Like valuers, mezzanine floors come in a variety of shapes and sizes. Stuart Hogg addresses the issues concerning mezzanine floors and racking and examines different approaches adopted in their valuation.
Rateable value is essentially determined by calculating the annual rent which a hypothetical tenant would be prepared to pay for that property on the basis of statutory criteria set out in the Local Government and Finance Act 1988. In assessing the rateable value of industrial property, regard must be had to all the physical characteristics of that property and also to certain items of plant which may be installed on the property.
In determining the rating assessment of an industrial hereditament, it is often necessary to consider what value, if any, attaches to mezzanine floors, some of which are permanently fixed heavyweight structures, while others are lightweight and easily moved. For the purposes of rating valuation, a mezzanine floor presents a number of interesting problems. Depending on the physical characteristics of the floor, it may be treated as an integral part of the premises or, under different circumstances, as an item of plant. In assessing its value, the valuer needs to know when and how to apply one of two entirely different valuation techniques. This article examines the factors influencing the most appropriate choice of valuation method and how best to apply it.
At the outset, it is important to establish what the generic term “mezzanine floor” actually includes, and it is useful to distinguish between intermediate floors which are built as an integral part of the property and smaller, lightweight structures which are easily moved.
In deciding the most appropriate basis of valuation, the valuer must consider the physical characteristics of the mezzanine floor in the light of the various court judgments and what is dictated by established principles of rating practice.
The first type of floors to be considered are those which are deemed to form an integral part of the structure of the property. At the furthest end of the spectrum, one could imagine a reinforced concrete floor supported on concrete or steel beams and pillars with access provided by a permanent staircase and goods lift. However, mezzanine floors far less substantial than this have been held to form an integral part of the structure.
In the case of Rogers (V0) v Evans (1984) LVC 852, a mezzanine floor was described as follows:
The mezzanine floor extends the full width of the premises and . . . is of in chipboard on nominal 8in x 5in timber joists which . . . fit into the channels of two 8in x 5in rolled steel joists. Each steel joist is bolted to . . . square section steel stanchions . . . welded at the lower end to steel plates which are secured by rag bolts in the concrete floor. The clear height below the mezzanine floor is 7ft. The height from mezzanine floor to eaves is 6ft 6in and to the roof ridge 8ft 3in. Access to the mezzanine floor is by a steel staircase with open wooden treads . . . The structure of the mezzanine floor does not engage with the walls.
In the case, the valuation officer conceded that his earlier submission that the floor was a “rack” within Class 4, Table A of The Plant and Machinery (Rating) Order 1960, was incorrect and the ultimate decision was that the space created by the floor should be valued at a rate derived by comparison to the normal groundfloor rate. In these particular circumstances the appropriate rates were agreed at half normal ground-floor rate above, and two-thirds the normal ground-floor rate below on the basis that this was what had been agreed for another, similar property.
While it is tempting, and unfortunately quite commonplace, to adopt this formula in valuing all mezzanine floors which form part of the building, the actual approach should take account of factors peculiar to each individual structure and reflect the value of the space created. Factors such as the means of access, the load-bearing capacity of the floor, the services provided, the actual eaves height above and below in relation to the normal eaves height, and the standard of illumination should all be considered for their effect on value.
In negotiating an appeal against an assessment, the eventual rate applied to each area will usually be agreed between ratepayer and valuation officer, and although the decision in the Rogers case serves as a useful guide, it is not a hard and fast rule to be blindly accepted. I am aware, for instance, of values of 60% of the “full height” rate attaching to areas below mezzanine floors and 40% above.
What difference does this make in practice? A simplified valuation using two different approaches to a 400m2 mezzanine area installed within an industrial unit of 1,200m2 and a normal ground-floor rate of £5O per m2 is shown in the table. Blind acceptance of the “rule” in the Rogers case produces a rateable value of over £3,000 more than an alternative approach which may have been wholly justified in the particular circumstances concerned.
While the floor in the Rogers case was structural, it may be argued that certain mezzanine floors are items of plant and do not form part of the actual structure of the building. It is interesting to note the capital allowance cases of King (HIMT) v Bridisco Ltd, Hunt (HMIT) v Henry Quick Ltd (1992), where it was considered whether a mezzanine floor was an item of plant. Applying the “premises test”, the court held that the question was one of fact and degree and
whether the item appeared visually to retain a separate identity, the degree of permanence with which it had been attached, the incompleteness of the structure without it and the extent to which it was intended to be permanent or whether it was likely to be replaced within a short time.
The ultimate decision, in the Chancery Division, was that the mezzanine floors were items of plant, despite there being very little factually to differentiate the floors from that in the Rogers case.
If the “floor” could be more properly described as an item of plant then a different approach is required. For an item of plant to be rateable, it must be included in one of the classes listed in The Valuation for Rating (Plant and Machinery) Regulations 1989. Mezzanine floors do not explicitly appear in the list of rateable plant, and the Wood Committee’s recent recommendations do not change this position.
The closest description of a mezzanine floor in the regulations is “stages, staithes and platforms for loading, unloading and handling material” – a description probably close enough to encompass most mezzanine floors which do not form part of the building itself, but not racking. Under these circumstances, the appropriate valuation method is the “contractor’s basis” normally applied to items of process plant.
Although the capital allowance case cited above is of interest, it is still possible for a lightweight mezzanine floor to be rateable, since different criteria apply. If it is clearly a “floor”, in that it provides additional accommodation for which a hypothetical tenant would pay rent, it is probably rateable in much the same way as a more substantial structure, subject to adjustment for its load bearing and other qualities.
It is possible, although quite rare, to come across mezzanine floors which are of a highly transient nature. It could be argued that a floor which is capable of being easily moved around a property or configured to adapt to the changing trading conditions or stock levels is not rateable. The grounds for such an approach would rest on the somewhat nebulous principle that it is an item of plant which does not form part of the building or structure, but rather, it is an item of plant with which the occupier carries on his business.
Mezzanine floors, racks and racking
“Racks” are named in Class 4 of the regulations and it is sometimes argued that some lightweight, non-structural mezzanine platforms and “racking”, the lightweight framework used as shelving and commonly found in storage distribution warehouses, are therefore rateable plant. This seems to be stretching the meaning of “racks” too far. The present 1989 regulations originate as far back as 1925 when “racks” were quite specialised items, ie heavy, structural platforms used for cooling steel during the process of its manufacture.
Even if it were possible to construe the word “racks” as including lightweight mezzanine floors and racking, I would argue that they are exempt from rateability in any case, by virtue of the first proviso under Class 4 of the regulations, which states that the listed items are rateable except “any such item which is not, and is not in the nature of, a building or structure”.
Most engineers would not describe 100mm slotted steel angle as structural, and few people would consider a stack of shelves, however large, as being in the nature of a building. Various legal cases have helped to lay down guidelines to determine whether an item is in the nature of a building or structure. For example, has the item been constructed on site or brought to the site by a feat of engineering? Is it mounted in such a way that it becomes an integral part of its mounting? How large and heavy is it and does it have a degree of permanence?
The type of racking commonly found in warehouse units does not realistically fit any of these criteria. It is commonly held that items become rateable merely because they are bolted to the floor. The tables and chairs in many restaurants are bolted to the floor, but I doubt if one could argue that they are structural because of it!
Conclusion
Given the diversity in types of mezzanine floors which are installed in industrial premises, it would be an impossible task to establish a single universal approach to their valuation. The current practice has evolved over a period of time through a combination of case law and statute and which can, unfortunately, prove rather unpredictable.
However, the very fact that there can be no precise approach to the problem means that there is scope for negotiation between ratepayer and valuation officer. While the exact rates applied to particular areas are often lost in the deal or distorted by rounding, quantum or other allowances, this should not deter valuers from adopting a correct and analytical approach in the first instance.
