Airport and Airfield (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 1 April 2023.

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

Description

This Practice Note refers to property classified as Airport/Airfield

Airports mainly derive income from landing charges, car parking and concessions within and outside the terminal building.

Concessions within the terminal including duty free shops, catering outlets and other shops are normally occupied under agreements where paramount control rests with the airport operator and form part of the main airport assessment.

Lettings of other buildings and facilities on commercial tenancies are assessed separately.

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”.

Valuation approach for 2023

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

The overall aim of the Contractor’s basis is to arrive at the effective capital value (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.

If the valuer needs to consider disadvantages pertaining to the hereditament as a whole such as poor access, cramped site or poor layout, the adjustment should be made by a further explicit allowance at Stage 5.

Age 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.

Civics Age Obsolescence Scale

For Reval 2020, LPS applied the Monsanto Obsolescence Scale to valuations undertaken by the Contractor’s Basis of Valuation.

Subsequent to the York Museum case (Hughes (VO) v York Museums and Gallery Trust (2017)) and a review of the use of obsolescence scales, VOA has confirmed that for R2023 it will be applying both the new Civic Obsolescence Scale and the Monsanto Obsolescence Scale as appropriate to the range of property classes to be revalued. At Reval2023 LPS will also be applying both the Civic Obsolescence Scale and the Monsanto Obsolescence Scale as appropriate to property classes.

It should be noted that it may be appropriate to apply both the Civic and Monsanto A/O Scales within one hereditament to individual buildings according to building type/use. Fire Stations provide a good example of this where the main purpose built fire station would be valued by adoption of the Civic A/O Scale, but where stand-alone workshops (industrial) may be valued by adoption of the Monsanto A/O Scale. However, even in this example the valuer should consider the hereditament as a whole and whether such workshops are de minimis in terms of purpose, service delivery and impact on valuation for rating purposes.

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

Background

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.

Surplus land is distinguished as that which is not needed to allow proper enjoyment of the hereditament, it is valued at a lower level and does not attract an Ebdon Allowance.

Land Value Matrix

For the assistance of Valuers using the various Contractor’s Practice Notes for Reval2023, land sales across Northern Ireland have been collated and analysed by LPS Local Market Information Managers.

Evidence has been collected by the LPS Asset Team and by LPS regional offices and analysed to a price per acre / hectare. The site of the building and an area of land surrounding the building is valued at the prevailing land value as per the matrix. This will incorporate car parking, hard landscaping and access areas. The restriction in the number of value levels in the matrix will create uniformity and consistency in the land element of Contractor’s assessments across location and class of use.

It may be appropriate in some cases to consider an alternative site, especially in an area of high land value where the occupier of the property derives no extra benefit therefrom and could feasibly be situated as advantageously in a lower land value area. In these circumstances it may be appropriate to adopt a lower land value derived from comparisons with more appropriate locations.

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

LPS NI Reval2023 Rating Cost Guide Guidance Note

Reval2023 LPS Contractor’s Basis of Valuation

Unit of assessment

The unit of assessment for an airport should include everything within the perimeter fence and any other contiguous hereditament but exclude any property let out and in separate rateable occupation. Advertising rights within the terminal buildings, where let on a concession type agreement, will be reflected in the main assessment.

Those areas within the terminals that are occupied on concession agreements will be included in the main assessment subject to the following proviso:

There must be sufficient control exercised by the airport authority over the concessionaires as to demonstrate de facto that the airport authority is in paramount occupation. This control must not exist merely in the legal document but must be reflected by some overt act by the airport authority that clearly demonstrates that they have exercised such control to show that they are in paramount occupation.

Advertising rights

Advertising rights external to the terminal buildings which are not reflected in the site value of the terminal should be valued separately and added on to the valuation or assessed as separate list entries if not occupied by the airport authority.

Rent and lease questionnaire

For this class of property Rent and Lease Questionnaires (RALQs) were not issued.

Contacts

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

More useful links

• Valuation Lists