Golf Facilities including driving range (Non Domestic Valuation practice notes)

Scope

The scope of this Practice Note is solely to ensure a consistent valuation approach for this property Class / Subclass / Type for Non Domestic Revaluation 2023 and subsequent entry in the new Valuation List which becomes effective on 1st April 2023.

The basis of valuation for new entries in the Valuation List, and Rating Revision cases after 1st April 2023, is Schedule 12 (2)(1) of the Rates (NI) Order 1977.

Description

This Practice Note refers to property classified as:

Class: Sport and Recreational
Sub Class: Golf Facility
Type: 18 Hole Course, 9 Hole Course, Driving Range, Pitch & Putt

There are currently 119 entries in the Valuation List for this property classification.

Within Northern Ireland there is a wide variety of golf courses, ranging from the very basic 9 hole courses on little more than developed agricultural land, to manicured 18 hole championship standard courses.In general, golf courses also include a clubhouse, professional’s shop, driving ranges practice area and green keeper’s shed.

Six types of golf course have been identified for comparative purposes. They are categorized A1 to E. See Appendix 1 for list of courses which fall into each category.

Category A1

Elite championship course capable of holding European PGA tournaments or Open Championships.

Category A2

Premier golf courses in Northern Ireland, of major championship standard on account of layout, length and features.Capable of holding amateur championships on an all-Ireland basis, or local professional events.

Category B

Championship standard courses with excellent local reputations, used to stage qualifying tournaments for national and regional championships.

Category C

Standard member courses, pay as you play courses and municipal courses

Category D

Basic members’ courses, pay as you play and municipal courses.Usually lacking the features to be found in a Category C course.

Category E

Courses which are inferior to Category D providing basic requirements for playing golf but are of poor quality, featureless and unattractive.

This Practice Note does not refer to golf courses at hotels. They are valued as part of the hotel’s income stream under LPS Licensed Accommodation Practice Note.

Legislative background

Schedule 12 Part 1 Paragraph 1 of the Rates (NI) Order 1977 applies.

“Subject to the provisions of this Order, the Net Annual Value of a hereditament shall be the rent for which, one year with another, the hereditament might, in its actual state, be reasonably expected to let from year to year, the probable average annual costs of repairs, insurance and other expenses (if any) necessary to maintain the hereditament in its actual state, and all rates, taxes or public charges (if any), being paid by the tenant”.

Article 31 of the Rates (NI) Order 1977: Rate relief is available for certain hereditaments used for prescribed recreation. Sport and Recreation (S&R) relief is 80%.

It applies to a hereditament:

(a) which, or any part of which, is used solely for the purposes of a prescribed recreation, and

(b) which is occupied for the purposes of a club, society or other organization which
(i) is not established or conducted for profit
(ii) does not employ any person to engage in any recreation for reward except for the instruction of other persons who are themselves engaging or preparing to engage in it otherwise than for reward; and

(c) which is not distinguished in the Valuation List as exempt from rates as being a hereditament of a description mentioned in Article 41(2)(e) or (f) (recreational charities).
Golf is a prescribed recreation and S&R distinguishment applies where clubs satisfy the above legislation.

Valuation approach for 2023

The hybrid method of valuation is to be retained as the approach for this type of hereditament.

The Contractor’s method will be used to value to the buildings.

The overall aim of the Contractor’s basis is to arrive at the effective capitalvalue (ECV) that is then converted into annual rent. The primary method of arriving at ECV is to consider replacement building costs suitably adjusted.

Source: RICS guidance note: The Contractor’s Basis of Valuation for Rating Purposes 2nd edition August 2017, from the Joint Professional Institutions' Rating Valuation Forum which is made up of representatives of the RICS, the IRRV, the RSA, the SAA, LPS and the VOA.

The method is employed in the case of properties that are not normally let out, which by their nature do not lend themselves to valuation by comparison with other classes where rental evidence does exist, and which are not of the type where a valuation solely by reference to the accounts of the undertaking would be appropriate.

The recommended approach to valuation comprises five stages.

Stage 1: Estimated Replacement Cost (ERC)

Identify the extent of the rateable hereditament, then estimate the replacement cost of the buildings, site works, all rateable structures, and rateable plant and machinery within the property on an undeveloped site.

In order to achieve consistency, a unit cost approach using Cost Guides is the primary method adopted.This approach will include the prevailing costs in the identified location, the effect of any contract size, and any associated professional fees.VAT is excluded, as are any grants or donations.

There may be cases where it would be appropriate to cost a modern, simpler or smaller substitute. The substitute would be of a design and specification that enables the use of the actual property to be carried out in a fully satisfactory manner.

Stage 2: Adjusted Replacement Cost (ARC)

The ERC should be adjusted to take account of the difference between the property, in its actual state, and the replacement property costed at Stage 1.

Stage 2 adjustments can be viewed from the perspective of an owner-occupier, as opposed to Stages 1 and 3 which are concerned with capital sums.

Allowances made at this stage are intended to reflect the disadvantages of a particular building (or an item of plant and machinery within it). These allowances are generally termed obsolescence.

It should not be automatically assumed that because a property is old it merits an allowance. In certain circumstances, age may be a positive asset or have little effect, for example prestige buildings such as town halls, art galleries or universities. Age in itself is not a disability but rather what flows from age.

Where a modern substitute has been costed at stage 1, allowances at Stage 2 should be restricted to the disadvantages of occupying the actual buildings in comparison with occupying the costed substitute.

The deficiencies that may be taken into account at Stage 2 can be grouped under the heading of ‘obsolescence’ and they are normally subdivided into the following types:

• Physical obsolescence which relates to wear and tear of the building due to its age. Although age itself is not a justification for an allowance the tenant will reflect the prospect of increased maintenance and running costs in his rental bid.
• Functional obsolescence may occur when the functional capability of the property is not comparable to new building or design standards in the sector.Functional obsolescence may take the form of the building exceeding the required capacity or quality compared to current market standards, or conversely being less than adequate for the intended purpose.
• Technological obsolescence is an extension of functional obsolescence where current technology has changed so radically that the actual plant and machinery to be valued or the building housing such equipment has become redundant.

For Reval2023, adjustments will apply for Age Obsolescence appropriate to the property class.

Stage 3: Add the value of the land to arrive at total ECV

The consideration of the land element comprises two stages. The first is to establish the capital value of the site of the hereditament. The second is to make such adjustments as may be appropriate having regard to the fact that the site has been developed with the actual buildings or other rateable structures on it (encumbered by buildings and to which the average allowance that was adopted at Stage 2 should be applied’, known as the Ebdon allowance).
The value adopted for the land should reflect all the advantages and disadvantages of the site and its location and assume the following:

• The site is cleared of all buildings.
• All services existing at AVD are available for connection.
• There is planning permission for the subject buildings and their existing use.
• No development potential exists over and above that required for the existing buildings or rateable structures on the land.

It may be appropriate to consider alternative sites in an area of high land value where the occupier of the property derives no extra benefit therefrom, however, comparisons should be with sites of a comparable size, in the same mode or category of use.

For certain property types there may be a reasonable amount of reliable market evidence for site rents which can be used.The land value element for the golf course is derived by applying a rate per acre to the course area, depending on the category plus location, derived from rental information.The Reval2023 Developed Land Value Matrix for Golf Courses by category and location is included with this Practice Note (see Appendix 1).To ensure relativity, golf courses will be sub-divided into categories A1 to E, as defined in the ‘Description’ section of this Practice Note.

Stage 4: Apply the appropriate decapitalisation rate to the total ECV

Decapitalising the sum of Stages 2 and 3 by the appropriate rate converts the ECV to an annual equivalent. The decapitalisation rates are prescribed by legislation, this does not allow any degree of valuation judgement.

Lower rate: 2.27% - in the case of a healthcare, educational or church hereditament.

Standard rate: 3.4% - for all other types.

Stage 5: Review. Also known as the ‘stand back and look’ stage

This stage is used to consider if any further adjustments are appropriate. Any such adjustments must be made for specific reasons and cannot be used to circumvent the decap rate. Care should be taken to ensure they do not duplicate allowances already made at Stage 2.

Adjustments made at this final stage are to reflect factors that affect the value of the property as a whole, e.g. poor access, cramped site conditions, inadequate layout. This stage provides an opportunity to consider whether a pioneering allowance or allowance to reflect the economic state of the industry is appropriate.
The value arrived at in Stage 5 is rounded to produce the NAV.

For full details see the following documents:

• RICS guidance note: The Contractor’s Basis of Valuation for Rating Purposes 2nd edition August 2017.
• LPS Code of Measuring Practice
• LPS NI Reval2023 Rating Cost Guide Practice Note
• LPS NI Reval2023 Rating Cost Guide Spreadsheet
• LPS Contractor’s Basis of Valuation

Rent and lease questionnaire

For this class of property Rent and Lease Questionnaires (RALQs) were issued.

Contacts

For advice on any aspect of this Practice Note contact LPS on 0300 200 7801.

Appendix 1 – Reval2023 Developed Land Value Matrix for Golf Courses

More useful links

• Valuation Lists