Rating valuation

Revision as of 16:34, 6 December 2012

Purpose of a rating valuation

The aim of a valuation for rating is to find the annual rental value of a hereditament (property that can be inherited) at a particular time, in accordance with the definition of rateable value. Remember that you are trying to find a rental value, not a capital value, whichever method of valuation is used.

Four main methods of valuation for rating purposes are recognised by the courts and tribunals:

• Rental method (using direct or indirect rental evidence).
• Contractor’s method or test.
• Profits or accounts method.
• Statutory formulae.

Follow the links for detailed descriptions of the four methods

Choice of method

The choice of method is more limited than appears at first sight, because statute prescribes that certain hereditaments are to be valued by formula - mostly, although not exclusively, hereditaments which are in the central rating list. In those cases, once the formula has been laid down by Parliament, no other method may be used. However, formula rating is being phased out, and under the 2005 rating list there are relatively few hereditaments left that are valued by formula.

For other hereditaments one or more of the remaining three methods must be used: rental, contractor’s, profits/accounts.

Rating law requires the rental value of a hereditament to be found. Clearly, therefore the rental method is to be preferred over all other methods. However, this depends upon there being sufficient vital information to form a view.

It used to be thought that if direct rental evidence - that is, a rent on the hereditament itself - was available, no other method of valuation should be considered by the courts (Robinson Brothers (Brewers) Ltd v Durham County AC (1938). However, in later cases (notably Baker Britt v Hampsher (VO) (1976)) the courts have stressed the need to compare the rent actually passing on the premises with other rents on comparable hereditaments or, where there are no other rents, other methods of valuation (Garton v Hunter (VO) (1968)).

Where other rents or methods of valuation are used, tribunals and courts will weigh each one in order to decide how much reliance should be placed on them having regard to the particular circumstances of the case. It may be necessary to do more than one valuation, using different methods.

The choice is left with the valuer to decide which method or combination of methods is best in the circumstances. The courts will not take kindly to the presentation of numerous valuations by different methods - they feel that it is up to the valuer to choose the most suitable method in relation to precedent, his experience and his professional opinion. Nothing, however, should deter the valuer from exercising his judgement by comparing one method with others if he feels it will assist him.

Lord Denning MR in Garton v Hunter (VO) (1968) said: ‘Nowadays we do not confine ourselves to the best evidence. We admit all relevant evidence. The goodness or badness of it goes only to weight and not to admissibility.’

Therefore, when analysing rental evidence for use in a rating valuation, consider all the possible evidence, making adjustments where necessary (see discussion below), rather than just discarding evidence because it is not a perfect fit with the rating hypothesis.

Find out more

Related articles on Designing Buildings Wiki

• Rental method (using direct or indirect rental evidence).
• Contractor’s method or test.
• Profits or accounts method.
• Statutory formulae.