Plymouth’s progress Three years since the launch of the Plymouth BID, Margaret Humphreys catches up with the city’s regeneration project

Heathrow’s changing terminals // Rating system reform // Land dispute history

The valuation journal from the Institute of

Revenues, Rating and Valuation

June 2008ISSN 1361-1305

© IRRV 2008. Reproduction in whole or in part of any 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 President Bob Trahern IRRV; Senior Vice President Julie Holden IRRV MCMI CMgr; Junior Vice President Geoff Fisher FRICS (Dip Rating) IRRV; Alan Bronte FRICS IRRV; David Chapman IRRV; Julie Childs Tech IRRV; Barbara Culverhouse IRRV CPFA; Carol Cutler IRRV; Tom Dixon RD BSc (Est Man) FRICS IRRV; Pat Doherty CPFA IRRV; Richard Guy FRICS (Dip Rating) IRRV MCIArb; Richard Harbord MPhil CPFA FCCA IRRV FIDP FBIM FRSA; Mary Hardman IRRV FRICS MCMI; Caroline Hopkins IRRV; Bill Lovell IRRV; Kerry Macdermott IRRV; Roger Messenger BSc (Est Man) FRICS IRRV MCIArb; Maureen Neave MBA Tech IRRV; John Roberts IRRV; Eric Rose FRICS IRRV; Kevin Stewart IRRV MAAT MCMI; Angela Storey Tech IRRV MCMI; Alan Titheridge CPFA IRRV; Allan Traynor FCCA IRRV.

IRRV ValuerManaging Editor John RobertsProduction Editor Celia MatherEditorial Assistants Andreu Machancoses andAnnie JenningsPublisher Tim LloydArt Director Joel O’ConnorDesigner Anja Linke

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EditorialDavid Magor considers the effect mortgage credit is having on the European market.

VOA newsThe latest from the Valuation Office Agency

Legal updatePeter Brown discusses the latest valuation cases in his regular column

VTS updateThe valuation profession can achieve 100% customer satiafaction, says Tony Masella

From the trenchesThe commercial property market is in despair. Tom Dixon examines how valuers will cope

VOA focusRating is still a controversial issue, says Patrick Bond

Non-domestic ratesThe legislation surrounding non-domestic rates is challenging. Gordon Heath works his way through, focusing on new property guidelines

HeathrowIn the second part of his article, Richard Guy ponders the changes at Heathrow airport

Cover storyMargaret Humphreys reviews the sucess of Plymouth’s regeneration scheme

Disputes/taxLand disputes and taxation date back to prehistoric times. Geoff Parsons reports

Fisher’s findingsGeoff Fisher rounds up the latest news from the world of valuation

Compulsory purchaseCompensation and compulsory purchase are problematic issues. Peter Scrafton investigates

Rating reformThe rating system needs updating. Charles Partridge offers some suggestions

Rating diploma focusRating exemptions are explored by Tony Eden in the first of this two-part analysis

Valuation modellingProfessor Peter Brown continues his detailed look into the use of spreadsheets in valuation

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IRRV Valuer is produced by Aspect Mediaon behalf of the IRRV. Unless otherwise indicated, copyright in this publication belongs to the IRRV.

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“The hope is that overall rents and rateable values will increase, meaning BID funding will increase”

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June 2008 ISSN 1361-1305

Contents 03

n 18 December 2007, the European Commission published its long-awaited white paper on mortgage credit. The paper presents a package of measures to improve the

efficiency and the competitiveness of the European Union (EU) residential mortgage market. The principal recommendation invites member states to facilitate the use of foreign valuation reports, and promotes the development and use of reliable valuation standards.

The impact assessment which accompanies the white paper identifies two main problems with property valuation in a cross-border context: 1) it casts doubt on the reliability of the valuation and usability of the valuation reports; and2) there is concern with the different valuation principles and methods in member states, and the recurring problems concerning the standards of the professional qualification of property valuers across the EU.

The Commission also identified the possible consequences of these problems:l uncertainty regarding the quality and reliability of the valuation report;

David Magor, OBE IRRV, Chief Executive of the Institute

Issues in credit

O

The Valuation Office Agency (VOA) has carried out a review of its District Valuer Services (DVS) resulting in a new structure for the organisation. DVS has realigned its existing structure to be more focused on customer-facing sectors of work, (such as health, transport, local and central government and the environment) rather than regions, to create a more flexible and responsive business. Collectively, these sectors will be known as Commercial Services.

DVS will continue to provide statutory

l uncertainty regarding the true value of the collateral;l uncertainty regarding the acceptance of the reports by public authorities;l compliance with more than one set of valuation rules;l mortgage lenders may be deterred from cross-border activity on primary and/or secondary markets;l reduced competition; l higher prices; andl reduced product diversity.

The Commission makes it clear that it seeks to remove the economic and legal barriers to the cross-border supply of mortgage credit. Having identified the problems above, with regard to property valuation, the Commission aims to remove the obstacles to the use of foreign valuation reports; and promote the development and use of reliable valuation standards.

The valuation profession must respond to this initiative and ensure there is a positive and consistent response. The role of The European Group of Valuers’ Associations in bringing together the national bodies is critical, as is the continued development of the European Valuation Standards. n

A commercial service

Mortgage credit is an issue affecting everybody. David Magor considers the European perspective

The VOA update is compiled by and supplied to Valuer by the Valuation Office Agency

services (such as re-determinations for right to buy purposes, and valuations for HM Revenues & Customs for tax purposes), which will be known as National and Central Services. Our Mineral Valuers and National Assets and Building Surveyors teams will also come within this directorate but will operate across the VOA as a whole.

The new organisation will continue to provide advice from qualified property experts regarding land, planning and property development, advice on the value

of, or management of, asset portfolios or on acquisition or disposal of property. This service is provided right across the public sector and includes private and third sector clients involved in delivering public services and functions of a public nature.

The new structure aims to increase efficiency and enable DVS to spend more time on customer-facing activity. n

The Valuation Office Agency reports on the reorganisation of the DVS

04 Editorial/News

Finlay’s Executor v. West Lothian Council, [2007] RVR 263 (Scotland)The authority had agreed to sell an area of land to its original owners under the Critchel Down Rules. While a price was agreed, the sale was delayed and the authority reviewed the sale price upwards to reflect the then market value of the land. The owners subsequently sought a judicial review of the authority’s actions.

The court refused the application on the grounds that the authority’s interpretation was consistent with the rules as far as they were laid down in writing; and the authority was under an obligation to achieve the best price for the land.

Spirerose Ltd v. Transport for London, [2008] RVR 12Assumptions to planning permission, hope value and the interpretation of legislative authority and legal precedent had to be

Problems of premises

Igbo v. London Borough of Hackney, Lands Tribunal 194/2005Regarding the valuation of a derelict house, the claimant failed to comply with the Tribunal’s directions and serve a statement of case, and therefore was not represented at the hearing. Issue of costs.

Lall v. Transport for London, Lands Tribunal 102/2006A compensation claim under part 1 of the Land Compensation Act 1973 was dismissed, as the claimant had already been compensated in respect of an authority acquiring the right to build a wall on the their land.

J D Wetherspoon plc v. Day VO, Lands Tribunal 11/2005Regarding an exceptionally high turnover and fair maintainable trade in the valuation of a public house. Interpretation of “Approved Guide”.

Welford v. Transport for London, Lands Tribunal 26/2007The issue of whether a claim for compensation was time barred arose in this hearing. The claim had not been made within a period of six years from the date of entry. There was further dispute between the parties regarding the date entry was made on the land.

Schofield VO v. RBNB, Lands Tribunal 42/2004The Tribunal found two issues which needed to be considered in the valuation of two public houses with revoked licences:l whether the closure and associated loss of licence was a material change in circumstances. Under the relevant appeal regulations, a proposal could only be made on certain grounds; andl whether a lack of licence falls to be reflected in the rateable value.

In determining that there has been no material change in circumstances, it found there had been no change in the mode or category of occupation. The only thing that had changed was “occupation”, to “non occupation”.

The loss of licence has no effect on the mode or category of occupation. Although having arrived at the above decision, the Tribunal considered the second issue.

As the hereditament was assumed “vacant and to let”, then unlike the owner, any other hypothetical tenants would not have had the same problems. n

Legal update is compiled by Professor Peter K Brown of John Moores University School of the Built Environment, Liverpool

Valuing obscure properties can be troublesome. Peter Brown highlights some recent cases of interest

considered in the valuation of compulsory acquired industrial premises.

In the absence of reliable comparable evidence, the Tribunal was forced to rely on residual methods to ascertain the development value of the property.

Castle House Investments Ltd v. Bradford MDC, [2007] RVR 277Compensation was sought with regards to a number of retail properties that were part of a regeneration scheme.

A key issue in determining the valuation was whether an alternative scheme would have been proposed in the “no scheme” world and whether the Council’s delay had blighted the properties. The Tribunal found that no alternative scheme would have been forthcoming, and that in the absence of such a scheme, the area would have continued to decline.

“In the absense of reliable comparable evidence, the Tribunal was forced to rely on residual methods”

05Legal update

n 1 April, the Council Tax (Valuations, Alterations of Lists and Appeals) (England) Regulations 2008 came into force introducing “Appeals Direct” for council tax

valuation appeals. This is a major change in how appeals are made to Valuation Tribunals, clearly separating the proposal from the appeal stage and, more importantly, providing a clearly understood and transparent demarcation in the responsibilities of the Valuation Office Agency (VOA) and Valuation Tribunals.

Another major legislative change for us comes from the enactment of the Local Government and Public Involvement in Health Act, which contained provisions to bring the current 56 Valuation Tribunals in England together as a single Valuation Tribunal for England (VTE), providing for the appointment of a national president to deliver judicial leadership and guidance to a volunteer membership. Following a selection process by the Judicial Appointments Commission, the Lord Chancellor will appoint the national president. No date has been set for the establishment of the VTE, but we expect a national president will be appointed within this financial year.

In my last article I provided feedback from our recent customer survey on the views of our appellants. To complement the appellants’ survey, we recently surveyed the views of valuation office caseworkers from 90 offices and the views of approximately 1200 rating agents. Additionally, we also surveyed each of the 356 billing authorities (BA) in England. The purpose was to gauge their awareness of VTS policies and obtain feedback on the service provided by Valuation Tribunals, we were reassured by our findings, which were as follows:l 88% of rating agents, 95% of BA representatives and 92% of VOA responders rated our overall service as “good” or “very good”; l 99% of respondents were happy with the efficiency in which they were dealt with by our staff; l 70% of agents, 86% of BA representatives and

A pleasing service

with greater focus regarding the importance of issuing decisions in a timely manner, and we will be closely monitoring the KPI during the course of the year.

The survey also welcomed comments on Listing after Target Date, and it was interesting to note that 93% of agents and 68% of valuation office caseworkers (from the responses received) confirmed they negotiated past target date. Most of the comments received suggested that negotiating after target date was a pragmatic approach when settlement could be achieved without the need for a hearing. However, from the perspective of Valuation Tribunals, this approach of negotiating after target date does little to reduce the administration involved in handling the listing of large numbers of proposals automatically transmitted as appeals.

From past experience, these anticipated settlements are rarely achieved by hearing date, and in reality Valuation Tribunal clerks are often bombarded with postponement requests just days before a hearing date with the expectation that the case will be postponed, and with very little understanding (or sometimes appreciation) of the administrative burden associated with the relisting process. There should, therefore be no surprises when in such instances a postponement request is met with a refusal by the clerk, in accordance with our postponement policy.

We continue in our quest to ensure our processes provide appropriate mechanisms that focus on the delivery of aims, whilst striving to understand our users’ needs, so that we may

prepare ourselves for future development within the wider tribunal world. n

Tony Masella is the Corporate Director of the VTS. Email: tony.masella@vto.gsx.gov.uk

The VTS seems to be satisfying its customers, but more can be done to ensure 100% delivery, says Tony Masella

91% of VOA responders said our aim of replying to written enquiries within 10 working days had been achieved; and l 97% of respondents from BAs said our decisions of the proceedings gave “fair accounts”.

The survey has also raised areas of concern; over 30% of those responding from the VOA and agents said that mixed appeal-type agendas cause difficulties. There were also comments from agents and the VOA about the quality of decisions issued in some areas and the length of time it takes to issue them. We have recently internally published a policy identifying the essential components of a decision to reduce future concerns regarding quality. A key performance indicator (KPI) introduced for this financial year is to issue 90% of decisions to the parties within a month of the hearing. This KPI provides staff

“In reality valuation tribunal clerks are often bombarded with postponement requests just days before a hearing date”

O

VTS update06

ritish economy appears to be teetering on the abyss of an economic collapse, not seen since before World War II. The housing market is sliding into an increasing recession, with average

house prices likely to drop by as much as 20% over the next quarter and, I suspect, not recovering more than 10% over the following year.

While politicians and the press are understandably concentrating on the voting homeowner, the real economic damage will take place in the commercial market, ironically worsened by the possibility of a massive empty rate hike.

The most frustrating aspect of the current situation is that it was entirely avoidable and was generated by greed and dishonesty within the financial services industry, including the major banks. The whole concept of banking is based on trust, integrity and the liquidity ratio. The factor that banks may lend more than their assets, assumes a degree of responsibility and caution on that industry’s part, for which it is heavily protected by legislation.

However, it would appear that recently, in the interests of short-term gain (mainly for individuals), the responsible lending criteria has been jettisoned, with the resulting collapse stemming from the North American sub-prime market. This is a fancy term for banks lending money at high interest rates to people who cannot afford to repay it. The “skill” of a banker is to pass the debt on to somebody else, which in the UK, would now appear to be the British taxpayer! The claim that the chief executive of Northern Rock is negotiating for a termination settlement in excess of £750,000, despite having cost each and every British taxpayer over £2,000, is nothing short of obscene.

It is not the housing market but the commercial property industry which is the economic driver in the UK with a long record of growth and success. Despite a few high profile cases, the vast majority of commercial developments proceed on competent and reliable valuations conducted by professional qualified valuers, who are subject to stringent disciplinary codes such as the Red Book (and of increasing importance, the White Book of European Valuation Standards) to both of which the Institute is a signatory. The sanctimonious criticisms of valuers from the banking and accounting profession over the last decade now have a very hollow ring indeed!

Regrettably, however responsibly valuers advise on relevant schemes, it is to no avail when lenders

B

uplift in market conditions to justify an investment. While in prime locations, such as the City of London, this is not a problem, it is crucial in areas needing regeneration, particularly the obsolescent industrial centres of the Midlands and the North. It is here that an ill considered and misjudged increase in empty rates will deal the death blow to schemes which could otherwise proceed, as the idea of carrying 100% rates costs on these vacant properties has torpedoed those schemes ready to complete.

In principle, the solution is simple: suspend the empty rate regime entirely. In practice it appears that the government had neither the foresight nor the financial acumen to grasp such a nettle. The imminent economic crash may yet focus their minds, although I’m not holding my breath!

Finally, spare a thought for the Valuation Office Agency, tasked with valuing every non-domestic property in England and Wales (and the Scottish Assessors) - as of 1 April 2008! The Agency is transferring its most experienced staff to this challenge, but the team will need to muster every last ounce of their expertise and professional judgement to produce a Rating List in such a turbulent and unprecedented marketplace. n

Tom Dixon is Executive Director of Sanderson Weatherall Chartered Surveyors, a member of the IRRV Council and a past President of the Institute

have completely lost the ability to lend. The property industry, and economy as a whole, thrives on continuing momentum and highly geared finance – using existing assets or assets being developed as collateral for further funding. As the whole economy winds down and demand in all sectors diminishes, even the best-laid schemes will be vulnerable, such as Persimmon, one of the country’s leading developers, which has already announced a complete cessation of building work.

Such schemes depend ultimately on the famous bottom line. In simple terms they will only take place once there is a positive value in the outcome of the scheme, which is why so many schemes are remaining dormant with vacant property awaiting an

The looming recession has left the commercial property market in a state of despair. Tom Dixon investigates

It’s crunch time

“Lenders have completely lost the ability to lend”

07From the trenches

t is not an unusual occurrence when asked to give a talk about rating or council tax (CT) to be asked to make the talk “a little more interesting and amusing” by mentioning poll taxes and other odd tax ideas. “Wasn’t there

a tax on windows, and isn’t that why you see blocked up windows?” For me, the trouble with this has been that I was never sure when the window tax was in force, how it was assessed, or whether there was anything amusing about it!

Billy Pitt’s picturesThere is not much point in taxing something that people do not need or want – taxing a need should result in regular tax income. Where something is a want, rather than a need, taxing it will reduce its use and it may become a luxury item used only by the rich.

Water would seem to be an excellent subject for a tax as it is certainly essential.

Iinches window actually classed as a window? What width does a mullion have to be before one window becomes two, or is the material used to make the mullion relevant?

Sadly, the basis of the window tax seems to have been rather a simple affair. All households paid a basic 2 shillings (10p), and houses with between 10 and 20 windows, a further 8 shillings, making 10 shillings in all (50p). In 1747 households with between 10 and 14 windows paid 6 pence (2.5p) per window in addition to the basic sum, and those with between 15 and 19 windows paid an additional 9 pence per window. An added complication came in 1825 when houses with less than eight windows were made exempt. The tax was abolished in 1851.

There was, of course, a way of avoiding the tax by reducing the number of windows you had. Certainly if you had 10 windows, you must have wished you had only nine, as this would reduce your tax bill by 80%

Having a tax on necessities rather then luxuries seems bizarre. Patrick Bond considers some of the more unusual taxes that the UK has seen

Windows of opportunity

Though, in the past, the tax would have been difficult to collect because there is rather a lot of it and it does just fall out of the sky.Similarly, windows would seem to be a necessity – after all, practically all houses have them for light and ventilation.

Having some sort of a tax on buildings has the advantage that it is straightforward to assess and collect – the subject of taxation is easy to see and difficult to hide. Indeed, this is one of the advantages claimed for rating. So in 1696 a building tax was introduced but on an element of a building, on windows – the window tax.

I suspect if you are involved in local taxation you have quickly formed a pleasant image of the window tax assessor, perhaps you have already mentally named him the Windows Officer (WO), walking around houses and noting on his form WO37 how many windows each dwelling had. Indeed you might wonder what constitutes a window? Is a pantry 9 inches x 24

08 VOA focus

(from 10 shillings to 2 shillings). Some people did indeed block up windows. Others, motivated by the increased status value, built as many sash windows into their new mansions as they could. The stopped up windows were often called “Billy Pitt’s pictures” after the Prime Minister William Pitt, who increased the window tax in 1784 and then again in 1797 to help finance the war with France. Not all blind windows that you see result from the window tax. Indeed, it is a popular misconception that blind windows were bricked up purely to avoid the tax. Instead many are a result of the Georgian desire for symmetry requiring a window, or the façade of a window, even when one was not wanted internally.

Apparently, the phrase “daylight robbery” originated because of the window tax.

It seems that Pitt was quite inventive in his search for revenue. In 1795 a heavy tax was imposed on hair powder. Gentlemen at

domestic hearths. The tax was at 2 shillings (10p) a hearth, collected in two instalments, at Michaelmas (29 September) and on Lady Day (25 March). Like the window tax, and indeed rating, the hearth tax was largely progressive as the number of hearths bore a rough relationship to the size of dwelling and the likely means of the occupant.

In the early days petty constables, high constables and sheriffs collected the tax but in 1664, the task was given to appointed officers known as “Chimney Men”. Property lists of all dwellings were made including those of persons too poor to pay.

There were exemptions for those in receipt of poor relief, those inhabiting houses worth less than 20 shillings per annum, those not paying parish rates, charitable institutions such as schools and almshouses, and industrial hearths and kilns with the exception of bakers’ ovens and smiths’ forges.

The hearth tax was a comparatively minor tax compared to customs and excise tax. In the tax’s first year the yield was £37,000 but this increased when in 1667 the task of collecting the tax was given to the “tax farmers”. It produced £200,000 in 1667

and an average of £170,000 a year in the following years. Tax farmers were syndicates of businessmen who paid a rent to the Crown that allowed them to appropriate the revenue to themselves. The aim was to even out the annual income to the Crown, which required a steady income from the “farmers”, whose own collection of the various revenues and taxes could vary widely month-to-month. Over time, the “farmers” increasingly became bankers lending money to the government on the security of future tax income.

The tax was not popular with poor men complaining they had to pay 2 shillings (10p) a year for a stove “not worth two-pence, which the chimney villains call a hearth”. To evade the tax, a similar approach to the window tax was adopted, and people walled up their chimneys, gave false returns and even bribed the collector. Luckily, the hearth tax was abolished in 1689 (1690 in Scotland). n

Windows of opportunity

the time wore fairly naturally styled wigs, or hair lightly powdered with a sort of flour. By the end of the century the fashion for wigs had gone, presumably partly due to the tax. Taxing a luxury is a good idea unless fashion changes.

Inventiveness with taxes has never lacked among kings and governments. There was apparently a 1695 tax on bachelors in England (a luxury?) and in 1702 the Russians had a tax on men who wore a beard.

The hearth taxAnother necessity is warmth. Recently the imposition of VAT on fuel caused a lot of concern. After the Restoration in 1662, rather than tax fuel, the government decided to tax the means of using it, and imposed a tax on

“Where something is a want, rather than a

need, the taxing of it will reduce its use”

09VOA focus

Patrick Bond is Deputy Director of the Valuation Office Agency

am not in the least surprised that the changes to empty rate from April 2008 have resulted in various aspects of rating legislation coming under close scrutiny and an increase in the number of questions I have received.

If an existing property is split into two or more separate rating assessments (or two or more are merged into one), then are the resultant properties new, or not? It seems a simple question but the answer has profound implications for rating in terms of:l transitional arrangements; l the need to serve a completion notice; and l the availability of a rate-free period if one of the assessments remains empty.

Examining the issue of transition; the purpose of s2 of the non-domestic rating (Chargeable Amounts) (England) Regulations SI2004/3387, is to introduce “new” properties created by splits or mergers in the 2005 rating list into transition. There are equivalent regulations in the previous lists.

Paraphrasing the words in s2 for clarity: it puts a new hereditament into transition where: (1) It comes into existence by virtue of:(a) property previously rated as a single hereditament becoming liable to be rated in parts;(b) property previously rated in parts becoming liable to be rated as a single hereditament; or (c) a hereditament or any part of a hereditament

Gordon Heath BSc IRRV is an Independent revenues consultant.The views expressed here are purely personal. Gordon can be contacted at: gordon.heath@talk21.com

Non-domestic rates are problematic. Gordon Heath trawls through the legislation and deciphers when exactly a split becomes a new property

I“A change of ownership does not generate a further rate-free period”

becoming part of a different hereditament.(2) The day before it was created, the old hereditament, in whole or in part was subject to transition or, if it was created on 1 April 2005, was shown in the local list for 31 March 2005. (3) It has a new rateable value greater than zero.

Schedule 2 is sufficiently wide enough to bring any new property with a rateable value above zero within transition if any part of it was previously part of a hereditament subject to transition. There is no real scope for argument here.

Turning to completion notices and empty property rate, the Local Government Act 1988 s4A (1) requires a local authority (LA) to serve a completion notice if it comes to its attention that completion of a new building can be expected within three months. This is not permissive legislation and the notice is required to be served, unless the valuation officer directs otherwise in writing - this point is often overlooked. By contrast, if the new building is complete, the LA may serve a completion notice, but is not required to. The purpose of a completion notice is to determine the date from which the rate-free period runs before empty property rate liability arises. A completion notice serves no purpose if the property becomes occupied before the rate-free period expires.

The Local Government Act 1988 s46A(6) makes it clear that in relation to a completion

10 Non-domestic rates

The rating game

was deemed to become unoccupied, that the date of separation in the list was not the test, and concluded that the building needn’t consist of one hereditament, but many. He explained that because the split hereditament was not shown as a separate item in the list to the date of commencement of the lease it did not affect the matter, and the date of completion of that new hereditament was actually the date when the whole building was deemed to be complete.

Griffith LJ summarised that as the new hereditament did not exist until it was created by the lease, there was no liability until after a further three months rate-free period. He said that following that argument would result in frustrating the power to rate unoccupied property, with owners postponing their liability with successive lettings of small parts of their building.

The Court determined that the new hereditament which was let had been unoccupied for more than three months prior to the commencement of the lease and the split. It followed that empty rate commenced on the day of the split.

In Camden LBC v Bromley Park Gardens Estates Ltd (1985) (case stated), it was held that a change of ownership does not generate a further rate-free period.

These cases both pre-date 1990 and national non-domestic rates, so it is possible that the Court of Appeal might come to a different decision but, until it does, this is the state of the law.

The conclusion I draw from these cases is that if an existing hereditament is split by some form of partitioning and part of it remains unoccupied, there is no need for a completion notice, and if the original hereditament had been empty for more than the rate-free period, there will be no further rate-free period. However, if structural alterations to the building have been made, then the completion notice procedure applies. Where a completion notice has been served, the Local Government Act 1988 s46A(4) defines that the new hereditament is deemed to become unoccupied on that day for the purposes of empty property rate. In which case, a full rate-free period of three or six months will then apply from the completion day.

By contrast, transition will continue to apply to any new building if any part of that new building was on the previous day part of an old hereditament that would have been subject to transition.

The issue of structural alterations or partitioning is irrelevant to the question of transition. However, a period with a zero rateable value would end transition. n

notice, “references to a new building include references to a building produced by the structural alteration of an existing building, where the existing building becomes, or becomes part of, a different hereditament or hereditaments”. This surely begs the question: “what is a structural alteration?” Clearly, this must involve more than partitioning – it implies some alteration to the fabric of the building.

The case of Brent LBC v Ladbroke Rentals Ltd (1980) (Court of Appeal) concerned a new building in 1974 on which a completion notice had been correctly served. After the end of the rate-free period, part of the property was let and the assessment was divided into two. The ratepayers argued that they were entitled to a further rate-free period because they were in new hereditaments.

Waller LJ observed that, in the legislation, it was the building and not the hereditament that

11Non-domestic rates

The rating game

A terminal question had just joined Hector Wilks after qualifying and we had a number of aviation clients, but my first involvement with a hangar and office complex (occupied by Pan AM on the

south side of the airport) was here, during my first Heathrow job, during August 1971.

I was also involved with major tenants’ improvements expenditure in the late 1980s. This example of the power of cautious and clear legal advice leaves us still benefiting from that earlier tenant’s expenditure being ignored when determining market rent now.

Rents at the airport used to fluctuate wildly between the best available evidence. For example, when off-airport did better, the landlord’s in-house negotiating team used that, and when rents on the airport grew faster then, of course, those were adopted! All that has largely gone now and there is a tariff scale of rental charges that has been in place for 10 years or more for newcomers to Heathrow or those moving to new space within it. For each category of occupation an annual price range is agreed, and any taker of new space during the relevant 12 months generally expects to pay according to that tariff. Some examples of basic rentals payable, based on 2006/7 pricing, are:l ramp accommodation (apron level, airside, noisy and often quite basic): £32.70 - £38.70 per square foot (psf); l central area warehousing (limited availability and limited demand): £21.00psf; l Terminal 3 South Wing Offices £62.50; and commercially important passenger (CIP) lounges: £59.00 - £65.50. This is for the ‘shell’ only, with tenant’s expensive fitting-out costs incurred on top.

Naturally there are additional sums due for the usual outgoings comprising annual maintenance and heating charges as provided by the landlord, plus insurance and business rates. No wonder the airlines are generally keen to minimise their outgoings!

BAA’s rating assessment, ‘airport and premises’, is currently £117.9m including all the runways, most of the infrastructure, terminal buildings, the all-important shopping airside, car parks (barring any exclusive, say, BA), and the airport operator’s offices. A substantial proportion of the check-in desks that are operated on a timed usage hire basis are now lumped into a single assessment of £3.01m RV. In the past, these were licensed and assessed to the individual airlines.

Generally, the large stand-alone occupations around the airport are held on long lease but most are subject to terms of three years or less outside the protection of the Landlord and Tenant Acts: almost all will be separately assessed. Therefore, all BA-badged buildings are separately assessed, as is each building in the cargo terminal on the south side of the airport. Discussions there have resulted in settlement very recently of 2005 rating appeals based on a range of prices including £19.50psf for full-height warehousing and £27.87psf for associated offices.

Heathrow is very important as a cargo airport, even if it means trucking the cargo across Europe by lorry. Shortly after my joining what is now Wilks Head and Eve, I became involved in the 1971 negotiations on the, then, recently constructed Lyon development on virgin land adjacent to the southern perimeter road. This was barely used so we had the good fortune to act for all 16 or so occupiers. These substantial sheds remain there today around Shoreham

I

Road and have provided endless fun. One year I arranged for the RICS Rating Diploma Section to hold its practical examination in the Air France cargo shed which had to be measured, valued and written up (including rateable plant and machinery) in the day! As examiner, I was interested to compare the student’s ideas on the shed’s size with my own as agreed with the Valuation Office Agency.

Security is a concern (as the buildings bridge the airside/landside boundary) because of the high value of shipments and the ease of access through to the apron. Cargo aircraft are infrequently seen these days, and the original concept of rent-a-shed and park your cargo aircraft outside is long gone now. However, as buildings, the sheds still provide fair space, though the services are old and many airlines sub-contract.

The centrally provided district heating system is now too old to repair for the remotest buildings, and there have been cases of these

Richard Guy continues his tales of Heathrow airport, charting his 30 years of personal valuation experience within both the old and new terminals

12 Heathrow

Once important for London’s general (light) aviation market, including hangarage, maintenance and storage of light aircraft, this function has effectively been displaced to Biggin Hill, Farnborough and elsewhere, now releasing land and causing early demolition of some quite substantial modern buildings. Anyone who was familiar with the BA maintenance base (previously BOAC and BEA as separate companies on either side of the perimeter road) at the east end of the airport will have seen the enormous changes in the last 10 years, as the main concrete hangarage and engine maintenance bays have been demolished and the land released turned to other uses: hotels, fresh food importation, third party vehicle servicing, airport transport parking etc. This is largely as a result of aircraft becoming much less likely to need major attention en route, usually returning to a home airport for major work. There has also been a substantial move towards relocating routine maintenance work to remote airports, such as the BA facilities at Cardiff. As the pressure on land value/utilisation increases over time, so the less able to pay uses or the costliest in land use terms are displaced. Nonetheless, one still feels that haphazard planning continues even here relying upon land use demand and proximity to taxiway access.

For all the arguments about a third runway, one feature that would probably result is the provision of substantial additional areas for aircraft parking. We already have parallel landing and taking off when conditions permit, to gain the very last drop of runway capacity and, undoubtedly, there will be some interesting calculations to come from the Civil Aviation Authority and its subsidiary National Air Traffic Services on approach and landing timings and stand utilisation if there is a choice of three rather than two runways all in use together.

One consequence of the opening of Terminal 5 is that the airport can adjust to better accommodate the existing occupiers and permit new entrants (following the US-UK open-skies agreement effective from April 2008). This means large-scale moves for BA and a number of consequential moves to follow on. We are expecting to move again to the new terminal yet to be built, called ‘Heathrow East’ in four to six years’ time, when that opens to replace Terminal 2 and the existing Queen’s Building facilities. A hard-hat, reflective vest and steel-toed boots may be in regular use for a while yet, I think. n

A terminal question

Richard Guy, of William Eve, Chartered Surveyors, is a past President of the IRRV

vast buildings (RVs up to £2.8m or so for 2005) becoming unheated because it was just too expensive to maintain the existing system or to provide a new one.

Perhaps unsurprisingly the most acute shortage of space at Heathrow is for the parking of empty aircraft between flights. The turn-around of an aircraft on a given passenger stand is only possible with the briefest of intervals between arrival and departure; any further wait requires either a premium charge for stand use or the movement of the aircraft physically to a remote stand where the plane can wait until needed to be towed back.

One of the limitations of a fixed external boundary in an urban area is that extension parking space cannot be found except by the demolition and repositioning of existing buildings or assets. Construction of that building has brought a welcome additional number of aircraft stands, but these tend to be for BA use and most are for short-term usage.

“Security is a concern because of the high value of shipments”

13Heathrow

lymouth city centre has been the subject of much discussion following its selection for a business improvement district (BID) scheme. I have just visited

Patrick Knight, Plymouth’s BID Manager and two of the city’s revenues team to see how the city centre redevelopment and BID scheme has progressed since my last report for the IRRV on the preparations for the BID in 2004.

Following the successful development of the BID scheme in the US and Canada to manage and regenerate city centre retail districts, Plymouth was chosen as a pilot scheme to spearhead the BID concept in the UK in 2005.

Its birth came amid an exciting period

P

Plymouth’s progressThree years following the introduction of a BID to Plymouth, Margaret Humphreys reports on the regeneration scheme’s success

of change taking place in Plymouth, with acclaimed architect and urban planner David Mackay helping lead the regeneration debate in the city through his ‘Vision for Plymouth’ master plan. This will shape Plymouth’s future planning policy for the next 20 years.

The BID, which was set up initially to run until 2010, is an integral part of this regeneration process and incorporates five broad themes aimed towards improving the city centre. These are:l to make the city centre more attractive;l to increase safety, including a reduction in retail theft; l to make the city centre more welcoming and accessible;l to clean-up the city centre; and

l to better promote the area. The BID is backed by the majority of

city centre businesses and is funded by a supplementary levy, billed in addition to the usual business rates, on all liable ratepayers within the defined area of the BID. The revenue is collected by the city’s revenues division.

Plymouth City Centre Company Ltd manages the BID, which is limited by guarantee. It is private sector led and the board is comprised of private and public sector members. The company is independent of the council but works closely with officers and elected members and the retail and wider business community in identifying and delivering projects to enhance the city centre.

14 Cover story

There is no doubt that the new Drake’s Circus Shopping Centre, which opened in 2006, has added a new dimension to the city. Its spotless piazza approach, size and design are impressive, as is the improved appearance of the surrounding streets with their raised and colourful flower-beds.

Patrick Knight, and Gill Giles and Pam Dean from the revenues team met me at the Civic Centre, where we discussed how the BID had performed so far, and how the £200m Drake’s Circus development and the BID have affected Plymouth’s retail performance and economic development.

“It has been a rip-roaring success,” says Patrick. The choice of outlets in Plymouth has been expanded, further establishing the city as the shopping capital of the region. Virtually the whole shopping centre has been let out, and the main stores have broken all records and are now annually attracting over a million shoppers into Plymouth from across the region.

Drake’s Circus’ success has encouraged migration of other businesses towards the east end and created an infill of older east end retail spaces – originally vacated by those who moved into Drake’s Circus.

The west end of the city centre is also rising to the challenge of the change in shopping patterns, and has been rebranded as the ‘Independent Quarter’, to emphasise its traditional mix of over 200 independent and niche traders in and around the Pannier Market. The area is home to a varied selection of retail outlets, a range of ethnic shops, and eateries. The west end is earmarked to get its own regeneration scheme, with the publication last year of the West End Vision – a 20-year programme of improvements, the first of which will get underway early next year, subject to planning.

From what Patrick, Gill and Pam told me, Plymouth has made great headway with the new shopping centre, but the city centre is still a place of contrasts, with many areas still awaiting regeneration.

We then moved on to discuss the progress

of the BID. A new ballot of retailers is planned for September 2009 because Patrick’s team must renew the BID before its end date. The BID will require a new democratic mandate if it is to be continued after April 2010.

We discussed the five broad themes of the BID in turn, and Patrick was able to

Plymouth’s progress“There has been a

25% reduction in retail crime during the BID

period to date”

15Cover story

demonstrate significant successes in each area:1) To make the city centre more attractive BID revenues have funded a major landscaping and planning programme, with well-maintained floral displays. In the Britain in Bloom competition, Gold Standard was achieved, and the city is entered for the European Gold Standard Award. 2) To make the city centre safer, the BID has funded extra Police Community Support Officers (PCSOs), to reinforce feelings of safety among shoppers and workers. An organisation of retailers, called Plymouth Against Retail Crime (PARC), has also been established to fund initiatives for closer liaison between city centre managers, police, PCSOs and retailers.

There has been a 25% reduction in retail crime to date and the city centre has received two national awards for safety.3) To make the city centre more welcoming and accessible, the BID spent £160,000 on new signage, in order to aid navigation and street safety for visitors.

Action under the BID to improve car park security has led to four “Safer Car Parks” awards, and police are preventing boy racers using certain city car parks.

Eight BID grants have been made for ramps into retail areas, and the Drake’s Circus centre has a high level of disabled facilities and assistance available.4) Patrick and his team are particularly proud of the city cleansing and maintenance area, another of their achievements under BID funding. Patrick says: “The BID Team have carried out surveys of retailers and customers which demonstrate that customers rate a clean shopping centre highly.”

Plymouth City Centre Company Ltd has worked closely with Plymouth City Council, and invested heavily in cleansing programmes and street cleaning equipment. This investment has paid off, with independent surveys by

phase of a redevelopment. The aim is to bring new public spaces around the Pannier Market, around 95 “hop in and out” parking spaces, and mixed housing developments into the West End, with its specialist retailers and restaurants.

The hope is that overall rents and rateable values will increase, meaning BID funding will increase as the stages of the redevelopment are achieved. Patrick realises that the retail economy has hit a difficult patch at present, so we shall have to see if this is the pattern.

Consultants are helping Patrick’s team carry the 20-year plan forward. They are looking to achieve something bigger, to be more ambitious and to continue raising the bar all the time. They must get the balance right to make the city centre an improving experience for the shopper.

To conclude, the future of Plymouth’s BID looks promising. In 2004, 76% of all city centre retailers voted in favour of the BID and after just 18 months of the BID projects running, 87% of the total retailers were in favour of the BID. Prior to the BID, in Experian’s ranking of retail sales, vitality and yields, Plymouth ranked 37th in the country. Now the city is in18th place, achieving its objective to be in the top 20 UK retail cities. n

Encams regularly rating Plymouth as one of the cleanest city centres in the UK.5) BID funding has promoted many activities and festivals in the heart of the city centre to encourage more visitors into the city. This includes a £1.6m project to create an award-winning events piazza, and £150,000 worth of extra Christmas lighting. TV advertising has also been commissioned with BID funding, to publicise the city centre and Drake’s Circus.Events to promote the city include:l Christmas fairs; l a Wimbledon tennis big screen for shoppers; l “The Earth from the Air” photographic exhibition by Yan Arthus Bertrand; andl the new Plymouth summer festival.

Having delivered the first three years of the BID’s business plan, Patrick and his colleagues are now shifting their focus towards more strategic areas of the city centre, such as the West

End. The regeneration of the West End is part of the initiative, and more information on this can be found on the website:www.plymouthcitycentre.co.uk.

The work in the West End will link into the ongoing regeneration of the former Millbay docks by English Cities Fund and to the city centre.

The proposed transformation of the West End will need more financial support than simply BID funding, but Plymouth City Council is signed, in principle, to the first

“Independent surveys by Encams regularly rate Plymouth as one of the cleanest city centres in the UK”

Margaret Humphreys IRRV is a consultant

16 Cover story

ocal services have existed and been paid for by the population in Britain from the first settlement of land up to the years before the Roman occupation. There are, of

course, no contemporary written accounts of the resolution of disputes or taxation in pre-history, but it is likely that the chosen family or tribal leaders were accepted, in part at least, for their abilities to:l peaceably settle disputes between their followers or their neighbours;l successfully get projects planned, managed and completed; andl raise and allocate surplus resources for defence and other projects.

Although it is doubtful that the population thought of the latter as a taxation, that is what it was.

Initially, the small population meant

that land was settled sparsely. Space allowed possession for dwellings and husbandry to be taken on a first come-first served basis. As an extended family developed, a leader would emerge to ‘oversee’ a growing area of cultivation with fields and boundaries (ditches, hedges or paled areas for livestock).

As decades passed and generations were born, occupancy of the land would have probably been thought of as allodial, or owned by the tribe. Therefore, as members of the population died, it became fitting to allow them special burial rights – leaders to mounds, others to special areas.

The allodial lands of an extended family would eventually join those of neighbouring families. No doubt conflict arose from the ambitions of leaders or from a lack of

resources. In other instances, populations began to join slowly. As the generations passed, tribes came about and tribal areas came to be recognised, for example: Icenii, Cantii, and many more.

Eventually, agricultural surpluses, minerals and other tradable commodities enabled exchange with similar tribes in what became Roman Gaul. Traders also travelled from the seas surrounding Africa and Europe. We surmise that local leaders would have seen foreign and indigenous traders as a source of taxation, and targeted them for licence fees and fines.

Customary laws may well have developed within the extended family for allocating land to families, in the sense that decisions of successive leaders would have became precedents for the later resolution of disputes.

Neighbourly forces may have settled day-to-day disputes about boundaries between holdings and the straying of animals until a strong local leader emerged. The leader would enjoy backing from the tribal elders in enforcing the rights and obligations of the tribe. In some instances, remedies and sanctions would have been necessary to control the wilder members of the tribe. At the same time, the non-monetary fines and confiscations would have increased the wealth of leaders.

As the role of secular leader developed, some members of the tribe may have specialised in remembering the laws and become a sage or lawyer. Where the clouds of the unknown were hindering the settlement of differences, one or more insightful individuals might have evoked the spirit of the tribe. If they proved right on several occasions a second form of leadership would have emerged. These codes of belief came about by custom and a spiritual nature and would be used to resolve kinds of conflict. It is doubtful that the ‘lawyers’ of a tribe would ignore such development, so the body of ‘law’ grew – perhaps as a mix of the secular and spiritual.

The early spiritual tenets could have resulted in families allocating land and labour to local burial mounds and grounds. And perhaps much later, tribes exacted huge resources for special spiritual areas – for large mounds and stone circles. The human levies utilised to build these ancient monuments were substantial in man-hours alone. The management resources were elaborate and skilled. Materials, transport, accommodation, victuals and materials would probably have been garnered from the local tribal populations by means of taxes in kind – no doubt requiring assessment, collection and enforcement. n

This article first appeared in the VTS newsletter.

Taxation and land disputes are nothing new. Geoff Parsons delves into pre-history to discover exactly when they first made an appearance

A lesson in disputes

Geoff Parsons is an author, and member of both the IRRV and RICS

L

17Disputes/tax

Adding value

to the IRRV’s Yorkshire and District Association on the future of business rates and empty property rating. Check out the Association’s web pages at: www.irrv.org.uk.

Other newsThe European Group of Valuers Associations (TEGoVA,), met in Warsaw Poland in late May to consider the publication of a new “Blue Book” of European Valuation Standards (EVS2008) to replace the 2003 edition, and also to introduce the new Recognised European Valuer (REV) qualification. Look out for a full report in the August edition of Insight.

VO Valuers on strike hit the headlines, and there was a thoughtful letter to the Estates Gazette on professionalism in the VOA by retired VO Valuer Bill Paynter.

After reorganising DVS into sector-based teams, the VOA has been advertising for a new £100,000 pa Director to manage and market DV Services (the commercial arm of the Agency). A new set of leaflets is on the VO web site under District Valuer Services. See the official VOA announcement on page 4.

The East London Olympics zone is now a hive of activity, with hundreds of workers on the vast site, plus major earthmoving vehicles and some high quality contractors huts. The foundations of the new main stadium are taking shape and the remediation work is being completed.

Taken out of rating in one day - is this a record? The VO responded quickly to a recent

Geoff Fisher rounds up the latest news from the world of valuation

Congratulations…. ...to Council Member and Past President Tom Dixon who has been elected as President of the Rating Surveyors Association (RSA). The RSA will enjoy its House of Lords Reception on 20 June. The Association’s Guest Dinner is on 6 November and the RSA will celebrate its Centenary on 25 March 2009.

Valuation Tribunal Service affairs

The VTS Newsletter 9 (March 2008) is now out and can be read at: www.valuation-tribunals.gov.uk. The newsletter contains details of the introduction of Appeals Direct for council tax, and useful updates on both Lands Tribunal and Valuation Tribunal decisions, including a VT decision on Lotus Cars - Norfolk (hereditaments and paramount control).

The newsletter also features a summary of an address by Institute member Robert Brown FRICS IRRV (Director - Sanderson Weatherall)

The 1 April 2008 Antecedent Valuation Date (AVD) has arrived right in the middle of a credit crunch and economic uncertainties.

Whilst the relative low appeal rate on the current 2005 Rating List has allowed valuation officers to make an early start on revaluation property market research, the current volatile market and reduction in lettings will make it particularly difficult to assess appropriate rateable values for the Rating Lists 2010.

In the City of London, the demand for new office space by the financial sector is falling away just as significant new completed floor space is increasing supply. Increased vacant space by 2010 will be a material physical change to be taken into account in pitching 2010 List RVs, reflecting both the 2008 AVD rental values and the physical circumstances at the 2010 Compilation Date. As the Communities and Local Government Ministry will want firm RV figures by mid-2009 valuation officers will need to consult their crystal balls as to vacant space and physical factors at 1 April 2010, ready for the publication of the draft lists on 30 September 2009.

Retail spending is down, which is likely to affect shop rental values, but the opening of two major shopping centres in London – White City (2008) and Stratford City 2010/11 is also likely to impact local and regional shop rentals over the next few years.

Industrial rentals as at AVD will reflect the economic and physical effect of the imposition of 100% empty rates, and the rental analysis and valuation assessment will reflect the conversion of VO floor areas from Net Internal Area to Gross Internal Area for the new List.

Revaluation 2010 Programme Manager Steve Bliss is charged with leading and co-ordinating the nationwide revaluation 2010 process, and he gave a resume of aims and issues at the CPT National Rating Day on 15 April 2008. The focus on valuation envisaged some measure of prior agreements, more rental evidence, more use of IT, and summary valuations for almost all assessments (up to 1.7m from 1.3m on the current list). The start of the valuation stage begins now, combined with continuing market research and issuing of information requests to specialist properties. Professionals to the fore please!

Whither Revaluation 2010 Rateable Values?

18 Fisher’s findings

These notes are compiled by Geoff Fisher, professional consultant with Strettons, and Junior Vice President of the IRRV. Contact him on gfisher@strettons.co.uk.

“In the City of London, the demand for new office space by the financial sector is falling away”

request on an Olympic case on being satisfied that the hereditament no longer existed!

Dates for your diaryThe Rating Diploma Section will be holding its popular and expert Rating Conference this year on Thursday 11 September 2008, examining various issues facing the modern rating practitioner as well as the 2010 revalvaluation. We wish Diploma Holder Steve Baker – the Valuation Officer in the recent Lands Tribunal case on Harrods – a happy retirement after a long career in the Valuation Office Agency.

The Compulsory Purchase Association (CPA) will be holding its annual conference on Wednesday 18 June 2008, chaired by Colin Smith (CBRE). The event will cover a range of compulsory purchase issues. Members enjoyed a House of Lords reception in May.

IRRV Annual Conference Valuer DayAs Valuer goes to print, details are being finalised for a repeat of the successful Valuer Day, regularly held as part of the Institute’s Annual Conference. This year’s event will be in Manchester – further information will soon be available on the IRRV website.

Mark JorgensenGVO City 2006 to datenow GVO Central London

Geoff FisherGVO City 1998-2001now with Strettons

Don BakerGVO City 2001-6now with Colliers

A London and Home Counties Association meeting Regeneration and Rating, on 12 March 2008, attracted both revenues and valuer members and guests, with speakers Geoff Fisher, Peter Scrafton and Head of Newham Revenues John Holland, covering regeneration, Olympics, compulsory purchase and rating. The three heads of revenues for Tower Hamlets, Newham and Islington contributed to the debate about the liability and collection of the new 100% Empty Rates. Interestingly, the last three London City Group Valuation Officers were all present, and Mark gave a brief account of the April 2008 merger of the City and Westminster Groups to form the Central London Group (Newham going to London North Group).

19Fisher’s findings

ntil the passing of the Land Compensation Act 1973, there was no provision for payment on account of compensation. Many claimants suffered as a result so Parliament introduced s52. This

provides that where an acquiring authority has taken possession of any land or has created rights over such land then that authority, if requested by a person entitled to compensation, makes an advance payment on account of the compensation payable by it. S52(A) makes provision for the payment of interest, while the Planning and Compulsory Purchase Act of 2004 makes detailed provisions where the land is subject to a mortgage.

But the advance payments system is not working. For example, it is not unheard of for claimants to refuse a payment if acceptance is seen as agreement to the authority’s view of the case and that such an agreement would prejudice settlement of the case at an appropriate figure.

More seriously, there are constant complaints that some acquiring authorities pitch their payments well below the amount claimed, or that a payment claimed is either paid unreasonably late or is not made at all. Acquiring authorities have been known to delay making payments as an incentive to complete a transfer of title. The general problem is further exacerbated by the interest charges which claimants have to pay on costs pending recovery, and the recovery of interest available under statute.

On the other hand, acquiring authorities complain that claims are often not sufficiently supported by evidence for a proper assessment to be made, and therefore they can only make a payment against items accepted in principle. As negotiations proceed, it is not always the practice to reflect any reached agreement in an additional advance payment. In defence of some authorities’ actions, it must also be said that where a claimant has received the bulk of compensation there would be little incentive to complete the transaction.

Inevitably, practitioners discuss these problems, but Communities and Local Government require more accurate evidence of misuse or abuse, before ministers can be advised to take remedial action. A survey among the Compulsory Purchase Association (CPA) members is being conducted to ascertain the extent to which the system is being misused or abused. If readers have any evidence of other instances, then CPA would be glad to hear from you, at: www.compulsorypurchaseassociation.org.

The present procedure requires the claimant to make their request in writing, giving details of their interest in the land and any other necessary information, enabling the authority to estimate the amount of compensation due. That payment will be either 90% of the authority’s estimate of

U

“If the authority does not make a payment on time then the claimant may refer the matter for third party determination”

Not a fair game20 Compulsory purchase

compensation or 90% of any agreed figure, and it generally must be paid within three months of a request. There are provisions for the settlement of balances due in either direction depending upon the final assessment of the compensation due.

The purpose of the advanced payment must be to enable the claimant to reorder his or her affairs with the minimum of disruption, whether this means moving to other premises and/or the avoidance of business closure. So any proposal for change must meet the following criteria:l there must be an enforceable obligation upon an acquiring authority to make an advance payment, provided that the claimant has provided reasonable information to enable the proper level of compensation to be assessed;l the level of payment should be subject to challenge as to reasonableness in all the circumstances of the claim; andl the procedure for enforcement needs to be rapid, easy to use and ensure easy collection of funds.

The CPA believes there ought to be a prescribed format for making an application laid out so when read together with the original claim form, the authority has a clear idea of the amount claimed and basis of claim.

The authority should respond within a month of receipt of the application, either rejecting it or giving a proposal for payment. Any rejection must state how the request fails to meet the prescribed content, and any draft proposed payment must be analysed, particularising assumptions employed and accompanied by any request for clarification or additional information which the authority might need to enable it to revise its offer.

Within one month from the date of the authority’s draft proposal, the claimant may submit further information in response or any other such information the claimant feels may be material.

Within three months of the date of its draft proposal, or the date when possession of the land is taken, whichever is later, the authority must make a payment to the claimant (assuming of course that it has accepted a payment in advance may be due). A statement explaining how the payment

Peter Scrafton, IRRV FCIArb, Solicitor, is Vice Chairman of the Valuation Faculty Board and Immediate Past Chairman of the Compulsory Purchase Association. Email: aho30@dial.pipex.com

Cards on the table please! Peter Scrafton asks for fair play in the world of compulsory purchase and compensation

differs from the draft proposal (if it does), and how any information received from the claimant within one month of the draft proposal affected the assessment of it, must accompany the payment. Any information received from the claimant more than one month after the draft proposal may also be taken into account in a later claim.

On paper, this procedure is one month longer then the present system, although the CPA feels that in a payment the greater amount of information required should be reflected in the claimant’s favour. The extra month should be offset by the greater chance of getting a reasonable interim payment on time. If the authority does not make a payment on time then the claimant may refer the matter for third party determination.

A dedicated system is wholly absent and the CPA proposed two possible options:1. A procedure similar to that employed in county courts for the fixing of an interim rent in lease renewals under the Landlord and Tenant Act 1954. This system well understood, the award could be recovered (with cost) but experience of the county court system shows there are frequently delays of several months before a hearing date can be fixed.2. As an alternative, the Lands Tribunal could be tasked to provide an interim award based on written submissions incorporating the application for the advance payment and all responses thereto. CPA suggests that the Tribunal offer this service outside its strict statutory basis as an ancillary function, which would have to be self-financing. In order to avoid any suggestion that one of these “interim awards” could be misconstrued as a decision of the Tribunal, the Tribunal might wish to subcontract the service to another professional institution, although it seems to CPA to be important that quality control of standards must remain with the Tribunal.

Authorities would be required to work within this new scheme, which should be made a condition of the approval of any compulsory purchase order or Hybrid Bill. It is not envisaged that such a step would need any primary legislative change. If this particular suggestion is adopted and there were no statutory changes, then affected land owners and occupiers would have to opt into the new process and agree to be bound by it contractually as a condition of making a request under the new system. Any claimants not wishing to opt in would proceed under s52 as it now stands.

CPA suggests that the revised process outlined above sets a clear procedure for the improved working of an advanced payment system. The system proposed is designed to enforce greater transparency in the assessment of advanced payments with the intention of bringing the parties closer together and aiding the overall settlement of compensation. n

Not a fair game21Compulsory purchase

ates have underpinned local government finance since 1601 and, more recently, council tax (CT) has formed its backbone. They are an acceptable form of national taxation forming

one item in a broadly balanced range of major taxes including: taxes on income; profits; personal expenditure; employment; and duties. Property taxes are suitable as a source of funding for local government which cannot deficit finance, because they are difficult to avoid and their yield is certain.

Most major businesses do not object, in principle, to paying tax on their property assets. They may believe that the level of tax is too high but tend to accept that if Parliament is to be supreme it must set the level for all taxes. The change to national non-domestic rates for England, Scotland and Wales in 1990 made the system far more acceptable, as it removed the ability of local authorities (LAs) to fix local rate poundages, often with little regard to the effect on local business and national competition.

Business needs a modern rating system that is transparent, capable of simple audit and free from local political interference, cheap to operate and collected on a consistent basis. Sadly, the current system fails to meet these requirements.

There are many stakeholders involved in the administration of rating, including Communities and Local Government (CLG), the Welsh Assembly Government (WAG), local billing authorities (BAs), the Valuation Office Agency (VOA), the Valuation Tribunal Service (VTS) and agents in private practice. A number of these bodies understand the need to satisfy the ratepayers’ business requirements and ensure that rating remains an acceptable form of taxation providing the backbone to local government finance. Other participants have clearly failed to grasp the nettle but at least appreciate that change is needed, namely the CLG and, to a lesser extent,WAG and the local BAs.

The VOA experimented with Ratepayer Forums in the run up to the 2005 revaluation. These meetings provided an opportunity for education and discussion leading to major progress in demystifying the rating system. Representation included local business and BAs, while the national forum included the CLG, WAG, VTS, Local Government Association, the Small Business Associations, the Confederation of British Industry, trade associations and three professional bodies (RICS, IRRV and the Rating Surveyors Association). There is no doubt that these forums will contribute to the success of the 2010 revaluation.

The VOA also established its pilot Valuation

R

Office Ratepayer Contact (VORC) scheme for the current revaluation. Individual valuers worked alongside the estate departments of ratepayers with very large portfolios of occupational property to ease the provision of rental data and to help with the appeal process. The success of this initiative was mixed, mainly because individuals in ratepayer companies changed as did those at the VOA. The Agency is rolling out an improved VORC scheme centralised in Harrogate for 2010, signing up 32 major ratepayers occupying 28,000 hereditaments and holding discussions with a further 17 organisations occupying 15,000 properties.

The most impressive change introduced by the VOA is the publication of Rating Lists on

Rating reform

its website supported not only by summary valuations for most classes of property, but also details of underlying schemes of valuation. There have been difficulties in understanding some of the schemes of valuation, mainly due to the experimental IT used by the VOA to support these schemes. The Agency is addressing these shortcomings for the 2010 lists.

The VOA was not content to rest on its laurels and introduced an electronic proposal form allowing individual ratepayers or agents to make appeals. However, these arrangements are not suitable for major firms of rating agents who have substantial computer systems supporting the advice they provide for their clients. The

A reformation in ratingDespite recent progress, rating administration is still in need of modernisaton, says Charles Partridge

22

Agency, the VTS and agents have developed a parallel web-based system over the past five years which allows the various computer systems used by the main rating agents to communicate directly with the VOA’s central computer. This system enables the multitude of consequential documents, which the VOA is required to send appellants, to be transmitted electronically. The requirement that data must be correctly entered at the time of an appeal or it will be rejected, is an overriding benefit to all parties. Once the agents’ records are “mated” via the appeal process to those of both the VOA and VTS the exchange of subsequent documentation is simple and guaranteed, meaning that these parties are

adopting the Pisces protocols to ease the process of electronically transferring rental data. The protocols provide a unique identifier to each item of data, enabling the recipient (VOA) to automatically sort the data. Provision of adequate and accurate rental information is a prerequisite if the VOA is to have any hope of achieving its ambition to be “Right First Time”.

Unfortunately, while many large ratepayers and landlords maintain their property records in a Pisces compliant format they use many variations in the addresses. Any electronic exchange of rental data is dependent upon acceptance and use of a common address identifier. The unique property reference number (UPRN) developed for the Valuebill project would have solved this problem. However, participation in the Valuebill project was not compulsory and many LAs have ignored it.

If the rating system is to remain the backbone of local government finance then its administration must be reformed to comply with modern businesses practices.

There is little question that if left to work alone local government will introduce the required changes since each authority is, to some extent, independent. The success of these further reforms is dependent upon all authorities conforming to minimum standards. Under the current arrangements any reform will be introduced at the speed of the weakest LA, which is unacceptable.

It is clear that CLG and WAG should accept responsibility for driving forward reform of the

administrative processes within the rating system – the taxpayer demands nothing less. However, there is a need to recruit top quality staff in the collection departments of BAs who have access to modern and efficient collection processes.

CLG and WAG have argued in the past that they cannot dictate to LAs, but this is an abdication of their responsibilities. They must provide the leadership necessary to drive the required reforms forward. This has to include a combination of incentive and regulation in addition to providing guidance on “best practice”. If these organisations cannot do this, then serious consideration should be given to transferring the responsibility to HM Revenue and Customs (HMRC) whose main responsibility (unlike CLG and WAG) is the efficient collection of tax. HMRC understands the need to introduce modern business practices into the collection process, thereby reducing the administrative cost for ratepayers. n

Rating reform

“Rating remains an acceptable form of taxation, providing the backbone to local government finance”

A reformation in rating

The cost and time of checking each demand individually is unacceptable. The WAG is to be congratulated on adopting a more enlightened policy, where there are appropriate regulations.

The lack of consistency in the layout of demand notes pale into insignificance when considered alongside unpublished research carried out by the IRRV which indicated that out of 441 demand notices 66% contained potential billing errors, some of which were so serious that, if challenged, would have been unenforceable.

The VOA and agents are looking at

no longer concerned about the identity of the appeal property. The VTS is working to extend these arrangements so that documents relating to the later stages of the appeal system can also be transmitted electronically.

Ratepayers expect the system to be modern, transparent, capable of simple audit and free from political interference while being both cheap to operate and collected on a consistent basis. Achieving these goals is disturbed by the inability of the CLG and, to a lesser extent, the WAG to give direction or provide leadership to BAs.

The technology to enable rate demands to be read electronically now exists. However, since the CLG has not produced regulations prescribing how these demands be set out, it is impossible for software houses to produce appropriate programs. This is becoming increasingly urgent as ministers seek to impose a variety of extra supplements on the rating system, including transitional arrangements, BIDs and other impositions.

Charles Partridge is Director of Rating with Lambert Smith Hampton

23

Tony Eden explores rating reliefs and exemptions in the first of a two-part analysis of this vexed subject

Buried in the depths of Sir Michael Lyons’ March 2007 report on local government funding was a recommendation that the current system of rating reliefs and exemptions should be reviewed. In recent Valuer articles contributors have discussed fundamental changes, such as the removal of exemptions for agricultural land and buildings, with those for and against giving their respective views.

It is not the intention of this article to discuss the merits or otherwise of any particular change in public policy terms. Rather, it starts from the proposition that before you can propose change, it is essential to know what the existing provisions actually mean in practice.

Exemptions from rates for particular classes of hereditament have existed for many years, and the current statutory basis for exemptions from rating is contained within section 51 and schedule 5 of the Local Government Finance Act 1988. Schedule 5 sets down the various classes of exempt hereditaments, and it should be noted that under schedule 5 paragraph 20, the Secretary of State has power, by regulations, to reintroduce exemptions contained in private or local Acts of Parliament before 1990, which were swept away by section 67 (12) of the LGFA 1988. Those powers have so far not been used, but if a review recommends there should be an extension to new classes of

hereditament, this can be achieved without the need for further primary legislation.

Many of the provisions were included in the 1988 Act without debate in Parliament, and were lifted almost unchanged from earlier legislation such as the General Rate Act 1967. There were some major exceptions, such as property used for disabled persons, where little remains of the provisions of the Rating and Disabled Persons Act 1978. Parliament also introduced a major change in approach by the inclusion of the words “to the extent that” into all of the exemptions. This enables the valuer to examine the use made of different parts of a hereditament in order to see whether the exemption provisions apply to a part, if not the whole, rather than previously when the predominant use of the larger whole would determine whether the hereditament was wholly exempt or wholly rateable.

In order to decide the extent to which a

“The question of what is an agricultural operation continues to be a fertile source of litigation”

24

Agricultural ambiguity

Rating diploma focus

hereditament is exempt from non-domestic rating on a particular day, the “state of affairs” existing immediately before the day ends shall be treated as having existed throughout the day by reason of section 67 (5) LGFA 1988. This provision has frequently given concern in the case of an intermittent use, such as a field being used for a car boot sale once a week, where there is no physical evidence of that use at the end of the day.

Since 1988 there have been a few piecemeal changes to the statutory basis of rating exemptions, principally contained in the Local Government Act 2003, but otherwise the legislation has survived more or less intact. Because some exemptions existed in substantially the same form pre-1990, and with the passage of 18 years since the new Act came into force, there has evolved a substantial body of case law on how the more significant exemption provisions should be interpreted and construed. It is perhaps surprising, therefore, that litigation continues in this area, and in the area of exemption for places of public religious worship.

I will examine four of the principal exemptions (in terms of numbers of hereditaments and estimated loss of rateable value) to shed some light on the scope of each exemption in 2008. In this article, I’ll cover agricultural exemptions, and I’ll deal with the other three in the next issue of Valuer.

Agricultural premises – schedule 5 paragraphs 1–9:

Although partial relief has been given to agricultural property for a considerable time, full relief for agricultural land and buildings throughout England and Wales was only finally granted in the Local Government Act 1929. The definitions remained unchanged for about 40 years until the General Rate Act 1967, and were based on agricultural practices current in the 1920s when, for example, the uses of agricultural buildings were ancillary to farming land, and when farms were generally self contained independent production units with little co-operative sharing of capital investment.

With the arrival of intensive animal keeping (such as battery hens and intensive pig units) and with the need for larger capital investment, agriculture has changed and exemptions have come under pressure to change as well. In recent years farming incomes have diversified, and the returns derived from purely agricultural operations, such as growing crops and raising livestock, have diminished relative to potential earnings from other activities.

Paragraph 1 states that a hereditament is exempt to the extent that it consists of agricultural land or buildings. Agricultural land is then

defined in detail in paragraph 2 and agricultural buildings in paragraph 3.

Agricultural landThe definition of agricultural land is quite restrictive and is designed to exclude non-agricultural uses. To be exempt, land must be “used as arable, meadow or pasture ground only”. Any use other than for this purpose that goes beyond de minimis may therefore result in the exemption being lost. The courts have, however, given exemption to cases where the non-agricultural use was significant, if not in terms of time, certainly in terms of the intensity of the non-agricultural activity, such as the grass ski slope in Eden (VO) v Grass Ski Promotions [1981] RA 7.

Paragraph 2 (1) then goes on to detail various other land uses which shall be deemed to be agricultural land. These include land used for a plantation or wood or for the growth of saleable underwood. This begs the question of whether the exemption should be lost when the wood is used for the purpose of, say, a commercial pheasant shoot, or for war games/paintballing. In the first example it may be possible to argue that the wood is not used principally for shooting. In the case of war games, the wood is unlikely to have any commercial timber value as it is usually amenity woodland or thicket, so the leisure activity will be properly rateable. Furthermore, as it is being used mainly or exclusively for the purposes of sport or recreation it will fall within the exclusion of paragraph 2(2)(d).

Land used for poultry farming, exceeding 0.1 hectare is also specifically exempted and this would seem a sensible provision to encompass free range poultry farming. The courts have closed any potential argument that poultry could include game birds raised for sport rather than the pot: Cook (VO) v Ross Poultry Ltd [1982] RA 187.

Exemption for market gardens and nursery grounds in paragraph 2(1)(d) should not be a cause for concern, although what exactly is meant by the term ‘nursery grounds’ is uncertain and needs to be tightened up. This use would not, however, include buildings which are used for retail sales rather than the growing of young plants.

Paragraph 2(2) lists specific exclusions to the general statements in paragraph 2(1) and the most significant of these is paragraph 2(2)(d) referred to above. Land used mainly or exclusively for activities such as war games, motocross and clay pigeon shooting will not qualify for exemption, although the definition of the words “mainly” or “exclusively” might bear further examination. I would suggest that use in over 50% of the time would satisfy the requirement of “mainly”.

25

Agricultural ambiguity

Rating diploma focus

Agricultural buildingsThe provisions relating to agricultural buildings are found in paragraphs 3 to 7, and are treated as a separate exemption to the land, and are mutually exclusive. The provisions for buildings are far less prescriptive, and this may be an area where the legislation needs to be tightened up in order to limit the loss of rateable value and ensure that buildings only loosely used for agricultural purposes are properly rated.

Paragraph 3 contains the original definition of an agricultural building, other than a dwelling, and sets out a number of tests that must be passed for it to qualify for exemption. This paragraph was modified by section 67 of the Local Government Act 2003 (with effect from 1 April 2004).

To be exempt, a building must be “occupied together with agricultural land and is used solely in connection with agricultural operations on that or other land”, or must form part of a market garden. This paragraph needs careful reading and raises important questions regarding the meaning of some of the wording:

“Occupied together with” is an occupancy test, and should be taken to mean that there must be a complete identity of occupation for both the buildings and the land. A geographic test is relevant to decide whether there is sufficient identity, although the fact that the land and the buildings may be separated by some distance does not disqualify the buildings from exemption. In Handley (VO) v Bernard Matthews plc [1988] LT RA 222, feed mills occupied together and used solely in connection with the breeding and rearing of turkeys up to 70 miles away were held to be not rateable.

“Used solely in connection with” is a user test, and is the part of paragraph 3 that has caused the greatest difficulty in the past. Eastwood v Herrod (VO) [1970] HL RA 63 remains the leading case on the interpretation of this section and dealt with the rateability of broiler houses. The House of Lords held that to satisfy the tests the building must be “subsidiary or ancillary to the agricultural operations” (Lord Reid). The Law Lords rejected the idea that the enterprise taken as a whole, comprising land and buildings together, could be considered as a “combined agricultural operation” and were therefore not exempt. The ramification of this decision was such that the Rating Act 1971 was passed to extend exemption to where the primary agricultural operation was in buildings used for the keeping or breeding of livestock. A more recent case on “use in connection with” was Cartwright (VO) v Cherry Valley Farms Ltd [2003] RA 21, which leaves the test quite wide in its scope.

“Used solely” is defined in paragraph 8 (3) as a time test, and the Court of Appeal in Farmer (VO) v Hambledon District Council and Buxted Chicken Limited [1999] RA 61 doubted whether the maxim ‘de minimis non curat lex’ applied. Any building that is used partly in connection with land not in the same occupation, or partly for an occupation that is non-agricultural, or partly for an independent use or business, will not be exempt under paragraph 3 (a) if the time used for that purpose is “substantial”.

The change made to the wording of paragraph 3 by the LGA 2003 was designed to overcome the situation where a building on a farm is occupied by an agricultural contractor, or where a farmer may use a building to house machinery that is both used on the farm but also used for contracting work over land farmed by others. Previously such a building would not have been exempt, as it was not “used solely”. Now it will no longer fail the test in 3(a). It is important to note that the building still has to be occupied together with agricultural land. An agricultural contractor working out of an industrial estate or simply from a building on a farm will not gain exemption.

“Agricultural operations” is not a term that you would think should normally pose a problem, but this is an area where the case for and against exemption is often far from clear-cut. Agricultural operations have been defined by Lord Denning in Gilmore (VO) v Baker Carr and others [1962] CA 2RVR 486 to mean “operations by way of cultivating the soil or rearing of livestock”. In Eastwood v Herrod VO [1970] RA 69 Lord Reid said: “The whole object of producing a crop on agricultural land is to market it in one form or another ... but here again there must be a limit ... one must have regard to ordinary and reasonable practice. But there comes a stage when further operations cannot reasonably be said to be consequential on the agricultural operations of producing the crop.”

It is evident that there is some considerable difficulty in drawing a line in the sand to define where an agricultural operation ceases and a new operation commences, such as retail sales or marketing. Farm shops are readily accepted as a separate operation, and therefore rateable, irrespective of whether the produce being sold in the shop is produced on the land or brought in from elsewhere (see Fletcher v Bartle (VO) [1988] RA 284). In the case of Womersley (VO) v Jisco [1990] RA 211 however, it was held that buildings used by the occupier to slaughter, cut and pack the flesh of his lambs raised on the land were agricultural buildings within the meaning

26 Rating diploma focus

Tony Eden is a member and former

chairman of the RICS Rating Diploma

Holders Section

of the Act, although the member accepted that the borderline could be difficult to define and reasonable practice changed over time.

Space prevents me from expanding on this area but certainly the question of what is an agricultural operation continues to be a fertile source of litigation depending on the facts in each case, and it may be that a more restrictive approach could be adopted in order to limit the current wide scope of the exemption.

Livestock buildings are made specifically exempt under paragraph 5, but some strict tests must be satisfied. Under 5(1) the building must be solely used for “the keeping or breeding of livestock”, which I suggest precludes temporary use such as a covered holding yard or lairage at an abattoir, and begs the question of what is “livestock”? This is defined in paragraph 8 (5) as “any mammal or bird kept for the production of food or wool or for the purpose of its use in the farming of land”.

Buildings used for the keeping and

breeding of mink have been held not exempt from rating because mink did not fit any of the categories in the definition of livestock. In a similar way game birds raised for shooting estates did not fall within the definition (see Cook (VO) Ross Poultry Limited [1982] LT RA 187). Game farms are therefore rateable.

There is also an overarching requirement that such a building must be solely so used and satisfy the occupation and user tests of paragraph 3(1). A building can also be exempt if it is ancillary to a livestock building.

In order not to confer exemption on large buildings used for intensive livestock production without being part of an agricultural holding, paragraph 5(4) requires that such a building must be surrounded by or contiguous to an area of agricultural land which amounts to not less than two hectares. “Contiguous” means ‘touching’. Broiler houses for battery hens will often not satisfy this requirement and will therefore be rateable, but poultry houses occupied as part of a free range poultry farm will receive exemption. This would appear to penalise one sector of the same industry more than another. Is this provision too restrictive or too generous?

Finally, paragraph 7 deals with agricultural buildings occupied by a body corporate, which was tightened up by section 67 of the LGA 2003 in an effort to remove the legal loophole created by the Court of Appeal decision in Farmer (VO) v Buxted Chicken Ltd [1999] RA 61.

This exemption relates to large buildings used for food processing purposes by a body corporate (often a limited company, or company limited by guarantee with farmer members who supply produce from their farms but have only a nominal shareholding in the company), which are often located many miles away from the farms that grow the products used by the plant, such as chickens or grain. Although the rateable value of the individual buildings may be significant, the class is limited in number, and I do not propose to dwell on this exemption provision further given its complexity.

As will be seen from this brief overview, the whole area of agricultural exemptions is far from straightforward. Exemption will only apply if the land or buildings fall within the wording of the Act. Not every use of land or buildings on a farm is therefore automatically exempt and exemption will sometimes extend to premises which would not, at first glance, seem to merit it.

In the next issue of Valuer, I will deal with the other main categories for exemptions, namely places of public religious worship, parks, and property used for the disabled. n

“Not every use of land or buildings on a farm is automatically exempt”

27Rating diploma focus

The basic modelFigure 1: Basic modelFrom a valuation perspective the model needs little explanation other than it allows the valuer to undertake a basic term and reversion valuation of the property and, if required, allow for the most common outgoings.

With regard to the outgoings, other than for management, which is taken as a percentage of the rent collected, all other figures have been taken as a percentage of the full rental value. Other assumptions and approaches are possible.

Development of the modelRows 1-3 contain standard headings to display the name of the model, the time and date, which can be useful when you have developed a series of models and also when printing out results. You can substitute your own heading at this stage. It is also assumed that the reader has been following the earlier articles in this series and has a basic knowledge of spreadsheets to set up the data entry in rows.

The main input area of the model are rows 8-14, where the main valuation variables are input. On the model, available for download from the Institute’s web-site, the input cells are in blue for the sake of clarity.

Note that where the user is required to enter a percentage, those cells have been formatted to the percentage format.

My last two articles concerned yield analysis and the development of associated models. Here, in the first of two articles, I will examine the development of models for the valuation of straightforward freehold interests, and cover some ways in which such models may be further developed and refined

Freehold valuation (part 1)Figure 1: Basic model

28

A B C D E F G 1 Liverpool John Moores University Time: 12:41PM2 School of The Built Environment Model:3 Property group 4 5 Freehold Valuation – Term and Reversion with outgoings (IRRV)6 78 Term rent £10,000 Outgoings9 Full rental value £20,00010 External repairs 10.00%11 Years to review 3 yrs Internal repairs 5.00%12 Insurance 4.00%13 Yield on term 9% Management 4.00%14 Yield on reversion 10%1516 17 Capital value £168,682 18 192021 Term – 3 yrs unexpired2223 Rent received £10,0002425 Less outgoings2627 Ext repairs @ 10.00% £2,00028 Int repairs @ 5.00% £1,000 29 Insurance @ 4.00% £800 30 Management @ 4.00% £400 £4,20031 32 Net income £5,80033 34 YP 3 yrs @ 9.00% 2.53 £14,6823536 Reversion3738 Full rental value £20,0003940 Less outgoings4142 Ext repairs @ 10.00% £2,00043 Int repairs @ 5.00% £1,00044 Insurance @ 4.00% £80045 Management @ 4.00% £800 £4,6004647 Net income £15,4004849 YP perp def 3 yrs @ 10.00% 10.00 £154,0005051 Capital value £168,68252

Valuation modelling

B34 =”YP “&FIXED(D12,0)&” yrs @ “&FIXED(D14*100,2)&”%”

The actual YP formula in cell E34 is:

E34 =(1-(1/(1+D14)^D12))/(D14)

The textual description of the YP perp deferred in cell B49 is:

B49 =”YP perp def “&FIXED(D12,0)&” yrs @ “&FIXED(D15*100,2)&”%”

The actual YP perp deferred formula in cell E49 is:

E49 =(1/(D15))*(1/(1+D14101)^D12)

No attempt has been made to round the final valuation.

The YPTraditionally, the YP formula (as shown above) has been based on the assumption that rent is received annually in arrears. However in practice, rent is received quarterly in advance.

In the further development of the model we will show how we can give the user the ability to choose which formula to use (arrears or advance). This technique can be used in many other ways and is used to demonstrate the approach.

Before looking at how this will be implemented we need to consider the yields we are going to use in cells C13 and C14. Are these yields nominal rates of interest or effective rates of interest?

By way of explanation (and the assumptions built into interest rates can be far from simple) if we have an investment of £100 and a nominal rate of interest of 10%, then at the end of the year the investor would have £10 interest.

However, if interest was payable quarterly then the investor would received £2.50 per quarter (still a nominal return of £10 or 10%) but actually that £2.50 could be invested so that at the end of the year the investor would have the additional interest in the first £2.50 for nine months, the second for six months and the third for three months which would give a total interest of 10.38% (2.5% per quarter).

The issue of interest rates and their assump-tions could be the subject of a book in itself, but for the purpose of this article and to illustrate the approach, it will be assumed that the rate of interest quoted will be an effective rate. The YP formula will also be adjusted to accommodate quarterly in advance.

Format cells

Sample

Type

3 yrsCategory:

Number Alignment Font Border Patterns Protection

GeneralNumberCurrencyAccountingDateTimePercentageFractionScientificTextSpecialCustom

## yrs”

DeleteType the number format code, using one of the existing codes as a starting point.

Cancel OK

hh:mmAM?PM_)£#,##0_);(£#,##0)£#,##0_);(£#,##0)£#,##0_);(£#,##0)0.00.0%##”yrs”

The same approach is adopted for dealing with the outgoings:

B27 =”Ext Repairs @ “&FIXED(H11*100,2)&”%”

In this case, note that the value in H11 is multi-plied by 100. This is because cell H11 is formatted as a percentage. If we don’t multiply by 100 then the figure displayed would be a decimal – try it and see the effect.

This approach is adopted for the remainder of the outgoings both for the term and the reversion through the test, and cell references would be changed as appropriate. For a full description of this approach see the earlier articles in this series.

With regard to working out the actual amount of outgoings the formula in cell D27 is simply the full rental value multiplied by the amount of that outgoing:

D27 =($D$10*H11)

Remember the management fee is calculated by multiplying the rent paid by the amount of that outgoing.

The textual description of the YP in cell B34 is:

The formula in cell C11 requires some further ex-planation. This cell has been set up so that when the user enters the number of years, the model will insert “yrs” after the figure in the same cell. To set this up we need to set up a “custom formula”.

With the cursor in cell C11, select the cell for-mat menu (Format:Cells:Number from main menu - there are many other ways to get to this option). Now select “Custom Menu”.

Figure 2: Custom formatting of cellsIn the “Type” box enter: ## “yrs”

The ## symbol will allow for entering numbers up to 99. Make sure you leave a space after the last hash symbol. Now enter the text to be displayed in between inverted comas “yrs”. Press OK. You can use this technique for many other purposes as well.

Rows 21 to 51 contain the main “process area”.The basic development of the model is fairly

straightforward and has been covered in earlier articles, so reference will only be made to some of the more complex formula.

The cell A21 contains a mix of text and numbers so that the length of the term will be displayed. The formula is:

A21 =”Term - “&FIXED(D12,0)&” yrs unexpired”

Figure 2: Custom formatting of cells

Freehold valuation (part 1)29Valuation modelling

Figure 3: Amendment to input areaIn cell A15 we have added “YP”. We are going to set up cell C15 to allow the user to choose whether the YP should be calculated “quarterly in advance” or ”annually in arrears”.

With the cursor in cell C15, from the main menu, choose “Data:Validation”.

This option allows the user to validate, check or control the information the user places in a cell. In this particular instance we want the user to select the value from a list – that list will contain two options, “Annually in arrears” and “Quarterly in advance”.

Figure 4: Data validationl In the “Allow” selection box, click the up/down arrows and select “List” from the choices;l ensure the “ignore blank” option is unchecked;l ensure the “in cell dropdown” option is selected;l now in the “Source” box select two out of the cells on your spreadsheet where you can put the choices you will give to the user. In this case we have used cells M45:M47;l press OK;l go to the cells which you selected for the choices (in this case M45:M47) and in the first cell enter “Annually in arrears”, the second “Quarterly in advance”, and leave the third cell blank.

If you now look (click it if not in that cell) at cell C15 again you will see an up/down arrow box to the side of the cell, and if you cell that box the choices will be displayed:l Annually in arrears;l Quarterly in advance; andl Nil.

The last option is only there to display a blank cell when starting with no figures in the model.

You can now click which option you require and the text will be entered into the cell.

We now need to amend the cells containing the two YP formula so that they will change depending on the YP selected.

To do this we will use the “IF” statement which takes the form:

=IF(test, true, false)

In simple terms in the cell D34 where the YP formula for the term is the formula (in English) it would be:

If(cell C15 = “Annual in arrears”, insert annual in arrears YP formula, otherwise enter the YP quarterly in advance formula).

However cell C15 has three possible choices, not two, so we need to use what is termed a “nested IF statement” as follows:

If (cell C15 = “Annual in arrears”, insert annual in arrears YP formula, if (cell C15 = “Quarterly in ad-vance”, enter quarterly in advance formula, otherwise enter the YP quarterly in advance formula)).

Converting this to Excel format, cell C15 would be:

C15 =IF(D16=”Annual in ar-rears”,(1-(1/(1+D14)^D12))/(D14),IF(D16=”Quarterly in

advance”,(1+(1-(1/(1+E14)^((D12*4)-1)))/E14)/4,”Error”))

And D34 would be:

D34 =IF(D16=”Annual in arrears”,(1/(D15))*(1/

(1+D14)^D12),IF(D16=”Quarterly in advance”,(((1/(1+E15))^(D12*4))*(1/

E15)+1)/4,”Error”))

Data Validation

Source:

Allow:Ignore blank

In-cell dropdown

Data:

Validation criteria

Settings Input Message Error Alert

Clear All

Apply these changes to all other cells with the same settings

Cancel OK

=$M$45:$MS47

between

List

You could substitute your own assumptions with regards to the basis of the formula.

Development potentialThe model could be developed in a number of ways including:l given that the majority of property is let on full repairing and insuring leases the outgoings other than management could be omitted;l other outgoings could be added such as voids, sales fees etc;l the cost of the outgoings could be based on other approaches other than as a percentage of rent collected or full rental value; andl the model could incorporate more than one term.

ModelsThe following models related to this article are available on the Institute’s website (www.irrv.net):l Freehold Term & Reversion with outgoings (IRRV).xls. This is the model as shown in figure 1 of this article;l Freehold Term & Reversion with outgoings, an-notated (IRRV).xls. This is the same model but with additional annotations within the model and may be of more use to readers who are less familiar with spreadsheet development;l Freehold Term & Reversion with outgoings, YP choice (IRRV).xls. this is the original model but further developed to illustrate data validation and ability to choose between different YP basis;l Freehold Term & Reversion with outgoings, YP choice annotated (IRRV).xls. this is the same as the above but with additional annotation in the spreadsheet. n

A B C1 Liverpool John Moores University2 School of The Built Environment3 Property Group45 Freehold Valuation – Term and Rev678 Term Rent £10,0009 Full Rental Value £20,0001011 Years to review 3 yrs12 13 Yield on term 9%14 Yield on reversion 10%15 YP

The article is written by Professor Peter K Brown of John Moores University School of the Built Environment, Liverpool

Figure 4: Data valuation

Figure 3: Amendment to input area

30 Valuation modelling