred to above, reflected in the new title of charging authority, but also due to the increasingly important role of the internal audit element of the treasurer’s department within authorities which ensures that all expenditure by the authority had been properly validated.
In the larger urban district councils there was often a heritage of dealing with their own rating appeals. However, in most districts and some counties this was not the case and very few staff, if any, had experience of a revaluation.
Instructions
In our initial discussions with the eight district councils in the South and West for whom we now act, negotiations were influenced by consideration of choice of a fee basis; scale, performance or a hybrid of the two bases could be debated by the parties and an acceptable approach agreed. The result, often with a performance element, was combined with methods of identifying the most suitable properties to be instructed upon, by the means of RV cut-off limits and the multiplier which the new assessment represented over the old list figure. Typically, by dealing with less than 50% of the properties often as much as 90% of the portfolio RV total could be considered. The merits of this economical approach were widely recognised — indeed in one authority 46% of the rateable value was represented by less than 2% of the properties.
The scale of the task undertaken by the Valuation Office — the more evident owing to the accessibility of the valuation list through the Focus system and microfiche — is vast, and puts the work of the private sector with its portfolio valuations into perspective.
We have now had some time to review the property for which revaluation assessments, being estimates of 1988 rental values, must be considered. These include, in addition to the normal bulk categories of offices, shops and industrials, a wide range of properties, particularly in the case of coastal areas with a considerable tourism element. Leisure centres, golf courses, rubbish tips, crematoriums, multi-storey car parks, piers and harbours, theatres, car parks, beach undertakings, cattle markets, sports grounds and public conveniences all have to be considered.
It is difficult to make generalisations as regards multipliers since the authorities concerned vary, though some of the more specialised local authority “beacons” are as follows:
Many district council properties are not normally found in the private sector and rental evidence is accordingly difficult to come by. Thus, with the local authority now a concerned commercial occupier the valuation techniques of contractor’s method, profits valuation and pure inspiration will be put to much greater contested use than they were under the 1973 list, when many authorities simply accepted their new assessments.
Contractor’s method
The contractor’s method of valuation is particularly applicable to the public sector and (classically) comprises five stages: replacement cost of building; depreciation; land cost; conversion to annual equivalent; and review.
The Non Domestic Rating (Miscellaneous Provisions) (No 2) Regulations 1989 contain a very unpleasant message as regards one step in the method. Under the old list, as enshrined in cases such as Cardiff Corporation v Williams (VO) (1973) 226 EG 613, all local authority property assessed on this basis was valued at a decapitalisation rate of 4 1/2% (compared with 6% for the private sector) to gross value.
This new order provides that all property shall be decapitalised at 6% to rateable value except educational hereditaments or hospitals. All district council property is thus to be valued at 6%, with only the property of education authorities at the lower rate of 4%. Making adjustments for the gross value to rateable value change, this one order alone means that some district council property will pay about 50% more than would have occurred under previous case law.
Another stage in the contractor’s method involves the value of the land in its existing use. Great difficulty was experienced under the old list in finding a suitable land value for this purpose. There is, therefore, the merit of consistency (which is prized almost above correctness in the rating world) in the alternative adopted by the Valuation Office of this being a percentage of the replacement cost of the building, subject to a widely varying percentage to distinguish high-value urban sites from those greenfield ones.
Leisure centres, many of which were developed in the late 1960s and early 1970s, are more subject to the contractor’s method. These now show such high degrees of design, physical and user obsolescence compared with new properties offering flexible leisure “boxes” as to merit very high percentages for obsolescence, much greater than a narrow approach to their age would suggest, as found in the formula for schools.
Quite a number of both bulk category properties such as offices and depots, and the more specialised properties such as leisure facilities, have some joint occupation by the district and county council. It is likely to be in the interests of both to discuss whether there is more than one hereditament and, if so, what this comprises. There may be shared use by the public sector and a body qualifying for mandatory or discretionary relief. The identification of the rateable occupier who is in paramount control can be significant for the effect of charitable relief.
In more rural areas the local authority will be the main — perhaps the only — potential occupier for a large, somewhat specialised office building, which is inevitably owner-occupied.
The local authority multi-storey car park or large surface car park is inevitably owner-occupied. There may well be rental evidence for small car parks servicing the exclusive needs of an office occupier, which are easily controlled. However, the local authority may operate car parks on particular parcels of land with pricing policies related to traffic management or land use planning, rendering evidence from small, enclosed, exclusive car parks unsuitable for comparable purposes.
District councils as charging authorities need to apply their mind to the granting of discretionary relief up to 100% to philanthropic bodies (three-quarters of this relief is borne by the central pool). Many of these bodies are providing leisure facilities indistinguishable in character, but perhaps distinguished by a restricted user group. If it were possible in law, district council leisure properties would have a much better case for discretionary relief than many members’ clubs.
The process of referencing local authority property is itself perhaps more demanding than for, say, retail units. The need not to measure the detail of the cattle market owing to the use of the profits method was a relief; the referencing of a refuse tip remains a challenge; and an early morning start is recommended for the crematorium to avoid disturbing mourners. Lastly, the winter gales rendered some of the referencing of beach undertakings of only historic interest, requiring the service of proposals under the old and new lists for a reduction to reflect the reduced extent of the remaining property.
The range of clients, the variety of properties, the need to develop suitable referencing techniques, the different methods of valuation and the permutation of fee bases involved in the rating revaluation offers opportunities to surveyors acting for ratepayers to exercise high-level organisational and technical skills dealing with quite new problems. Indeed, it perhaps takes us back to the bedrock of professional work in contrast with some of the flights of fancy found in commercial property at the end of the 1980s, which are now very questionable. The data base acquired in acting for a client may be helpful in providing other services varying from individual tasks to a comprehensive asset management service responding to issues raised in the case of local authorities by the Audit Commission.
The long time interval since the last revaluation also means that there are no proven management techniques for dealing with the new rating world, offering surveyors the opportunity to develop organisational and planning skills in servicing client needs over the next few years, skills with a wider subsequent application in the profession as a whole.
